Teaching activity

In the News Teaching Activity – does the water industry need stronger regulation? (May 2024)

Elizabeth Veal

27th May 2024

The water industry is under ever-closer scrutiny after a parasite in the water supply was found to have caused a wave of illness amongst the residents of Brixham. This is not the only problem that has been highlighted in recent years – problems with leakages and sewage outflows have led to accusations of a lack of investment and profiteering by water companies.

It was promised in 1989 that water privatisation would bring more reliable and cleaner water supply and greater investment in the water industry’s infrastructure to reduce leakages and waste. Issues of poor water quality, polluted rivers and sewage on beaches were supposed to be improved after privatisation of this natural monopoly. According to OFWAT, the industry’s regulator, about a fifth of the UK’s water was lost to leakage in 2022, the lowest ever, and more than 40% of the pipes have been replace since privatisation. However, in last couple of years the Environment Agency notes that sewage discharges have increased significantly by 54% between 2022 and 2023. Meanwhile a report from the University of Greenwich estimates around £85.2bn has been paid to investors, raising questions about whether more of this money should have been re-invested in the industry.

Water industry investors have withdrawn billions, claims research - BBC News

  1. Explain why the water industry can be described as a ‘natural monopoly’.
  2. Using the information in the article, assess whether it is fair to argue that there has been profiteering by the water companies.
  3. Using the information from the article and your own knowledge, discuss whether the water industry is best run as a nationalised industry or as regulated private regional monopolies.

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Elizabeth Veal

Liz has taught Economics for over 25 years, including several years as Head of Economics at leading schools.

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