Revealed: warning to ministers over privatised water kept secret since 2002

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Ministers were warned about the dangers of private equity taking over the water industry in a briefing that has been kept secret for 20 years, the Guardian can reveal.

Details of the analysis are still being withheld as sewage pollution and the failure of water companies to invest in infrastructure are under national scrutiny.

On Thursday the water industry – after more than three decades running a privatised model – apologised for its failures to properly manage and invest in water, and for the scale of raw sewage discharges that have fuelled huge public anger.

It promised to triple funding in pipes, treatment works and infrastructure over the next decade to ?10bn and apologised for polluting beaches and rivers with raw sewage. But all of this will be paid for by increased customer bills.

The report being withheld from publication predicted the state of the privatised water industry today, and warned against private equity being allowed to move into water firms.

It was prepared for the Competition Commission (now the Competition and Markets Authority, CMA) in 2002 and has never been published in full. It should have been released under the 20-year rule last summer, but despite repeated attempts to have it published it is being kept secret.

Today, as private equity dominates ownership of the water sector in England, bringing with it high levels of debt and underinvestment leading to sewage pollution, water shortages and leaks, the author of the report has called for full disclosure of his warning two decades ago.

Chris Goodall, who wrote the report for the Competition Commission investigation into a proposed takeover of Southern Water, said: “My real concern was about the financial structure of the proposed deal. In my view the transaction created an entity which would prove impossible to regulate.

“Large external private equity shareholders would load the company with debt and Ofwat inevitably would lose any regulatory control. For example, it would prove extremely difficult to ensure that water companies invested enough in sewage control.

“This report should be published in full now because it helps to show why the last 20 years of increasing private equity dominance of the water industry has proved so disastrous.”

This year the chief executive of Thames Water, Sarah Bentley, admitted high levels of pollution in rivers were the result of “decades of underinvestment” by the privatised water company. New data from the Financial Times shows the 10 biggest water companies more than doubled their dividend payments to shareholders in 2022 to ?1.4bn, despite an outcry over sewage pollution in rivers and a failure to invest in infrastructure.

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The CMA said the report, written in September 2002, had been passed for publication. But eight months on from the date it should have been published, it has not been released.

The CMA has warned it would be exempt from releasing the report under freedom of information laws if a request to do so was submitted. The authority said: “Without wanting to prejudge the outcome of any request you may make under the Freedom of Information Act 2000, I wanted to refer you to the exemption at s.22 of the Freedom of Information Act 2000.

“This exemption provides that information intended for future publication is exempt from release provided the public interest in maintaining the exemption outweighs the public interest in release.”

The economist Dieter Helm has warned that the high levels of debt that the privately owned water companies have leveraged risk the stability of the companies.

Asked by the Guardian why the Goodall report and the full investigation it was part of had not been released under the 20-year rule, the CMA said: “As the statement is now over 20 years old, it has been reviewed by our records management team in line with the above process … however, there are a significant amount of documents which make up this matter which are yet to be reviewed. Further, the CMA, consistent with normal processes, will transfer these records with other records which have reached the 20-year mark and which have also been selected for transfer. This process will be completed over the course of this year.”