Background to the Privatisation of Water

Why water privatisation was different

When water and sewage services in England and Wales were privatised in 1989, the public reaction set it apart from other privatisations of the era. Unlike selling off British Telecom or British Gas, this was about something people felt they had a basic right to: clean drinking water and proper sewage disposal.

Many customers were uncomfortable with the idea that shareholders might profit from what they saw as an essential public service. There were genuine concerns that private companies would focus on dividends and executive pay rather than maintaining pipes, improving water quality, or investing in ageing infrastructure.

To understand how we arrived at that point, it helps to look at what came before.

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The creation of Regional Water Authorities

Before the 1970s, water and sewage services in England and Wales were fragmented. Local councils ran some operations, while various statutory water companies and river authorities handled others. The system had grown up piecemeal over more than a century, and by the early 1970s the Conservative government under Edward Heath decided it needed reorganising.

The Water Act 1973 brought in sweeping changes. It created ten Regional Water Authorities, or RWAs, which took over from the old patchwork of local providers. These new bodies absorbed the assets and responsibilities of river authorities, municipal water departments, and existing water undertakings.

The ten RWAs covered distinct geographical areas based roughly on river catchments. They were responsible for the full water cycle: abstracting water from rivers and reservoirs, treating it for drinking, distributing it to homes and businesses, then collecting and treating sewage before returning it to the environment.

To coordinate these regional bodies, the government established the National Water Council. This sat above the ten authorities and provided a degree of central oversight and policy direction. The RWAs themselves remained under government control, answerable to ministers rather than local councils.

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Growing pressure for change

Throughout the late 1970s and 1980s, the water industry faced mounting challenges. Infrastructure was ageing, with some Victorian pipes still in regular use. Investment had been squeezed during periods of public spending restraint, and standards were starting to slip.

European directives on drinking water quality and bathing water standards added further pressure. Meeting these requirements would need substantial capital investment, and the Treasury was reluctant to fund it through public borrowing.

The Conservative government elected in 1979 under Margaret Thatcher had a broader programme of privatisation already underway. Selling state assets was seen as a way to raise money, reduce government involvement in industry, and introduce market disciplines that might drive efficiency.

By the mid 1980s, attention turned to water. The government argued that private ownership would unlock the investment needed to modernise the system, and that competition for customers (where possible) and regulation (where not) would protect consumer interests.

Not everyone agreed. Critics warned that natural monopolies like water supply did not lend themselves to genuine competition. A household cannot realistically choose between water companies in the way it might choose between energy suppliers. This gave private operators potential power over a captive customer base.

Setting the stage for 1989

The government pressed ahead regardless. The Water Act 1989 enabled the sale of the ten Regional Water Authorities to private investors. Each became a private company, with shares floated on the stock exchange.

To address concerns about monopoly power, the government created new regulatory bodies. The Drinking Water Inspectorate would monitor water quality. The National Rivers Authority took over environmental protection duties that had previously sat with the RWAs. And Ofwat, the Water Services Regulation Authority, was established to regulate prices and protect customers from exploitation.

The privatised companies inherited the assets, the staff, and the problems of the old authorities. They also inherited customer scepticism that has, in many cases, persisted to this day.

For current information on water regulation and your rights as a customer, you can visit the Ofwat website or check guidance on GOV.UK.

The Next Step

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