Hall, David ORCID: https://orcid.org/0000-0003-3574-8863 (2024) Ownership without investment in English water-net capital extraction by shareholders of English & Welsh water and sewerage companies 1990-2023. [Working Paper] (Unpublished)

Preview

PDF (Working Paper) 47165 HALL_Ownership_Without_Investment_In_English_Water-net_Capital_Extraction_2024.pdf - Submitted Version Download (428kB) | Preview

Abstract

In the 33 years since privatisation in 1990, in total, the shareholders of the 10 English and Welsh water and sewerage companies (WASCs) have invested less than nothing of their own money in the companies. The shareholders’ impact has rather been very negative, withdrawing a real net total of £85.2bn. from the public water and sewerage services since privatisation.

Total shareholder equity (share capital and share premium) in all the companies fell, even in cash terms, from £3,767m. in 1990 to £3,397m. in 2023.

In real terms, this represents a 62% cut - a reduction of £5523m. (after revaluing the 1990 equity to 2023 prices). Only two companies show any real increase over the period, one of which is Southern Water, due entirely to the £391m. injection by Macquarie in 2022.

Shareholder equity of £3,397m. in 2023 represents only 25% of the total so-called ‘shareholder funds’ on the balance sheet (£13,223m.), the rest of which consists of retained earnings from profits, which would be equally available to public sector owners.
In 1990 the companies started with £5.7bn. in retained earnings – inherited from the previous public sector water authorities and from government subsidy. In 2023 retained earnings were a little higher in cash terms, but the real value of retained earnings has halved, falling by £6.7bn. (@2023 prices) in the 33 years from1990 to 2023.

Instead of retaining profits, the shareholders have over that 33 year period decided to take out dividends with a cumulated real value of £72.9bn. (@ 2023 prices), over 10 times the value of earnings retained on the balance sheet.

The combined effect of the extraction of dividends, reduction in real value of shareholder equity, and reduction in retained earnings, is a real loss of £85.2bn. (@2023 prices) for the water and sewerage services of England and Wales.

Even the original purchase of shares at privatisation, injecting a total of £3,767m., was effectively largely financed by extracting dividends of nearly £3bn. from the balance sheets inherited from the public sector – as well as benefitting from nearly £5bn. which appeared on the balance sheet thanks to the government’s write-off of debts.

This evidence from England and Wales is consistent with international evidence on the failure of the private sector to invest in water services in the global south and elsewhere. A global review by PSIRU in 2006 concluded that cutbacks in aid in the vain hope of private investment, meant that: “The net contribution of 15 years of privatisation has thus been to significantly reduce the funds available to poor countries for investment in water.”

The idea that a privatized system can deliver new capital from shareholders for investment is a dangerous illusion: it does not happen. After 33 years it is not plausible to argue that there can be some ‘better’ regulation that will transform this situation. A rapid transition to public ownership is needed to end the large-scale extraction of money, as well as providing long-term advantages of democratic oversight and transparency. Other countries, and other sectors, should take careful note of these results, carry out similar analyses on remaining privatisations – and resist any attempt to introduce any more privatisations.

Item Type:	Working Paper
Uncontrolled Keywords:	water investment privatisation shareholders equity dividends
Subjects:	H Social Sciences > HB Economic Theory
Faculty / School / Research Centre / Research Group:	Faculty of Business
Last Modified:	10 May 2024 12:05
URI:	http://gala.gre.ac.uk/id/eprint/47165

Actions (login required)

View Item

Downloads