Price caps broke water quality, not privatisation itself

Danny Dyer stood in the Thames in June 2024 calling for water company nationalisation—genuinely the kind of thing that happens now.

The actor and local MP published sewage data and made the case that privatisation has failed. The protest landed harder than most celebrity activism does. It moved, at least rhetorically, into actual policy space.

But the framing that privatisation broke water quality is collapsing two separate failures into one. Means the solution proposed won't fix either. When England's ten regional water authorities were privatised in 1989, the narrative matched today's narrative. Private companies would invest better than sluggish public bodies.

Initial investment did rise, but within fifteen years, per-capita spend on treatment and sewage systems fell below inflation. The companies hit the numbers, including profit targets and dividend requirements, by deferring the exact infrastructure costs that keep rivers clean. This wasn't accident but rather the mechanism the system created. Scotland's three water authorities were privatised in 1999 under identical logic and replicated the same pattern with remarkable consistency.

When Scottish Water returned to public ownership in 2002, investment initially climbed but then fell back into the same below-inflation trajectory once the government applied the same regulatory price caps—the formula that set allowed revenue below what capital maintenance actually cost. The structural problem isn't ownership. It's the price-setting mechanism that creates the incentive to defer exactly the spending that protects water quality. Nationalise Thames Water tomorrow and install the same Ofwat formula. You get the same outcome because the formula hasn't changed.

The formula is what moves the needle. This matters outside water policy specifically. Any time you hear a structural problem framed as an ownership problem, watch for what actually changed when the structure stayed the same. In your own work, when a failing system gets reorganised without the formula changing, expect the reorganisation to fail in similar ways. The structure predicts the outcome more reliably than the names on the letterhead do.