The answer is that 1. They’re privatised but 2. They’re effectively monopolies. The argument for privatisation is basically that private companies need to innovate and keep prices low in order to compete in the free market against rival companies providing the same service/product — in practice though unlike something like electricity (which I also think should be renationalised) you don’t actually get to choose which company supplies water to your home, it’s just based on where you live and there’s only one option, so soon each catchment the water companies don’t actually have any competition.
They don’t need to innovate because the consumers don’t have the ability to switch to another supplier (unless they want to be moving house constantly), equally they have no incentive to keep their prices low.
So they’re effectively the worst of both worlds. If they’re going to be private sector you might as well do it properly by creating actually competition, otherwise just make them public sector.
The argument for privatisation is basically that private companies need to innovate and keep prices low in order to compete in the free market against rival companies providing the same service/product
Price competition was explicitly never the argument for utility privatisation in the UK in the 1980s, because they are natural monopolies. That’s why the Thatcher government introduced RPI-X price regulation for the privatised utilities - utilities were allowed to increase their prices by RPI inflation minus an amount (X) set by government. I think in water, it’s done as RPI-X+K, where the K is meant to allow some price growth for ongoing investment.
The X in RPI-X was meant to be what forced innovation, because the utility companies’ revenues would grow slower than inflation and so the only way to maintain their profits is to innovate. The argument for privatisation was that business people in private enterprises tend to be better at innovating than civil servants, provided you give them the right incentives.
Off the top of my head, a stronger form of regulation would be more demanding in how we assess whether the K amount is being used for investment in the way we need. We could also introduce restrictions on shareholder dividends or executive bonuses for water companies that don’t meet service quality or environmental standards, and give the regulator more powers and resources to make use of these tools.
In other words, we need to give water companies the right financial incentives to do the things we need them to do - turns out that private greed is a powerful motivator when you point it in the right direction.
The answer is that 1. They’re privatised but 2. They’re effectively monopolies. The argument for privatisation is basically that private companies need to innovate and keep prices low in order to compete in the free market against rival companies providing the same service/product — in practice though unlike something like electricity (which I also think should be renationalised) you don’t actually get to choose which company supplies water to your home, it’s just based on where you live and there’s only one option, so soon each catchment the water companies don’t actually have any competition.
They don’t need to innovate because the consumers don’t have the ability to switch to another supplier (unless they want to be moving house constantly), equally they have no incentive to keep their prices low.
So they’re effectively the worst of both worlds. If they’re going to be private sector you might as well do it properly by creating actually competition, otherwise just make them public sector.
Price competition was explicitly never the argument for utility privatisation in the UK in the 1980s, because they are natural monopolies. That’s why the Thatcher government introduced RPI-X price regulation for the privatised utilities - utilities were allowed to increase their prices by RPI inflation minus an amount (X) set by government. I think in water, it’s done as RPI-X+K, where the K is meant to allow some price growth for ongoing investment.
The X in RPI-X was meant to be what forced innovation, because the utility companies’ revenues would grow slower than inflation and so the only way to maintain their profits is to innovate. The argument for privatisation was that business people in private enterprises tend to be better at innovating than civil servants, provided you give them the right incentives.
Off the top of my head, a stronger form of regulation would be more demanding in how we assess whether the K amount is being used for investment in the way we need. We could also introduce restrictions on shareholder dividends or executive bonuses for water companies that don’t meet service quality or environmental standards, and give the regulator more powers and resources to make use of these tools.
In other words, we need to give water companies the right financial incentives to do the things we need them to do - turns out that private greed is a powerful motivator when you point it in the right direction.
Isn’t that too complicated for no reason? Just keep them under public control. No need to incentivise anyone, no need to share dividends to anyone.