On water, Steve Reed is swimming against the tide of public opinion
4 min read
One year on from securing a thumping majority, the government appears more confused than ever.
Many agree that, in the face of dwindling support, Labour still lacks a coherent, unifying mission to present to the country. This matters because fewer people are willing to get on a train that has no clear destination. And Labour’s piecemeal approach to public ownership exposes the contradictions at the heart of this government.
On rail, the government has made some bold moves, taking back control of privatised franchises and paving the way for Great British Railways to manage track and trains. There are still question marks over privatised train leasing companies and open access operators like Lumo and Grand Central, but in general, it is heading in the right direction. Publicly run services in the North are already delivering cheaper fares, with prices halved on some routes. A majority – 76 per cent of us – want rail in public ownership, indicating that Labour is in tune with popular opinion here.
The picture on water is very different. The government-commissioned Cunliffe review into the water sector last week produced an entirely predictable set of recommendations. Banned from even looking at public ownership, it suggested that the privatised model just needed better regulation.
The Environment Secretary loves to bang on about how pragmatic he is, proclaiming that he’s "more interested in the purity of our water than the purity of our ideology". Fine rhetoric, but I was always taught to watch what politicians do and not what they say. In reality, by stubbornly ruling out nationalisation, Steve Reed is clinging on to Thatcherite ideology like it was the last floating door amid the wreckage of the Titanic.
Eight in 10 of us back public ownership of water, and 90 per cent of the world has publicly owned water. Recent research shows that taking back control of our most precious resource could actually save us £3-5bn a year. So, why is Labour ignoring what seems obvious to the rest of us?
Reed's argument against nationalisation appears to rely heavily on one figure: £100bn. This is what he reckons it will cost to buy back the water companies. Where does this figure come from?
In February 2018, the Social Market Foundation (SMF) released a report that put the cost of nationalising the water industry at £90bn. While SMF noted that it retained full editorial independence in producing the findings, the report was funded by Anglian Water, Severn Trent, South West Water and United Utilities.
In April 2019, Professor Dieter Helm, an Oxford University economist specialising in utilities, said the SMF report had "virtually no intellectual substance and the [£90bn] figure was wrong”. Moody’s, the credit ratings agency, valued the water companies at £14.5bn at this point.
In July 2024, Lord Sikka, a professor of accounting, asked Baroness Hayman, Environment Under-Secretary, for the details of the calculation used by her department. She later replied the cost was “calculated in a report published by the Social Market Foundation” – the very same discredited report funded by the private water companies.
Just last week, Steve Reed was doubling-down on the £100bn figure in the House of Commons, telling Clive Lewis MP that it was “provided by officials in my department under the influence of nobody externally”.
Both the SMF report and the Defra calculations appear to rely on Regulatory Capital Value (RCV). This calculation takes the value of the water industry at the time of privatisation in 1989, adds the value of investment over 35 years, then adds inflation. RCV enables greater payouts to shareholders; in the words of Ewan McGaughey, professor of law at King's College London, it is "cynically calculated to scare gullible governments off public ownership".
Thames Water is a case in point of RCV’s complete detachment from financial reality. Under the RCV calculation, Thames Water is valued at £21bn. So, why have the owners failed to flog it to KKR for the knockdown price of £4bn? The value of an asset is always determined by what the market is willing to pay for it – surely that’s economics 101.
Steve Reed’s dodgy maths and fake water review are a smokescreen, allowing the water profiteers to continue to enrich themselves at our expense. His big test will come when Thames Water inevitably goes under. He could use his powers of special administration to slash the rotten debt, then transfer Thames Water into permanent public ownership – a move that would be highly popular. More likely, he will fall back into failed free market thinking and hand it back to the private sector for a bargain basement price, allowing the doom-loop to continue.
By clinging to the wreckage of Thatcher’s failed privatisation experiment, Steve Reed’s career is in danger of getting swept away.
Sophie Conquest is lead campaigner at We Own It
