Productivity in water up nearly two-thirds since privatisation claims Water UK

Productivity in the water sector increased 64% between 1994 and 2017 according to findings in a recent report commissioned by Water UK.

The study behind the report, by Frontier Economics, working with Professor David Saal of the centre for productivity and performance at Loughborough University, was commissioned to “assess what has happened” to water sector productivity since privatisation.

The study found water and sewerage company productivity in England grew by an average of 2.1% a year based on “relatively cautious” assumptions on the improvements in the quality of service provided.

While the annual growth rate has declined, the report suggested there was an upward trend visible in “estimated cumulative productivity… over almost the whole period.”

Frontier Economics estimated the Total Factor Productivity (TFP) growth achieved by the industry between 1992/93 and 2016/17.

It found that cumulative TFP growth over the period increased by 64% on a “quality adjusted” basis and by 27% on the “most conservative” basis without quality adjustment.

The report said productivity growth was high during the immediate post-privatisation period with intermediate growth in the first five years of the 2000s, with a significant drop in growth since 2007 following the Global Financial Crisis.

Chief executive of Water UK Michael Roberts (pictured), said: the figures “reflect improvement” in the productivity of companies’ operations and the quality of what they deliver. “Put crudely, it is not just about providing the same water and sewerage services as in 1994, by using fewer employees and smarter kit. That is certainly part of the story, but it is also that the quality of the services provided is itself better.”

Roberts went on to warn of the “obvious sting in the tail” in the scale of the productivity challenge ahead for the water sector, if it is to continue “delivering better, more resilient services while keeping bills affordable.”

He said: “There needs to be a turnaround in the rate of productivity growth of the last decade identified in the report.”

Frontier Economics indicated that water sector productivity bettered that of other sectors including electricity and gas, construction, transport and post and telecoms. It said in the report: “Our analysis of productivity growth in comparator sectors suggests that the water and sewerage businesses have outperformed materially those comparators in the decades after privatisation and leading up to the Global Financial Crisis in 2008.

“Since then, the UK’s productivity growth and the productivity growth of comparator sectors has been negative. The water sector has not been immune to this trend, with productivity growth materially slower than in the post privatisation period, but the water and sewerage businesses have nonetheless delivered modest positive productivity growth,” wrote Frontier Economics.