Brandon To is a Politics graduate from UCL and a Hong Kong BN(O) immigrant settled in Harrow.
For decades, privatisation has been one of the Conservative Party’s proudest achievements.
The logic was simple and compelling: Competition drives efficiency. Customers reward good businesses and punish bad ones. Innovation flourishes when firms are forced to earn their success rather than rely on the state.
In much of the economy, this remains true. But the unfolding Thames Water crisis should force Conservatives to confront an uncomfortable question.
What happens when a company is privatised, yet consumers have no meaningful choice? What happens when the invisible hand is expected to work, but nobody can actually choose another provider?
That’s what happened with Thames Water. It’s called a “natural monopoly.”
To put it simply, you can switch your mobile provider if they offer you poor service. But no one can choose a competing network of pipes. No one can switch to a rival water company because they are unhappy with sewage spills, infrastructure failures or rising bills. The customer is effectively captive.
This reality matters because competition is what makes capitalism work.
The invisible hand that Adam Smith described depends upon millions of individual decisions. Consumers reward firms that perform well and punish those that perform poorly. Good businesses prosper. Bad businesses lose customers and eventually disappear.
But when consumers cannot leave, the mechanism breaks down.
The invisible hand cannot function when customers have no hand to choose from.
This is what makes the Thames Water crisis so significant.
Here is a company serving millions of customers with guaranteed demand. Yet, it accumulated around £18-20 billion in debt, received a £104 million fine for environmental failures, and failed to upgrade dozens of critical treatment plants and pumping stations over the years.
Now, it finds itself reliant on emergency rescue plans while ministers openly discuss the possibility of state intervention.
If taxpayers are ultimately required to step in, we can’t help but ask a simple question: where was the accountability when “guaranteed” profits were being made?
That question goes far beyond Thames Water itself.
The uncomfortable truth is that Britain has fallen into the worst of both worlds. For natural monopolies like water networks, electricity grids, and even railway tracks, we enjoy neither the competitive pressures of a free market nor the direct accountability of public ownership. Instead, we have left essential national infrastructure in the hands of private monopolies, and the taxpayer quietly on the hook to underwrite their debts.
The second lesson from Thames Water concerns regulation.
For years, warning signs were visible. Yet meaningful intervention appeared limited.
And until recently, the controversy surrounding executive remuneration only deepened public frustration. Whatever the rationale behind retention payments and bonus arrangements, when many households are struggling with rising bills, when Thames Water are on the brink of collapse, there is no reason to approve a retention scheme worth up to £18.5 million for 21 senior executives.
Perception matters. A system that appears to reward failure eventually led to the loss of public trust.
Now let’s make this very clear: This is not an argument for blanket nationalisation. Conservatives should resist the temptation to lurch from one extreme to another.
Britain’s nationalised industries before the 1980s were hardly examples of efficiency or innovation. Simply transferring ownership to the state does not magically solve problems.
But nor should Conservatives pretend that ownership alone guarantees success.
The lesson of Thames Water is not that privatisation failed. It is that accountability has failed.
Where genuine competition cannot exist, accountability must take its place.
That means regulators should have stronger powers to intervene before debt levels become dangerous, rather than after a crisis emerges. It means executive rewards should be linked more closely to performance. And it means transparency should become far more rigorous in sectors where consumers cannot vote with their feet.
Hong Kong’s electricity market provides an interesting model. Rather than relying solely on either privatisation or nationalisation, Hong Kong operates its electricity networks through long-term “Scheme of Control Agreements” with private monopoly providers. In exchange for the privilege of serving an exclusive market, these companies face continuous government scrutiny, annual tariff reviews, and a formal government review every five years to decide whether to renew the contract. Crucially, monopoly status is treated as a privilege that must be continually justified, not a blank cheque granted indefinitely.
Britain should consider a similar principle for its own natural monopolies. Where competition is impossible, periodic licence reviews could assess financial resilience, infrastructure investment, environmental performance and customer outcomes. Companies that fail to meet expectations should face the prospect of fines, restructuring, or ultimately the loss of their operating licence. If consumers cannot choose their provider, the regulator must be empowered to choose on their behalf.
Conservatives should not abandon their belief in free markets because of Thames Water. But we should remember a lesson that even Adam Smith would have recognised: capitalism requires competition, and where competition is impossible, accountability becomes even more important.
The invisible hand remains powerful. But it was never meant to operate without eyes watching it.