The battle to organise a rescue for Thames Water goes on. But it has to be asked how it is that the regulator Ofwat or someone in Whitehall failed to notice how its debt level at 80.6 per cent of capital (against an industry average of 68.5 per cent) was a potential existential threat in an age of surging interest rates.
The start of the water privatisation in 1989 was one of the last acts of Margaret Thatcher’s tenure.
As always, with such a radical approach to public utilities, there were voices against.
Leaking money: Much of the great sell-off to foreigners took place in the Blair-Brown years in government with barely an eyebrow raised
Successive Labour governments regarded public ownership as an act of faith until Tony Blair scrapped Clause 4 in 1995. It is hard to think the Labour Party of Keir Starmer would go down that route again.
In spite of difficulties which have arisen across the privatised sectors, it is hard to dispute the Thatcherite revolution which overturned centralised financial decision-making over large parts of the economy.
Britain’s privatisation model, in various guises, has been adopted across the globe and become a core feature of International Monetary Fund interventions and advice.
So what went wrong in the UK? The Thatcherite idea of shareholding democracy, akin to that in the US, was embraced by the public as the response to the 1986 ‘Tell Sid’ campaign, which brought British Gas to the London stock market, showed.
Indeed, the British Gas privatisation has been a great success. The break-up into three companies – the networks firm Lattice, exploration division BG Group (sold to Shell for £55billion) and Centrica – proved a rewarding investment. Remarkably, all parts remain in largely British hands.
The catastrophe for the water utilities, the power industry, much of steel production, the railways and the airports is that they were so easily allowed to fall into uncaring overseas ownership with complex financial structures. This was never going to be conducive to the investment required to modernise Britain’s infrastructure and industrial needs.
Among the paradoxes is that much of the great sell-off to foreigners, with little interest in UK consumers and industry, took place in the Blair-Brown years in government with barely an eyebrow raised.
Indeed, in the case of power, Gordon Brown’s utility tax, to pay for well-intentioned Youth Employment Schemes, was the trigger for Multiple Overseas Takeovers.
With the exception of Electricite de France (ironically, state-owned) most of these deals have seen dividends siphoned off overseas rather than invested in Britain.
Trigger: Gordon Brown’s utility tax, to pay for well-intentioned youth employment schemes, was the trigger for multiple overseas takeovers
At Hinkley Point in Somerset and potentially at Sizewell C in the future, EDF is proving to be a reliable partner in ensuring Britain’s nuclear future – using home-grown contractors.
Contrast this with Spanish, Iberdrola-owned, Scottish Power, which over the years has siphoned dividends off to fund its windfarms across the globe rather than investing more heavily in Scotland’s climate change agenda and consumers.
SSE, one of the few UK power firms to remain London-listed, is the energy group most invested in carbon-free production. As for Heathrow, the £10.3billion sale of BAA to a Spanish construction company Ferrovial with a debt pile has been a disaster.
It stymied investment in the infrastructure and put dividends and bonuses for foreign predators ahead of carriers and consumers. The result is one of the most chaotic and unreliable airports in Europe.
The owners can never resist the opportunity to bid up landing fees or add to user costs with usurious car park and drop-off charges introduced under the cover of Covid. The dysfunction of the steel industry since Anglo-Dutch Corus was sold to Tata for £6.2billion in 2007 has seen a lurch from one crisis to the next.
Could any of this have been prevented?
If the Government had kept a golden share in the public utilities in the same way as it has at BAE Systems and Rolls-Royce, then the invasion of debt-laden financially-driven buyers could have been driven off.
It is also clear that the regulators, notably Ofwat, were far too fixated on consumer prices to recognise the dangers of complex, securitised ownership structures.
Prize for the sinners goes to flaccid boards who ran up the white flag and disappeared over the horizon with bags of money – and to the long-term pension fund investors who backed cash-in-hand over the national interest.
