England’s water can be renationalised without compensation, activists say

Parliament could renationalise the water industry in England without being obliged to compensate shareholders, according to previous UK court judgments cited by campaigners.

Activists are putting mounting pressure on the government and opposition parties to look again at the privatised water system after criticism that the industry is not acting in the public interest.

The Guardian revealed this week that more than 70% of the privatised water industry is owned by foreign investment firms, private equity, pension funds and, in some cases, businesses based in tax havens.

The latest polling on nationalising energy and other key utilities, including water, shows the vast majority of the public are in favour and more than 200,000 people have signed a petition calling for water to be nationalised.

Supporters of nationalisation cite rulings from the high court, court of appeal and European court of human rights (ECHR) on shareholders’ general rights to compensation in a nationalisation.

The rulings were made in cases involving Northern Rock shareholders, who were paid zero compensation when the bank was taken into public ownership during the 2008 financial crisis.

The court of appeal ruled against the shareholders, saying: “The court would only interfere if it were to conclude that the state’s judgment as to what is in the public interest is manifestly without reasonable foundation.”

When the case was taken to the ECHR, the court ruled there was no general right to full market-value compensation. Judges said: “Legitimate objectives in the ‘public interest’, such as those pursued in measures of economic reform or measures designed to achieve greater social justice, may call for less than reimbursement of the full market value.”

Campaigners say the water industry should be renationalised after three decades in which the nine main water and sewerage companies have run up net debts of almost £54bn and paid out dividends of £65.9bn while overseeing a lack of investment.

The scandal of widespread and regular discharges of raw sewage into rivers and seas has shone a spotlight on whether companies have invested enough in repairing and replacing infrastructure.

The government recently ordered the industry to spend £56bn on stopping the millions of litres of raw sewage being discharged via storm overflows into rivers and seas, as pressure grows on politicians and the industry to clean up their act.

But Cat Hobbs, of the campaign group We Own It, said privatisation had failed since 1989 and it was time to take back control of the water infrastructure. “England’s privatised water companies treat our rivers and seas like a sewer and their customers (who have no choice) like an ATM,” she said.

“We, the public, should own them but we don’t, so they work for their shareholders around the world, not for us. That’s why our water bills prop up a profiteering racket instead of being invested to clean up the raw sewage in our rivers.

“That means buying back the assets because [Margaret] Thatcher sold them off wholesale but in return we’ll get assets. Bringing water into public ownership pays for itself in around six years.”

The court rulings are a key issue when estimating the cost to the public purse of taking the industry back into public control.

Estimates of the cost of renationalising the industry range from £14.7bn, estimated by the public services international research unit (PSIRU) at the University of Greenwich, to £90bn if company debts are included. The latter figure comes from the Social Market Foundation thinktank in research commissioned by United Utilities, Anglian Water, Severn Trent and South West Water.

Dieter Helm, a professor of economic policy at the University of Oxford, said: “Thirty-two years after water privatisation, rivers are not improving, leakage levels are unacceptable, and massive financial engineering has not added to the resilience of the system, or the ability to finance the large-scale investment we now need. It cannot and should not be allowed to go on like this.”

David Hall, a visiting professor at THE PSIRU, said previous court decisions were clear that the basis for compensating shareholders was decided by parliament on a case-by-case basis, taking account of a range of relevant matters, including public interest objectives, and the particular circumstances of each case.

He said the courts had consistently confirmed that public policy considerations were paramount, and there was no general right for investors to be paid full market value as compensation.

No political party is advocating renationalisation. Labour is, however, proposing to set up a publicly owned energy firm run on clean power in its first year of government.

Jim McMahon, the shadow environment secretary, said: “Labour’s plan to clean up the water system would introduce mandatory monitoring with automatic fines, hold water bosses personally accountable for sewage pollution and give regulators the power to properly enforce the rules.”

Tim Farron, the Liberal Democrats’ environment spokesperson, said billions of pounds of taxpayers’ money and years of negotiations should not be wasted on renationalising the water industry. “It will do nothing to stop our lakes and rivers becoming poisoned with sewage,” he said.

Farron said the party would create public benefit” companies, where economic and environmental policy objectives were also considered when running the company, rather than just a return for shareholders. He called for a sewage tax on water companies’ profits and a ban on chief executive bonuses to provide funds for ending the sewage crisis.

The government defended the privatised water model and said renationalisation would be a backward step that would cost the taxpayer, reduce investment and stifle innovation. “Underpinned by independent economic regulation, [privatisation] has unlocked nearly £170bn of investment – including around £30bn to reduce pollution.

“As the economic regulator, Ofwat is clear that water companies must be transparent about how executive pay and dividends align to their services to customers, including environmental performance.”