Privatization of water utilities in many countries usually takes place after cutbacks in the levels of government
investment and service, resulting in a poor quality of water services. In the UK, new investment was
required to improve infrastructure in the water industry and to meet new environmental standards. It was perceived
that privatization could free the managers of water utilities from the financial restrictions imposed on
them by governments, providing them with the flexibility to raise funds to finance expansion and improve
efficiency. It was also anticipated that the government could also obtain revenue from the proceeds of the sale
of public enterprises. Financial benefits aside, water utilities would gain a sense of initiative and independence after privatization. They would also gain a greater incentive to increase productivity and diversify into new businesses in order to increase their returns. Finally, accountability would also increase because, faced with direct or indirect competition,
privatized water companies would recognize the importance of meeting the needs of their consumers.
A move to private ownership necessarily means that water companies will give their shareholders priority
over consumers. Hence, new regulations may be required to prevent any monopolistic behaviour on the
part of the water company. Overall, the benefits of the privatization of the UK water industry are found to outweigh
the costs (Meredith, 1992). However, there has been increasing public concern over the distribution of
the benefits. Water prices in the UK have been rising steadily since the end of the 1980s (Booker, 1992). Some
of these increases were due to high investment costs required to meet tighter environmental standards. At the
same time, huge costs were incurred in improving the poor state of many public water systems prior to the
entry of private companies.