The Privatisation of the UK Water Authorities

In 1989 the government gave investors £ 1 bn cash and £ 12bn in tax allowances to take ten water authorities off their hands.

Since then customers have financed £ 110 bn of capital expenditure.

No wonder the government can't afford to buy them back now.

An internal Treasury report concluded later, rather bluntly:“Once the corporate campaign had largely failed there was little option but to base the flotation campaign primarily on an appeal to greed – the companies as instant profit-makers or longer-term cash cows” 1

"In order to make up for years of under-investment and to ensure the shares in the public limited companies would be attractive to investors, government cancelled all of the long term debt owed by the water and sewerage companies at a total cost of £7.6bn (in 2003-04 prices). The government provided for a cash injection of £2.3bn to the balance sheets of the water and sewerage companies, known as the ‘green dowry’. In addition, provision was made for capital tax allowances of £12.0bn to ensure that the companies were not put at a disadvantage compared with other companies who had built up capital allowances over time.

After taking account of the debt write off, this had the effect of eliminating any proceeds to the taxpayer from privatisation. In the three months following flotation, water shares continued to outperform the FTSE All Share Index, moving to a premium in excess of 20% after allowing for general movement in share prices at the end of January 1990." 1

1. THE DEVELOPMENT OF THE WATER INDUSTRY IN ENGLAND AND WALES Ofwat, Defra 2005 pages 38,39

2. HM Treasury Files, Water: Marketing Post-Mortem”, 16 January 1990, PE-NIPF/AB/0038/001 Part B para.25 quoted in “The Official History of Privatisation, Volume 2, Parker D, Routledge 2012.