Academic journal article The Economic and Labour Relations Review : ELRR

Evaluating the Privatisation of the English and Welsh Water Industry

Academic journal article The Economic and Labour Relations Review : ELRR

Evaluating the Privatisation of the English and Welsh Water Industry

Article excerpt

1. Introduction

The water industry internationally is confronting the same reform issues as it is in Australia. These include preserving the water environment while improving the economic efficiency of the industry, and improving the quality of its services. The priority in reform in the countries where the most radical reform has taken place, like the United Kingdom has been the achievement of economic efficiency through reorganising existing institutions. This paper will assess the case of England and Wales, to review its effectiveness. The benefits in terms of gains in economic efficiency, improvements in water services quality or higher environmental standards are not yet, as we will show, readily apparent, indicating a number of important lessons for similar reform strategies if they are adopted in Australia.

Privatisation of public sector activities was a key component of the Conservative Government's reform programme in the United Kingdom in the 1980s. The disposal of public sector assets to private investors, generated 77 billion [pounds sterling] of revenue from sales from 1979 to 1991 and was a central element in the government's overall economic and social policy package designed to reduce the size and scope of government activities; provide the resources to reduce and redistribute the incidence of taxation; stimulate competition and private sector activity and more broadly switch macroeconomic management from a fiscal (and regulatory) to a monetary (and market oriented) focus (Whitefield, 1990, p. 181). A measured assessment of all the possible economic and social consequences of the privatisation was, however, not a feature of the preparation for the privatisation programme in Britain. The programme was driven by political imperatives that ranged from the desire for the immediate realisation of the market ideology of the leadership of the Conservative Government; to the the urgent necessity of generating resources to pay for the cuts in taxation and other elements of their reform package. The resulting process of privatisation of the water industry in England and Wales, and its consequences, indicate some of the costs and benefits for taxpayers, water consumers and the population more generally from privatisation.

2. The Structure of the Industry

With the introduction of the Water Act of 1973 the 1,395 separate sewerage authorities, 157 different water supply utilities and 29 river authorities in England and Wales were amalgamated into 10 integrated water authorities with water and sewerage service functions and water environment regulatory responsibility. Water service provision in Northern Ireland was, and continues to be undertaken by the Department of Environment and in Scotland by regional local governments. In addition to the ten major authorities, the industry in England included 29 privately owned water supply companies, like Cambridge Water, that continue to account for a quarter of England's water supply (although there are now only 27 of these companies as two have been absorbed by others). The advantages of the amalgamation of the industry in 1973 were perceived to be the benefits of achieving economies of scale on costs and prices, enhanced central government control to improve the economic and social returns from the authorities and the benefits for resource management and the environment of integrated river basin management of water resources.

The size and scope of operations of the companies water authorities created in 1973 varied greatly. The areas covered by each authority, population served and services supplied vary widely as a result of different geography, climate, population distribution and industrial composition of each region and the degree of overlap with the operations of the private water supply companies. Cross comparisons between the utilities in terms of their costs or efficiency, for example in terms of total output per worker is difficult, as some, for example Northumbrian, supply 40 per cent of the water to six industrial water users, while others have more sewerage than water customers. …

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