England & Wales Capex - Loans or Grants?

In answer to a query (it doesn't happen very often :) ) I have at last got around to putting together a couple of data sets to illustrate the level of Grant Funding, as opposed to Loan Financing, of the annual investment in water and sanitation for the 1900-1975 period in England and Wales.

These dates have been chosen because there was no significant grant funding after local government reorganisation/regional water authority establishment in 1973/74, and none before 1934, the first Rural Water Supply 'Money' Act. I have started from 1900 however, as this 75 year period represents the delivery of piped rural water and village sewerage to SDG 6 standards from the 1900 starting point of household wells and pit latrines.

What is intriguing from our present perspective is how limited the grants were relative to the loans. The approach was very much 'demand driven' and if, at $8,000 GDP per person (2020 PPP prices) poor rural areas could not afford to service a loan for an improved water supply or sanitation system - then it was not built.

Particularly as until 1929 all investment was the responsibility of the local Council and could only be achieved through accessing loans, primarily through the Public Works Loans Board. And in rural areas the local Council was the 'Parish Council' which represented on average about 1,000 people. So borrowing in rural areas was unusual as there was limited wealth to cross-subsidise the agricultural labourers.

Following the 1929 Act, which allowed both District Councils and County Councils to contribute to Parish Council needs, improvements through borrowing became more of a possibility. With the Government grants being made available from 1934 ('£1,000,000' in then prices) for areas where the operating cost of water was above a certain level but below a specified cost per household investment level.

That possibility of minimal grants, but the ability for local cross-subsidies, allowed for the significant extension of piped water in rural areas at approximately $10,000 GDP per person - with the village sewerage being extended at scale only at around $15,000-$20,000 GDP per person.

All of this loan financing was repaid through the local council taxes, known as 'Rates' which were based upon the 'rateable' (rental) value of a property. Consumers also had to pay a non-volumetric charge for their water consumption.

There were almost no domestic meters ('2%' at privatisation in 1989) and so water was charged for in a 'progressive' approach, that is the rich paid more than the poor because of the higher value of their homes/rental value.

This was a critical cross-subsidy - one which was dismantled by governments from the 1990's onwards who had come to believe that charging volumetrically by meter was 'fairer'.