Tag Archives: privatisation

Financial Times: Labour is right, Britain’s private utility model is broken

 

On 19th May, Inside Business focussed on criticism of the UK’s privatised water sector for poor performance, high rate of leakage and failure to put in place adequate measures to help customers struggling to pay their bills.

The privatised water Industry in the UK. An ATM for investors, research published by Greenwich university’s Public Services International Research Unit in October 2018, suggests that the 40% increase in real household bills since privatisation was mainly due to continuously growing interest payments on debt – and not to growing costs and investments, as the regulator had reported.

Earlier, the Guardian noted that the chief executives of England’s privatised water companies banked £58m in pay over the last five years while customers have been faced with above-inflation rises in their water bills.

Inside Business noted that between their privatisation in 1989 and last year, English water companies ‘generated operating cash flows’ totalling £159bn in 2017-18 money, £36bn more than they spent on new pipes and infrastructure. At the end of this period they had paid £56bn in dividends and borrowed £51bn that customers will have to service and pay off over many years

It is suggested that this borrowing served only to pay financial returns to investors.

A year earlier, This is Money recorded that four water firms set up subsidiaries in the Cayman Islands, more than a decade ago, as – at that time – rules in the UK prevented them from raising cash on the bond markets. Though this is no longer the case, many have continued to use the offshore firms as interest payments made through havens often do not incur tax as they would in the UK.

The Greenwich study suggests much of this borrowing by companies served only to pay financial returns to investors: “We show that the skyrocketing debt levels are primarily the result of disproportionate dividend pay-outs”.

Britain’s existing model ought to change. Michael Pooler, in the Financial Times, sets out two ways to solve the problem of private monopoly:

“One is the solution the Labour opposition favours, which is to eliminate it by putting the companies into “not for dividend” public hands. Then you can set whatever social objectives you choose. Eliminating dividends certainly dissolves the conflicts of private ownership. The Welsh and Scottish water companies both have this model — and the latter has not suffered a notable penalty in efficiency versus the English companies, according to the regulator”.

The other is offered by economist Dieter Helm In the 2017 Cost of Energy Review commissioned by government. He suggested increased oversight of utilities, with regulators setting the desired outputs (new transmission connections, flood defences) and then opening them up to competitive tender from anyone — private or even state sources. He points out that Britain’s energy systems face a period of upheaval in order to deal with the challenge of decarbonisation and concludes that a new approach might achieve this shift more flexibly, and align returns a little better with the real risk taken.

The FT notes the involvement of ‘financial engineers’ whose main objective was draining value from these private monopolies, adding that this is what has spurred the interest in renationalisation.

Under Jeremy Corbyn, the Labour party has come out firmly for the renationalisation of rail, water, energy and the postal service. At the Labour party’s annual conference in September, the shadow chancellor, John McDonnell, promised to bring “ownership and control of the utilities and key services into the hands of people who use and work in them”.

The Greenwich analysis found that the public-owned sector in Scotland delivers the water and sewage service just as efficiently and at a lower cost to consumers and Inside Business (reluctantly?) concluded that the Labour party’s attempt to nationalise them ‘cannot be dismissed as a paleo-socialist blast from the past’.

 

 

 

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What Labour should do now: inspire, promote and oppose: Professor Paul Rogers

In an Open Democracy article, Professor Paul Rogers focusses on the critical need for the Labour Party to inspire its electorate and the wider public.

It should:

  • Inspire people with innovative approaches on many key issues,
  • promote specific examples which illuminate the potential of a Labour government,
  • and oppose by repeatedly focusing on the problems that the Conservative government will be facing.

Rogers continues:

“The dominantly antagonistic and right-wing national press will cause all the trouble it can, especially for Jeremy Corbyn but also for Labour as a whole. Even so, large-scale public meetings will get local print and broadcast media coverage, with these outlets much more sensitive to viewer and reader opinion. Remember that many provincial dailies have readerships in their circulation areas that are close to the combined local readership of the nationals. Moreover, social media lend themselves to useful coverage.

“In doing this, one way to have a real effect is to change the nature of the whole debate. This still means speaking to and for the alienated and the marginalised – as a transnational elite presides over a relatively sidelined majority. . But it also means bringing in major new elements, some domestic but other clearly international, the latter focussing on Britain’s potential role in a post-Brexit world.

“So here are three domestic and three international elements. They are not exclusive of others or of issues already to the fore. They are merely examples – and there may well be better ones.

First, domestic:

Business

Invest in SME support but strengthen financial regulation, especially in the finance sector itself. Demand hugely more effective action on tax avoidance, but fund HMRC to ensure it has adequate expertise. Seriously take on tax havens. Increase higher tax rates. Offer fiscal and other support for mutuals, cooperatives, co-ownerships and other forms of business organisation. Halt and reverse creeping privatisation of the NHS and education while investing seriously in many elements of the national infrastructure.

Transport 

Cancel HS2 and replace it with heavy investment in upgrading the capacity and quality of rolling-stock on all major intercity routes. Opt for modest increases in speed but more emphasis on passenger comfort, especially less overcrowding. Invest in rapid and systematic electrification across the north starting with the Trans-Pennine route. Take Southern back into public ownership now and return railways to public ownership as franchises expire but within franchise periods if companies fail to deliver to newly set higher targets for service delivery.

Energy

Cancel Hinkley Point and replace with heavy investment in renewables, with far more emphasis on wind energy, both onshore and offshore, and invest heavily in research and development of new systems for generation and especially storage. Reverse recent government downgrading of green policies and put far greater emphasis on energy conservation.

Second, international:

Post-Brexit 

Accept Brexit, but use it to argue for a new international role for Britain which combines continued commitment to Europe as a whole with far greater emphasis on worldwide links, not least the Commonwealth. Thus, argue for the UK being in the unique position of unrivalled connections to Europe, north America and the global south, in facing the common global problems of the failing neoliberal economic system and critical environmental pressures.

United Nations and Security 

Support and commit strongly to effective United Nations peacekeeping, including a commitment to lead investment into a UN Emergency Peace Service. Prepare to lead on this, including a highly trained multinational standing force with Britain at the centre. Make Britain as the lead player in this field. Accept that the wars since 2001 have been disastrous and have left countries, including Britain, less secure. Demand a complete rethink of strategies using the best available analysts given a free rein to propose new options, however radical. In the light of Chilcot and the continuing problems with ISIS, this will strike a chord.

Environment and Development

Emphasise that climate disruption is the greatest long-term security threat to everyone, but especially to the marginalised. Maintain the development budget in full but call for the reform of DfID towards a far stronger commitment to action on deep poverty and gendered and sustainable development, all in the context of persistent anti-corruption policies.

In all cases, argue with confidence and never fail to remember four elements:

* The Conservative government has already had to reverse core policies

* The 2008 financial crisis had its origins in the banking system, starting with the toxic loan debacle in the United States. It was not the fault of Labour, but Labour had failed to regulate the financial sector adequately. The party will not let this happen again

* Individual bankers, hedge-fund managers and the rest are not the problem – it is the system itself which is the problem, because it is far more deep-seated and entwined with the progressive failure of the neoliberal economic system after forty-plus years. Only Labour recognises this and is ahead of the times, not behind them. Repeat this with confidence

* The greatest global threat comes from climate disruption – repeat ad nauseam.

Source: https://www.opendemocracy.net/paul-rogers/what-labour-should-do-now (2016)

 

 

 

 

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