This Site used to discuss the economy with Jonathan Portes back in the early days, so I tend to trust his observations – especially where he had a direct hand in matters.
So his observations on the water privatisation “rip-off” of 1989, in The Guardian, are very interesting.
He says the Thatcher government was not interested in providing value for money to taxpayers or water consumers; all the effort was put into making a “successful” sale – in which the demand for shares was high.
This was an ideological objective: water privatisation was extremely unpopular, with every poll showing that a substantial majority of people were opposed to the policy – so shares were sold well below their value in order to provide an average gain of 40 per cent to investors on their first day of trading. That’s how taxpayers lost out.
Consumers lost out because the political requirement that shareholders must profit hugely meant there was no support for tighter regulations to restrain future bills and/or require investment in infrastructure improvements.
As a result, over the following two decades the privatised water companies paid more than £57bn in dividends, at the same time as running up large amounts of debt, the interest on which is effectively paid by customers.
So water consumers are subsidising the water companies’ profits by paying off their debts for them, while also pay through the nose for the poor service they receive – because Thatcher wanted to pretend that privatising water was a good idea. How perverse!
Professor Portes goes on to say that the head of the Centre for Policy Studies, Robert Colville, provided the most illuminating political reason for privatisation when he said the “single greatest justification for privatisation is competition for capital”.
He meant that, as a public service, water would always be in competition with other priorities, from HS2 to hospitals, and the result would be underinvestment.
But we have seen that the current operating model, in which companies face public sector levels of competition and risk, and get private sector levels of profits and return, is simply not acceptable.
Prof Portes says keeping water in the hands of private companies may not be a bad idea because “governments, especially but not only Conservative ones, pursue stupid, self-defeating policies for short-term political reasons, so it’s worth consumers massively overpaying the private sector to secure the level of investment that is required, even if the public sector could, in theory, do it more cheaply”.
He suggests that the government should renegotiate its relationship with these firms, pointing out that they are contractors delivering a public service and should be treated as such: forced to bid competitively for the right to operate.
From This Writer’s point of view, it looks like a lose-lose situation.
If we accept the claim about government decisions – and I think that is reasonable in the light of the Tories’ huge failures in recent years – then the water firms can’t go back under public control.
But treating them as government outsourcing firms would create a situation where they ended up claiming they could carry out the work required – infrastructure improvements, value-for-money for customers – with less money than they need to avoid bankruptcy, meaning they would eventually go to the wall. Does nobody remember what happened to Carillion?
Is there another alternative?
Perhaps there is. What’s wrong with saying that the profit motive has failed and demanding that water be run by autonomous, non-profit-making organisations, for the benefit of the consumer?
If this is the case with water, isn’t it also the case with the privatised energy firms? With the railways? With all the other Tory privatisations? Why shouldn’t they go non-profit too?
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