From the control tower of the Thames barrier, gaze down on one of London's heroic wonders. Those gigantic silver sails stretching half a mile across the river float above the water, standing guard against the rising risk of flood. Here global warming is measured by how often the steel gates are closed; in 1987, it was only once every two years: now it's four times a year, eight times more often. By the century's end the barrier will close 300 times a year at this pace of climate change.

The river is rising 6.6mm a year, with more storms and extremes as ice caps melt. Monitoring the incoming water at coastal stations from Wick to Lowestoft, the barrier men have never yet been taken by surprise. At the highest tide ever, in February 2004, there was a flood alert on 14 successive tides: none of the men went home for a week.

Extraordinary to think that in the frantic dying days of John Major, after laying waste to the railways, the government tried to privatise this too. But they never found a private buyer ready to underwrite the colossal potential insurance claims if the barrier ever failed. The chief engineer, originally recruited from the private sector himself, is appalled at the memory. "We nurture this barrier like a human being, a structure that cannot be allowed to fail ever. You should feel the adrenaline and the loyalty of the men here in an emergency. You would never get that with a private contractor."

So what should forever stay in the public realm? No absolute rule seems to fit every service and circumstance. Few deny the privatisation of British Airways or British Telecom was a good idea, but as the NHS struggles to discover which of its functions are core and which can usefully be contracted out, a coherent dividing line eludes most observers.

However, one privatisation will always stand out as an unequivocal scandal: the privatisation of water. It is used all over the world as a classic example of what not to do. Making millions out of an element that falls freely from the skies - profiteering from rivers, rain and clouds - affronted most citizens. It gifted shareholders an absolute monopoly over a necessity no one could do without. There was no chance to choose from another supplier (unless perhaps bathing in Perrier). The price of water doubled, great profits were made and the public got nothing.

Now as global warming swells the Thames perilously, Thames Water is running dry. Hosepipe bans may become permanent, with the south as dry as Sudan. Standpipes are likely this summer, with aquifers at their driest in memory. Yet none of this was unpredictable: Thames Water cannot claim to be surprised. If in 1987 the prudent designers of the Thames barrier built in expectation of global warming, allowing for up to an 8mm annual rise in river levels, then the private water companies should have been planning on precisely the same calculation. Thames Water busked it: the state would not have done.

True, it was under pressure to improve water quality, which it did. Too late, it plans to build a vast reservoir that will now take 15 years. The fact is Thames Water took hefty profits - up another 6.1% this year - while letting a third of its clean water leak from broken pipes. Only a year ago did it start investing heavily in mending leaks, and even now plans to fix only 10%. The company pleads that London's Victorian pipes are old - but that is hardly a surprise.

So where has Ofwat, the water regulator, been all these years? This weak protector of the public against a total monopoly stood by as huge profits leaked out to a chief executive taking £800,000 a year; meanwhile, bills rose by 21% just months ago, and targets for fixing leaks have all been missed. Today the inquiry opens on Thames Water's bid to build a massive desalination plant at Becton. The London mayor, Ken Livingstone, has objected on the grounds that desalination uses exorbitant amounts of energy, which only contributes to global warming. For how long, he asks, can we keep avoiding the consequences of climate change with methods that make it worse? When will people face up to the need to cut back consumption of both water and energy?

Last week the Environment Agency (EA) issued a drought prospect report. It called on Thames Water to apply immediately for a drought order to ban all non-essential water use, from fountains to car washes. It takes time, so an order wouldn't take effect until July. But to the EA's indignation, Thames Water refused. Why?

Thames Water, owned by the German company RWE, is about to be put up for sale. Commercially this is no time to stir up a public outcry. Standpipes and tales of disastrous infrastructure hardly make an enticing investment. The EA's water supremo has no power to order, only to cajole. Nor can Ofwat order the company to do it. Now it's raining, the public will protest at the profligacy of a company that let its pipes deteriorate so badly. RWE is delaying taking drought action as long as possible; water companies make money out of selling water, not by restricting it.

This is just a mild early brush with the climate-change dilemmas that lie ahead. The danger is that the public will be damned if they cut back water use just to help out a company that has so mismanaged the water supply. It is hard enough for governments to ask people to cut consumption in times of crisis, but near impossible for fat-cat companies. Privatisation makes belt-tightening very difficult. High prices for water and energy will be essential for the environment, but they will cause outrage if the money goes straight to company profits. Can these privatisations be reversed? The dangers were made clear in the case against Stephen Byers by angry rail shareholders, accusing him of deliberately deflating share prices as a softening-up process for renationalisation.

With the usual exception of Ken Livingstone, who risked everything over the congestion charge, Labour has been shockingly cowardly. Each new manifestation of climate change should be an opportunity to urge people to cut back. But, afraid of public anger, politicians keep playing down any question of restraint."The water supply in the south-east is not in crisis," the water minister told MPs, when he should have seized the chance to urge people to cut their water and energy use. Poll after poll shows people know their own profligacy has to end - but they wait for the order from ministers that never comes. How long will this denial continue?

polly.toynbee@guardian.co.uk