The water industry shows how the state indulges corporations to the detriment of society

Since 1989, water companies have been the subject of over 1,100 criminal convictions, but governments are content for them to control the industry.

Prem Sikka is an Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labour member of the House of Lords, and Contributing Editor at Left Foot Forward.

Anyone trying to understand how the state indulges corporations to the detriment of society need look no further than the water industry in England and Wales. This poster-child of predatory capitalism routinely dumps raw sewage in rivers, seas and lakes; creating health hazards, destroying marine life and biodiversity. Shareholders profited by £380 for every hour of sewage dumping in 2023.

Successive governments have permitted companies to fleece people. Customers’ bills have risen by over 363% since privatisation in 1989. No new reservoirs have been built since 1989 and investment in ramshackle infrastructure has been neglected. The companies have paid over £85bn in dividends since privatisation in 1989, and run up debts of over £70bn. Around 35p in every pound of customer bills goes on interest and shareholder dividends.

Since 1989, water companies have been the subject of over 1,100 criminal convictions, but governments are content for them to control the industry. With huge extraction of cash, most water companies are teetering on the edge of financial bankruptcy. Public ownership and end of the profit motive is the only way out of the morass but successive governments have refused to do that.

In October 2024, ahead of the launch of a Commission to examine the water industry, Ministers hinted that water companies could be banned from making a profit. However, in January 2025, water regulator Ofwat permitted companies to increase customer bills by up to 47% over the next five years.

This is accompanied by impression management. With great fanfare regulators and the governments soothe public opinion by announcing fines, but these are not necessarily collected. We now have fines which are discretionary, and may not actually be paid.

When fines are not fines

On 6 August 2024, Ofwat announced fines totalling £168m on three water companies – Thames Water, £104m; Yorkshire Water, £47m; and Northumbrian Water, £17m. These three companies have nearly 400 criminal convictions. The fines arose out of an investigation that began in March 2022 and relate to offences before that date. The Ofwat press release said that the fines were “for failing to manage their wastewater treatment works and networks … these companies not having properly operated and maintained their wastewater treatment works … [causing]  harm to the environment and their customers.” To date, not a penny of the fines has been collected.

The Ofwat press release contained some key words – it “proposed” that three water companies will be fined, and penalties are subject to “consultation”. The consultation period ended 10th September 2024, but Ofwat has not announced whether the penalty has been confirmed or varied, and when it will be paid.

When pressed in parliament, the Minister said:

“Ofwat has the option of accepting regulatory settlement in lieu of imposing an enforcement order and/or fine. If Ofwat decides to impose a fine, it will issue a notice to the company specifying the date of payment. This must be after 42 days from the date that notice is served on the company.”

So, fines don’t have to be paid if companies promise to behave or limit damage. When was the notice served? Was it on 6th August, 10 September or 42 days after that or has it been served at all?

The regulatory policy means that organisations with nearly 400 criminal convictions are permitted to negotiate the amount and timing of financial penalties. No court permits habitual criminals to negotiate the amount and timing of penalties, but this is the new norm in the water industry. The obfuscation is in line with the regulator’s new role, which requires it to promote growth of the industry. Seemingly, growth is being promoted by obfuscation, lack of penalties and a green light for more predatory practices.

There are also other matters of concern. It has been reported that since March 2021, Ofwat has actually fined only two companies, and these do not relate to sewage dumping. In 2021 Thames Water was fined £1 because of data errors which led to some customers being charged incorrectly. The company paid £11.3m compensation to affected customers. In 2024, Welsh Water was fined £1 as it misreported data on leakages over several years. Ofwat’s rationale is that the company proposed a £73m compensation and investment package. Arguably, investment should have been made anyway and customers should not have been overcharged. The investment increases the value of the company and stake of its shareholders.  So, what is the penalty for wrongdoing? And why have no penalties been levied for sewage dumping?

Non-fines fines are also to be found for other offences. For example, in March 2023, Ofwat said that it will “stop the payment of dividends if they would risk the company’s financial resilience, and take enforcement action against water companies that don’t link dividend payments to performance”. Thames Water went ahead and paid dividends. In December 2024, Ofwat announced that it will fine Thames Water £18 million for unjustified dividend payment of £37.5m in October 2023, and a further dividend payment of £158.3m in March 2024. The announcement was couched in the usual terms – “its proposed decision”. The consultation period closed on 16 January, and no confirmation has been announced by Ofwat.

Last week, after announcing price rises of 23% and 32%, Pennon and United Utilities announced that they plan to increase dividends in line with inflation i.e. maintain the real value of returns to shareholders. Is it reasonable that real value of shareholder returns be maintained whilst the real value of wages and benefits is not?

During the parliamentary passage of the Water (Special Measures) Bill, the Secretary of State said that the government will “ban bonuses if water company executives fail to meet high standards”. Thames Water responded by stating that it will circumvent any ban by increasing the base pay of company directors.

What happens to the financial penalties? In November 2022, the government said that “at present, money from these fines is returned to the Treasury. Under the new plans, ringfenced funds will go to Defra and will be invested directly back into environmental and water quality improvement projects.” This initiative led to the creation of a Water Restoration Fund (WRF) and certain parties could request money to protect and improve rivers, lakes, and streams. The first round of the Fund was launched in April 2024 with a pot of £11m, but no information about any grants is available. The Treasury has refused to say whether the £168m fine (see above), when collected would form part of the WRF.

The use of fines for cleaning-up the mess is welcome, but it still raises questions about penalties for predatory practices. Following the ‘polluter must pay’ principle companies must bear the cost of cleaning-up but the use of the fines for that purpose lets companies off the hook. They do not suffer any penalties for predatory practices.

The water industry non-fines are another example of the state-corporate nexus. Companies are permitted to fleece people, but are shielded by the state from retribution as that threatens their profits. The government strategy has been to manage public anger by announcing financial penalties and curbs on dividends and executive bonuses, but doing little for any timely enforcement. Despite criminal convictions companies are allowed to negotiate the amount and timing of fines, with no guarantee that they will actually be paid. Such strategies will deepen as regulators, instead of solely protecting customers, are now required to promote growth of the industry. They could grow industry by promoting ethical practices, but have chosen to protect water company profits through obfuscation, higher customer bills and low or no financial penalties. The chances of criminal prosecutions against directors who directly benefit from predatory practices are non-existent. None of this will promote confidence in the industry or persuade companies to act in a socially responsible way.