Is the past decade evidence of the failure of privatisation, regulation, or an opportunity for litigation?
By James Gilheany, Director
21st October, 2024
With the new government firmly in place, the UK rail network is moving toward re-nationalisation under Great British Railways. Current service franchises will be allowed to expire and transition to a government-established entity. Many view this as evidence of privatisation’s failure. However, when we look at other once-public industries like energy, water, and telecommunications, the issue may lie not just in privatisation, but in ineffective regulation.
The Office of Rail and Road, along with Ofgem, Ofcom, and Ofwat, have significant regulatory powers. Yet, despite these powers, major failures persist. Thames Water teeters on the brink, sewage leaks are at record levels, and consumer prices continue to rise. Ofwat recently fined water companies £158 million, but these actions feel like too little, too late. Consumers now await Ofwat’s pricing guidance, expected early next year, which could raise water bills by 40%.
And other regulators also have cases to answer. In 2021, more than 30 energy companies went bankrupt, exposing the shortcomings of the price cap meant to foster competition. The market, flooded with companies essentially selling the same energy from the National Grid, collapsed under geopolitical and inflationary pressures, leaving consumers and taxpayers to pick up the pieces. The bill for taxpayers caused by Ofgem ran into the billions, according to a 2022 Parliamentary report..
While the pandemic and war in Ukraine exacerbated these challenges, the underlying issues have been building for a decade. Consumers and businesses, burdened with rising costs and deteriorating services, are rightly frustrated by weak or passive regulation.
Given the persistent failures of regulators to hold companies accountable, public legal action increasingly becomes the most viable path for consumers and businesses seeking recourse. Legal challenges not only force companies to answer directly for their actions but also serve as a public check on regulatory shortcomings.
We can already see stirrings of organised, privately-funded, compensation-driven legal action stepping in to seek redress where regulators have apparently failed. Stagecoach South Western Trains recently shelled out up to £25 million to settle a claim brought by passenger representatives for overcharging on boundary fares. And water companies including Thames Water and Severn Trent are currently facing collective action over years of allegedly under-reported pollution incidents.
An important part of the so-called My Water Case, brought on behalf of millions of consumers said to have overpaid for water and sewerage services, is that the water companies allegedly duped Ofwat for years. Which brings us back to the question: has privatisation or weak regulation set UK infrastructure back? The answer isn’t clear-cut, but it may ultimately be decided in a court.