Sounding more like an admonishing primary school teacher than ever, Margaret Thatcher announced in 1976 that the trouble with socialists was that they “always run out of other people’s money”. I have thought since the crash of 2008 that the same can now be said for the vast system of state capitalism she bequeathed us.

The price of deregulating the banks we know about to our cost. We have received fair warning that George Osborne’s taxpayer-subsidised mortgage market will be emptying your wallet when the next bubble bursts. But how long will it be before the stench from the monopolistic exploitation of water – the very stuff of life – reaches the public’s nostrils?

That stink is actual as well as metaphorical. As Damian Carrington and Sophie Barnes report on the Observer‘s news pages, the most pestilential polluters of England’s rivers are the privatised water companies charged with protecting them. They leak untreated sewage for a reason that ought to find a place in the “national conversation”, but never does because of a depressingly familiar complacency. The political class, respectable opinion, call it what you will, assumes that the water industry is beyond political argument. Thatcher fixed the status of the privatised utilities and it is now as unchangeable as the weather. I wonder how long that line can hold.

The negligence of successive governments allow dubious companies, private equity firms more often that not, to take over a vital national interest. They have engaged in widespread tax avoidance. They have hidden what ought to be a public service behind the high walls of commercial confidentiality. Most egregiously, they have loaded their books with debt, not to improve Britain’s decaying network of sewers and pipes, but to provide fantastic returns to investors from a captive market of consumers.

By the reckoning of the ratings agencies – not the most reliable guides, I know, but all we have – the debts are unsustainable in several instances. You will pay if the companies go bust. Indeed, you are already paying.

A devastating analysis by George Turner of the liberal thinktank CentreForum listed the ways last month. “Since 2005,” it concluded, “prices for water have been too high, more than required to run a decent service for customers whilst providing a reasonable return for investors.” Investors have taken an unreasonable return instead. So unreasonable, indeed, that as well as making the public pay through inflated prices and the taxes they dodge, the water companies are looking for direct taxpayer support.

The one example that has received attention is Thames Water asking the government for money to build a new and much needed super-sewer through London. Readers old enough to remember the capitalist utopianism of the 1980s can gaze on that demand and see how the promises of the Thatcherites have turned to ashes. Conservatives at the time said privatisation would turn Britain into a “share-owning democracy”. They ran a bizarre but effective advertising campaign asking viewers to “tell Sid” about the wealth privatisation would bring him. As it turned out, Sid no more ended up owning the water companies than you or I did.

Thames is controlled by a consortium led by Macquarie, an Australian bank. Despite making healthy profits for years, the company is too enfeebled by debt to fund a major building project without taxpayer support. Once again, we old timers will remember with all the clarity we can muster that the Thatcherites also promised that their privatised water companies would no longer suck on the public teat but would be free to raise money in the marketplace. That pledge has gone down the drain too.

If it were a respectable company operating in any kind of functioning marketplace, Thames Water would have had to have changed its ways years ago or go bust. But private monopolies are free to pursue private interests, restrained only by a regulator whose behaviour to date has been flaccid to the point of impotence.

The water companies’ environmental record makes the point better than I ever could. In the past nine years, they have polluted waterways and beaches about 1,000 times. The naive reader might wonder why they don’t change their ways. The answer appears to be that it is not worth their while. Two-thirds of the spillages resulted in a caution without further punishment. The remaining third attracted fines of £10,800 on average. No private equity manager will wake up screaming at such sanctions.

The level of debt is the thread that ties incompetence, negligence, tax avoidance and over charging together. It allows private equity firms to leverage their original investment and increase their returns exponentially. It also allows them to escape tax. If they raise equity, they must pay tax on profits before they can give dividends to shareholders. If they raise loans, however, they can charge the interest payments against tax.

Today, the average debt to equity ratio of an English water company is around 70%. Some water companies have reached ratios of 80%, (that is, 80% of the value of the company has been borrowed with only 20% invested by the shareholders). The levels are so high that Standard and Poor’s has cut credit ratings for water companies, citing as justification that debt has not only been used to finance long-term investment, as debt should, but also to produce “sizable dividend payments”, a dangerously short-sighted practice.

CentreForum uses Yorkshire Water to show how the public is being fleeced every which way. In 2006, it whacked up its gearing. Dividends followed suit. Despite spending more than it received from customers, it still paid out £886.8m in dividends – a return for debt and equity investors of 24.1% Overall, the costs to its customers of paying such inflated returns was £139 extra every year on the average water bill between 2005 and 2010.

There is no shortage of ideas for reform. Sir Ian Byatt, a former regulator, wants to see payments in dividends matched by cuts in tariffs. Turner ends his report by concluding that the only way of dealing with private monopolists is to turn their firms into not-for-profit companies. As far as the Westminster bubble is concerned, such ideas are beyond the fringe, but I doubt they will stay there for ever.

The water industry is like the banks: too important to fail. As with the banks, it is run by reckless and greedy men. One day, they will need other’s people’s money to save a business that is not only stinking but sinking too.