Now, water bosses, you must show how capitalism can work for the common good

If there’s a lesson to be learned from the collapse of Thames Water, it is that utility giants have to pioneer a new kind of company.

There is universal agreement that privatisation was never meant to result in news like this. Last week, the government announced it was on standby to take Thames Water – our biggest water company, serving 15 million people – into “special administration” as its £15bn of debt threatens to overwhelm it and its CEO resigned. What went so wrong? Is this proof that public ownership should immediately be restored?

After all, we’ve witnessed a litany of debacles, from the government’s takeover of TransPennine Express and electricity supplier Bulb to the creation of Great British Railways to integrate the fragmented management of the rail system. It’s safe to say that privatisation cannot be trumpeted as an unalloyed success.

The original sin with the strategy was the way that Tory privatisers of the 1980s and 90s bought the ideological line – championed by the influential free marketeer Milton Friedman – that the social responsibility of businesses is to maximise profit. It is a principle only mildly qualified in British company law, in which directors must have no more than “regard” for the interests of workers, customers, society and the environment, because the overriding interest is that of the shareholder. No attempt to ensure that privatised utilities would put their social purpose first was ever countenanced. Yes, there would be regulation, but only to try to guarantee that, in the absence of competition, price increases would not be excessive. The regulators could not extend their interest into the warp and woof of the privatised company. For the Conservative government and New Labour that followed, the distinction was between public ownership (bad) and private ownership of any type (good). The notion that private ownership could be configured to give capitalism a different dynamic was off limits. But in the utilities especially – and I would argue more generally – successful companies must unite their stakeholders around a common purpose. Good profits follow. It’s been my view since I wrote my book The State We’re In in 1996.

Without any of that, the avoidable disasters have unfolded. Thus when the German electricity company RWE decided in 2006 that it no longer wanted to own Thames Water, it was, astoundingly, allowed to auction it off to the highest bidder with no questions asked. That the owner would be an investment consortium headed by the Australian bank Macquarie – the “millionaire factory” famous for hollowing out companies, squeezing them for every last drop of profitable juice and then walking away – was extraordinary, as I wrote at the time.

Six years later, it all turned out as feared. With the consortium domiciled in low-tax Luxembourg, the objective was dividend rather than investment maximisation, typically paid out of a convenient tax haven. The company’s debts had rocketed to £8bn, with interest payments offsetting profit, meaning that it paid no tax in 2012 even while it paid £279.5m of dividends. Yet it was then looking for an infrastructure guarantee on £4bn of extra debt to build the new Tideway sewage tunnel. No go-ahead should be given, I wrote, unless Thames accepted its first obligation was to deliver its purpose as a public service utility, including paying its taxes. But the project got the go-ahead – and not one iota of change was demanded in the way Thames was managed or how it organised its tax affairs.

A report in 2017 declared that at the then current rates of investment it would take Thames 357 years to renew its pipe network

In 2017, Macquarie did exactly what had been anticipated in 2006. It sold out: the lemon had been squeezed dry. No wonder that, before she resigned last week, Thames CEO Sarah Bentley told the BBC that Thames had been “hollowed out by decades of under-investment”. Surprise? A report in 2017 commissioned by the new owners declared that at the then current rates of investment it would take Thames 357 years to renew its pipe network.

Now the company totters on the brink, needing huge injections of equity and billions more of credit with questions asked about the efficiency of its underlying operations. This time round, the same mistake must not be repeated. No open-ended bailout. More importantly, this is the moment when every water company and privatised utility should only be licensed to operate if they incorporate as a public benefit company that puts its social purpose first. Capitalism can be reconfigured to deliver the common good. It’s a principle that applies more widely. Start with the utilities and work from there.

Just a fig leaf that means no change? I don’t buy that. It matters that a company binds itself to putting its citizen-customers first, accepts that its responsibilities to the environment should be fully discharged, that workforces should be treated properly and given a voice in strategic decision-making, that taxes should be fully paid, proper social tariffs introduced, fit-for-purpose investment matched by appropriate debt, and stakeholders engaged with. Companies of this type do behave differently. Regulation should reinforce social purpose and no more opaque ownership structures such as Thames should be contemplated. At least a quarter of every regulated utility’s share capital should be publicly quoted: the sunshine of accountability works wonders.

Public ownership can work: it should never have suffered such opprobrium. But what is the country’s priority? The 20-year bill to achieve net zero is at least £1tn. Levelling up will cost at least another £1tn. There is another £500bn to be spent on schools, hospitals, prisons, courts and roads. If the privatised utilities operate on genuine social purpose criteria, why would any government wrap up to £250bn of dead money in renationalising them?

Which is why the leaked email on Friday from Severn Trent CEO Liv Garfield to utility bosses urging them to make common cause in becoming socially purposed (with obligations as set out above) as a robust, workable alternative to nationalisation is so important. Full declaration: I am named in the Garfield email as ready to facilitate a conversation. I am. And if Starmer’s Labour party is going to be more interested in the character of private ownership than Blair and Brown’s, as Garfield’s email suggests, better still.

It’s an important moment. Britain needs to find trillions in the years ahead for long-term investment. No plan for change will work unless there are purposeful business partners ready to step up alongside government to make the investment. Could that be happening? In depressing times, maybe something is stirring for the better.

Will Hutton is an Observer columnist


Buying in an Upcoming Neighbourhood? Don’t Assume Gentrification is Imminent

Originally posted in The Huffington Post - July 13, 2012

Buying a property in a neighbourhood that is in the early stages of such a process is generally considered one of the best ways to build equity in terms of real estate investments. The media constantly runs stories along these lines. Unfortunately however, they couldn't possibly be further from the truth.

Gentrification is defined as the process of renewal and rebuilding accompanying the influx of middle-class or affluent people into deteriorating areas that often displaces poorer residents.

Buying a property in a neighbourhood that is in the early stages of such a process is generally considered one of the best ways to build equity in terms of real estate investments. Clients of mine who purchased homes a decade ago in neighbourhoods that have undergone tremendous gentrification, such as Leslieville, have benefitted from extraordinary gains in value. The media is constantly running stories about Toronto's next hot neighbourhoods, knowing a large and eager audience is searching for future opportunities to reap the rewards of gentrification. The concept has become so ingrained in us that buyers often believe it's safe to assume that any dilapidated part of the city will eventually become gentrified, so long as you're willing to wait. Unfortunately, they couldn't be farther from the truth. The sad reality is that most neighbourhoods in this city are actually in decline.

The Toronto Star recently re-ran a graphic illustrating the changes of social classes throughout the city over a 35 year span. The key point and title of the graphic is the shrinking middle class, but the maps help us understand gentrification as well. If gentrification is defined as "the influx of middle-class or affluent people" into poorer and deteriorating areas, then this graphic should quite clearly indicate which areas have become gentrified over the last 35 years, as it in fact does.

Using the example again of Leslieville, you can see that is has gone from being predominantly low income to mostly middle income. King West, another neighbourhood that has become famous for the gentrification it has experienced, went from very low income all the way to very high income. Investors who bought land in that part of the city during '70s have literally made fortunes. In fact, the maps do quite accurately illustrate neighbourhoods that have been gentrified, but what's more startling is the number of neighbourhoods where quite the opposite has taken place.

Neighbourhood decay, the opposite of gentrification, where middle-class and affluent people migrate from a neighbourhood, is actually the most common process seen in Toronto over the last 35 years. Even pockets of the city such as Parkdale, which is often marketed as being on the cusp of gentrification (as it has been since I can remember), has actually moved in the opposite direction.

As the middle class continues to shrink, being replaced for the most part by low income earners, neighbourhoods that actually experience gentrification will become fewer and fewer. So if you're planning on buying a home in a more affordable part of the city in hopes that it will eventually become gentrified, be sure to do your homework.

The graphics have been borrowed from a report called "The Three Cities of Toronto," by J. David Hulchanski at the University Of Toronto.


Inequities in Ontario Real Estate Contribute to Housing Crisis

New report from OREA identifies systemic racism as an issue in Ontario real estate, makes recommendations to advance diversity, equity, and inclusion

The housing affordability crisis is a growing problem across Canada, one that is disproportionately affecting BIPOC and LGBTQ2S+ communities who experience higher barriers to housing attainment due to historically discriminatory practices and social injustices that are still being perpetuated in today's housing market.

A majority of both consumers and REALTORS® believe Ontario’s rental process suffers from discrimination: 93% of Black REALTORS® and 60% of all consumers surveyed believe discrimination exists in the rental process, according to research conducted in partnership with Ipsos. In fact, 4 in 10 REALTORS® say they’ve seen a rental deal fall through due to discrimination, according to Fighting for Fair Housing, a new report from the Ontario Real Estate Association (OREA) looking at diversity, equity, and inclusion in housing.

“There is a saying in real estate: today’s renters are tomorrow’s homeowners. For disadvantaged communities who have a hard enough time finding a great rental in a thriving community because of all the obstacles they face along the way, the dream of home ownership is just that – a dream,” said 2022 OREA President Stacey Evoy. “We cannot hope to solve Ontario’s housing affordability crisis without addressing the systemic racism that undermines fair and equitable access to homes across the housing spectrum.”

Through research and consultations with Brokerages, REALTORS®, government officials, regulators, consumers, sector-related organizations, and Ontarians, the Fighting for Fair Housing report makes 19 recommendations to eliminate racism and inequality in real estate and housing. These recommendations include:

  • Advocating for a review of Ontario Residential Tenancies Act (2006), with the goal of improving access to affordable homes for disadvantaged communities
  • Reducing government-imposed costs on new rental projects, including duplexes, triplexes, and walk-ups
  • Building 99,000 community housing units over the next decade, to clear the current backlog and accommodate future growth
  • Encouraging expansion of affordable homeownership programs for disadvantaged communities, including rent-to-own programs

“As the rising cost of housing and lack of supply continue to push prospective buyers out of the market, home ownership remains out of reach for many – and disadvantaged communities are at risk of falling even further behind. Building more homes alone isn’t going to improve accessibility to housing for BIPOC and LGBTQ2S+ communities,” said Davelle Morrison, Broker at Bosley Real Estate Ltd. and Chair of OREA’s Presidential Advisory Group on Diversity, Equity, and Inclusion. “ As professionals in the industry, we have a unique opportunity to help more people in our province find a place to call home. The Ontario Government also has a key legislative role to play, especially when it comes to increasing equity and reducing discrimination in Ontario’s rental market or offering new, affordable ownership programs.”

In 2020, OREA struck the Presidential Advisory Group (PAG) on Diversity, Equity, and Inclusion (DEI) to better understand, address, and dismantle systemic racism in Ontario’s real estate and housing sectors. Through this work, the PAG has identified three areas for action, that seek to change policy, perceptions and attitudes around sector systemic racism through education, advocacy, and research.

Within organized real estate, one early achievement in this regard is the addition of a discrimination provision within the new Trust In Real Estate Services Act (TRESA) Code of Ethics, which explicitly requires compliance with the Ontario Human Rights Code. This change is a direct result of the PAG’s work and recommendations.

OREA will also be taking steps to review internal governance structures, board selection processes, policies, and more in order to increase BIPOC in leadership positions within real estate associations.

To read the full report, including three identified areas of action and all 19 recommendations, visit