Executive Summary The water privatization initiative was motivated from significant needs to handle water body services in a more efficient way. The privatization of the public good was considered from many stakeholder perspectives. The Government considered different pros and cons and implemented water privatization. This report discusses the background in which the water privatization initiative was implemented. The report presents the positive and negative elements that have been reported with water privatization. Report makes use of a secondary data collection method, and uses qualitative data primarily. The objective of the report is to present a collection of data on the subject which can be used to assess the success of water privatization. The report however accepts that the water privatization success or failure cannot be captured merely through discussions with secondary data, and more internal analysis of the scenario would be required. There are some serious concerns for the future with respect to water privatization and the report presents these concerns as the areas to be focused on by the Government.

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Assessing the Success of Water Privatization in the United Kingdom
Student Name
Course Name
Date

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Executive Summary
The water privatization initiative was motivated from significant needs to handle water
body services in a more efficient way. The privatization of the public good was considered from
many stakeholder perspectives. The Government considered different pros and cons and
implemented water privatization. This report discusses the background in which the water
privatization initiative was implemented. The report presents the positive and negative elements
that have been reported with water privatization. Report makes use of a secondary data collection
method, and uses qualitative data primarily. The objective of the report is to present a collection
of data on the subject which can be used to assess the success of water privatization. The report
however accepts that the water privatization success or failure cannot be captured merely
through discussions with secondary data, and more internal analysis of the scenario would be
required. There are some serious concerns for the future with respect to water privatization and
the report presents these concerns as the areas to be focused on by the Government.

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Table of Contents
EXECUTIVE SUMMARY...........................................................................................................................................2
TABLE OF CONTENTS..............................................................................................................................................3
INTRODUCTION .....................................................................................................................................................4
BACKGROUND FOR WATER PRIVATIZATION IN THE UNITED KINGDOM.................................................................5
THE POSITIVE IMPACTS FOR WATER PRIVATIZATION IN THE UNITED KINGDOM ...................................................7
THE SUCCESS EVALUATION FOR WATER PRIVATIZATION IN THE UNITED KINGDOM ...........................................12
CONCLUSION .......................................................................................................................................................13
REFERENCES.........................................................................................................................................................16

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Introduction
Water privatization is the concept of privatizing the water body services being provided
to the public. Water privatization is a concept that has been in existence from the 1980’s, yet the
concept implementation and the success of water privatization is being debated till now. In terms
of water privatization, England and Wales initially had a pattern that was akin to most other
European countries, until the services were taken over by local authorities. However this local
authority handling of water services was not exactly problem free (Richardson et al, 1992). A
mixed pattern of water handling was seen here. Local authorities were involved in the water
handling services, in addition to inter-municipal operators. Private water supply companies were
also part of this initiative. Regulation was applied on these water supply companies in the form
of a cap on their profit returns. Later the services had to be reorganized in 1974 and more
regional water authorities RWAs were created. RWAs were responsible for ensuring water
quality, sanitation and other elements. Board meets were more transparent until the Thatcher
Government made them lesser so in 1983. Considerable efficiency gains have been noticed in
that same period even as the number of employees was reduced from a number of 80,000 to
50,000 (Lobina, & Hall. 2001). Although the history of water privatization in the United
Kingdom has led to it being called a success, there are still some concerns being raised in them.
United Kingdom is the only country which has practiced water privatization for around 25 years
now. Could a system of privatization that has been in effect for around 25 years be called a
failure. This research essay assesses the success of water privatizing in the United Kingdom. The
history and background of water management by privatization will be discussed in this essay.
The report will evaluate the success of the decision made by the United Kingdom with the
combination of the pros and cons of the privatization of water.

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Background for water Privatization in the United Kingdom
Water supply and sanitation regulation was undertaken by the local government
authorities in as early as the 1970's (Lobina, & Hall. 2001).Water was still controlled by the
Government up to the 1980s yet a large part of the government control was also divested to
independently managed private authorities. In the pre-privatization context many needs were
noticed that supported water privatization. Primarily arguments were made in favor of the private
sector efficiency. Private sector was supposed to be more efficient and cost effective. There were
ways and means of achieving efficiency which the government sector was still catching up.
Private sector following an inherent competitive structure was seen to be more advanced when it
came to efficiency concerns. Secondly water management required large investments. The
Government believed that the private sector would be more responsible with the money
management. The third main point was that the private sector worked in a very competitive
environment (Richardson et al, 1992). The Government recognized the need for privatization
from this claim. Where a sector is competitive it will always strive to be the best when it comes
to quality of goods provided. Such a company would also ensure that goods are provided to the
people at a very competitive price structure. When advocating for water privatization, these were
some of the benefits and need elements that the Government had in mind. However at the time
the pre-privatization initiative was being considered it could be said that not many countries had
indulged in privatization of water. Water was considered as the sole property and rights of the
public and to regulate it by private authorizes seemed to make it a commercial good. Although
not supported in the research studies of that time, this privatization initiative was more in line
with the neo liberal economic principles of Margaret Thatcher (Saal, & Parker, 2000).

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The regional water authorities RWA were formed for a purpose. The justification for
their purpose was that they would reduce the public sector borrowing. However RWA and the
options they had for raising investments were severely curtailed. The politics and policies of the
Government were the reason behind this. In this context privatization was once again justified.
While the complete privatization attempt was proposed in the early 1980s there was strong
public opinion against this. Hence the Government could not carry out the privatization initiative
then. However later in the 1987 public campaign the privatization plan was brought up again.
This time the plan was supported with detailed studies on the issue, the benefits that could accrue
because of the privatization initiative was represented. The plan was accepted at this time
(Scotland and Northern Ireland still has its water regulation controlled by public authorities
only). Private region monopolies were given at the time of initiation. This was to ensure that the
companies could establish themselves and their work with the water regulation more clearly.
Owners were protected from competition. The Water Act 1988 gave these companies simple
rights. The RWA also sold shares on the stock market to ensure that the people were on board
with the changes (this was done with a political motto in mind). A few of the companies created
at that time were the Anglican Water, the Dwr Cymru or the Welsh water, the Northumbrian
water, Wessex and more (Lobina, & Hall. 2001).
The water privatization initiative was supported strongly by the Government. This was to
encourage private entities to participate in the initiative and make it a strong success. The
Thatcher Government created subsidies for the companies using taxpayer money. In the initial
time of inception, Government took over the debts of the company and was also given what was
called a green dowry in the amount of £1.6 billion pounds. In addition to this, the private units
were also given sales discounts (Lobina, & Hall. 2001).These form of pretax profits and special

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exemptions that were given to the businesses ensured that they were not tied down with the
hassles of formation or taking over newer activities. Instead they were able to actively process
the water services activity that was assigned to them. Three regulators worked with the private
units. The Drinking Water Inspectorate (DWI) monitoring water quality, the National Rivers
Authority and the OFWAT were the three regulatory agencies created for this purpose. OFWAT
basically compares the performance of one company with another. This was done to carry out an
assessment of the success. The privatized companies were very unpopular in the early times. The
reason for this unpopularity was that of the
The positive impacts for water privatization in the United Kingdom
Some of the more common reasons that have been stated for the success of water
privatization are that it allows for the private sector efficiency to be applied to the public sector.
In division of public services by contracting to the private sector, efficiency has been suggested
to be a motivator in many researches. In this case too, the privatizations of water in the United
Kingdom was said to allow for a higher profit rate, something which extended even beyond the
international standards for any water authority. The employees in the private sector companies’
received better training also, and overall wage system and more improved to support the needs of
the workplace. Regulatory and environmental conditions also improved. However these benefits
that were noticed with the private sector did not come right away. At first the pre-privatization
initiative was challenged by people who felt that water was a public resource. Being a public
resource it was only fair that the water body must also be maintained and must be run by the
public authorities and not the private authorities (Heynen et al, 2007). It took quite a long enough
time for this stigma to go down. People were aware of the poor performances of the local
authority and yet were not willing to see privatization as a way for the improvement of services.

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For a few years after the privatization begun, privatized water companies suffered a constant bad
reputation. They were accused of collecting more taxes, but were performing poorly. The
companies were viewed as benefitting from the tax cuts that were provided to them, but were
charging customers for water and drawing from the water tax that was being paid out. In the
years 1988-1998 in particular was noted that the water and sewerage prices that were being paid
out rose by around 36% and 42%. The Daily Mail, a supporter of the Conservative party calls
this as the Greatwater robbery. Even with the penny dropping in the country, the water boards
were accused of taking home profits. However there were many benefits that came to be realized
slowly. Privatization of water has in fact solved much of the problems for the water regulation
authorities in the United Kingdom.
The prices rose when the private sector companies took over because they were targeting
to use the money for water regulation. Profit as seen by OFWAT was made of three components.
Mainly the operating costs, the capital charges and the operating profits. In term of operating
costs the OFWAT review writes that the companies have become efficient over time and that
was the reason for the operating costs reduction. There were estimates made for how fast the
companies would be able to reduce their operating costs. While OFWAT made the estimates, the
companies were seen to even outperform the estimated (Lobina, & Hall. 2001). With operating
costs reductions companies were able to work on other issues with water regulation. Operating
costs was a major contributor of burden to the taxpayer when the regional authorities and the
government only were involved.
Water privatization ensures that there is more proper use of water. Water is treated as a
commodity by the companies and not just as a natural resource. When being treated as a
commodity it naturally follows that planning for ensuring consumer use it efficiently and more is

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doe on a more critical scale (Heynen et al, 2007). Most governments have treated water as an
available social good. In many ways this form of treatment of water is fair to people. Where
water is being regulated as a private good, then water management and conservation programs
go on the rise. Freshwater availability has been a major concern in both the developed and
developing countries. Water management programs in order to preserve it have been in
development for a long time now. In the last 20 years there has been much research emphasis on
how water conservation could be carried out and how regulation would help here (Bakker 1992).
Unsustainable use of water, improper planning or ad hoc uses and more are said to lead to
wastage of the water resource. In fact as seen in the case of some researches the main
contribution to the water demand is because of unplanned usages. Government planning is also
largely wasteful; there is increased water withdrawn or leakage. Sewage maintenance is not done
adequately. The free use of water while supporting some elements, still leads to a large scale
wastage. On the other hand the privatization of water is seen to lead to more sustainability in use
planning. Although sustainability was not the actual reason for the privatization, it has led to
many benefits.
There are changing demographics in the use of water. Social and economic factors are
seen to cause changes in the use of water. For the public sector agency that regulates the use of
water it would be impossible for the agency to actually focus on water use and at the same time
focus on how different demographics might impact on the water use. In such cases, the private
sector is more efficient (Neto, 1998). Private sectors plan ahead based on the trends in water
usage. They would be able to conduct thorough surveys on the water use and then based on the
emerging needs identified over the future years and the current usage stats would make strategies
to enhance profit. There would be some amount of healthy competition encouraged between the

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different companies that have taken over privatization. Although they are monopolistic in that
they do not have to compete with one another. Comparisons of their efficiency would still be
carried out at different levels. Their subsidies and the tax discounts given from the Government
would be at stake when their performance decreases, so there is a necessity for them to increase
performance. There are hence benefits to the society because of the privatization of water.
Negative Side of Water Privatization in the United Kingdom
As with the positive impacts, the relative impacts of water privatization in the United
Kingdom are just as high. Primarily the negative impact arises from the higher material and
technology input that is required for driving the costs for privatization of water. When the water
privatization was first suggested, concerns of the costs came up. However at that time the
concerns of the costs were met with arguments from the conservative Government. The Margaret
Thatcher Government assured the public that although there would be basic infrastructure costs,
these costs would be met by the companies who would be involved in the privatization. The
arguments made here was and the operating surplus would be created soon which would ensure
that benefits could be shared with the public. The very reason that water bodies, services and
water regulation are publicly owned is because they are too expensive to be owned by an
independent entity. In the case of the privatization of water, the Government was then queried as
to why such a cost should be borne by the private enterprise even though the private enterprise
lacked the economic support required to take it up. The Government initially justified the claims
for the private sector. The Government argued that the private sector would be financed in some
of the EU mandated programmes. Financing at a value of £30 billion or more that the
government could not afford would be handled by this approach (Lobina, & Hall.
2001).However this did not happen, most of the costs were borne by the consumers and the

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government taxpayer money was what was used for most of the infrastructural establishments.
Secondly the Government justified the claims that the initials costs would be worth it in the long
run. The private sector efficiency in terms of competitive costs structures and more were cited.
However the very Government also ensured that the companies did not suffer from competition.
This was done by ensuring the companies were placed in a form of monopolistic competition.
The companies were compared with one another, but this was not allowing them the
competitiveness for which they were incorporated but for the purpose of ensuring that each one
was performing (Ernst, 1994).
Although benefits to the public were declared to be the sole motivation for the
privatization of the water sector, the government seemed focused on encouraging the companies
in the privatization. At one end state sponsored subsidies were given to the companies. Deals
were added to the contract to make the companies get a satisfied return on capital. The
Government took up the debts of the company’s relieving them from their debts (debt
cancellation). In addition to the tax concessions that were given to these companies at the cost of
increasing tax burden for the public, the government also taking up their problematic liabilities.
Liabilities of the companies were handled by the Government directly. Cash injection was done
by the Government and in essence it appeared that the Government had adopted the companies.
In doing the above the Government basically suffered a loss (Neto, 1998). The Government had
to resort to selling up some of the publicly owned assets that were accumulated over long periods
of time just to ensure that the loss was handled well.
Consumers and the general public were paying much in terms of taxation and in addition
were also paying for the water bills. It was seen that the water bill rose from the first five years
and the water regulators allowed for the price of water to rise more. Infrastructural and quality

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control reasons were stated for the water rise. Improving water quality and sewerage facility was
a challenge for the private companies. This was also a problem in privatization. Water
privatization simply did not equip private companies on the intricate knowledge and working
that would be available only in the public sector. The companies had to learn the functioning of
the public sector and other information in order to maintain some of the water facilities. Price
control was also an issue, the private sector were challenged when it comes to controlling prices.
Many companies resorted to installing water meters. Consumers hence need not pay a flat rate as
they used to before, they could just pay for what they use. However this lead to issues as people
with a larger household or supporting others might end up paying more.
The success Evaluation for Water Privatization in the United Kingdom
In the success evaluation of water privatization in the United Kingdom some of the main
elements to be considered are the impact it had on society, economy and the individual. It was
noted that the water privatization led to the cost savings in long term, however the savings did
not reflect on the consumers. Companies might end up getting most of the profits, while the
public for whom the privatization initiatives were taken up have very meager returns.
Employment issues have been and continue to be a critical issue in the United Kingdom.
At the time of the implementation of the privatization water companies had to work on as many
ways as possible in order to slash the bill. This was necessary for them to show better
performance. The only way they could do this was by looking for cheap labor and letting go of
existing labors. They outsourced most of the work to companies that used cheaper labor. These
are some of the tactics that are being made use of in the private sector, and the privatized water
companies also resorted to these tactics. Most of the water authorities in the past had used

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unionized labor. Bargaining was possible and the workers were mostly satisfied (Neto, 1998).
However with the privatization initiative, the companies avoided the unionization altogether.
They formed deals with the local trade unions and hence were able to avoid most of the
bargaining aspects that would come with unionization. While the labor reduction was defined as
a cost cutting measure, the costs to the public was still not decreased. This is the current situation
also. A report by the Joseph Rowntree Trust in 2012 shows how a socio-environmental justice
issue is created because of the water problem. The water problem has led to issues where people
are not able to afford their bills. This is especially the case in low income households.
Households might spend more than three percent of their bills on water. This leads to issue of
water availability to the user.
Although there are existing concerns with the privatization initiative takes up by the UK,
it could be said that the privatization initiative is one way to help ensure there is sustainable use
of water (Budds, & McGranahan, 2003). Private companies must however be better regulated to
ensure that benefits reach out to the public and that the actual reasons for which privatization was
sought in the 1980’s is fulfilled.
Conclusion
Water privatization in the United Kingdom could be said to be initiated by the
Government for proper reasons, yet the initiative in current times has raised some concerns. The
report discussed the background in which the privatization of water was encouraged during
Margaret Thatcher’s times. The background has changed now and more expectations are laid on
the privatization of service. The pros and cons of water privatization have been presented and the
report attempts to assess the success of water privatization.

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The water privatization issue was taken up by the Thatcher government as early as in the
1980’s, however the pre privatization issues were being discussed even earlier. In the context of
pre privatization it was noted that the people were not eager to have their water source
privatized. It was not just for the efficiency concerns they had, but because water was viewed as
a social good. Being a social or public good, the people expected it to be regulated by the public
authorities only. The form of opposition that the people had for the privatization of water
continued even after the Thatcher Government went along with the initiative. There were
benefits to the privatization of water with time. The total operating costs were reduced. There
was systematic efficiency. In assessing for the success of water privatization in current years it is
noticed that water privatization can be considered to be a success. Although people and
politicians have complained about the many aspects of the water policy they have not rejected
the water issues, they have in fact accepted the privatization for around 25 years now. In current
times there is greater focus on the sustainability of water use and more. This would mean that
treating water as just a social good might not be the way to take any more. When it comes to
sustainability incorporation, the private sector is more resourceful than the public sector. It is
seen that companies might be efficient in handling water wastage and also ensuring that
efficiency losses are detected as and when they happen. The private sector treats water a good
and the public sector might treat is as something that are guarding for the public. Where water is
treated as a good then the private sector will take more efforts for its use, reuse, maintenance and
other concerns. This aspect of privatization is a benefit that has to be considered and this
research report recommends that this aspect be taken up as a strong reason in support of the
privatization of water.

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However in the overall assessment of privatization, its benefits and the problems it is
noticed that there are many issues and concerns in water privatization. Some concerns for the
future have been presented. These are areas of improvement that the Government will need to
focus on. Some of the concerns are social and environment justice concerns. Some people live in
water poverty and the majority of the population is not happy with the water tax and the profits
that the companies make out of regulating water. The continued improvement of water
privatization will ensure that the benefits of water privatization are reaped without any of the
problems.

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References
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South. The Geographical Journal, 169(4), 328-341.
Budds, J., & McGranahan, G. (2003). Are the debates on water privatization missing the point?
Experiences from Africa, Asia and Latin America. Environment and Urbanization, 15(2),
87-114.
Ernst, J. (1994). Whose utility?: the social impact of public utility privatization and regulation in
Britain. Buckingham: Open University Press.
Heynen, N., McCarthy, J., Prudham, S., & Robbins, P. (Eds.). (2007). Neoliberal environments:
false promises and unnatural consequences. Routledge.
Lobina, E. & Hall. D. (2001). UK Water privatisation – a briefing, PSIRU, Retrieevd Nov 28,
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http://www.archives.gov.on.ca/en/e_records/walkerton/part2info/partieswithstanding/pdf/
CUPE18UKwater.pdf
Neto, F. (1998, May). Water privatization and regulation in England and France: a tale of two
models. In Natural Resources Forum (Vol. 22, No. 2, pp. 107-117). Blackwell Publishing
Ltd.
Richardson, J. J., Maloney, W. A., & Rüdig, W. (1992). The Dynamics of Policy Change:
WBBYING and Water Privatization. Public administration, 70(2), 157-175.
Saal, D. S., & Parker, D. (2000). The impact of privatization and regulation on the water and
sewerage industry in England and Wales: a translog cost function model. Managerial and
Decision Economics, 21(6), 253-268.

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