ALEX BRUMMER: Utilities drowned in debt

The fight to organize a Thames Water rescue continues. But one has to wonder how come the regulator Ofwat or anyone in Whitehall failed to see how its debt level of 80.6 percent of capital (against an industry average of 68.5 percent) posed a potential existential threat in an era of rapid growth. interest rates.

The start of water privatization in 1989 was one of the last acts of Margaret Thatcher’s tenure.

As always, with such a radical approach to public services, there were voices against it.

Successive Labor governments regarded public property as an act of faith until Tony Blair removed Article 4 in 1995. It’s hard to imagine Keir Starmer’s Labor Party going down that road again.

Despite the difficulties encountered in the privatized sectors, it is hard to argue with the Thatcher Revolution, which wiped out centralized financial decision-making across large parts of the economy.

Britain’s privatization model, in various guises, has been adopted around the world and has become a core feature of International Monetary Fund interventions and advice.

So what went wrong in the UK? The Thatcher idea of ​​shareholder democracy, similar to that in the US, was embraced by the public, as evidenced by the response to the 1986 ‘Tell Sid’ campaign, which took British Gas to the London stock market.

The privatization of British Gas has indeed been a great success. The split into three companies – the network company Lattice, the exploration division BG Group (sold to Shell for £55bn) and Centrica – proved to be a rewarding investment. Remarkably, all parts remain largely in British hands.

The catastrophe for the water companies, the energy industry, much of the steel industry, the railways and the airports is that they could so easily fall into indifferent overseas ownership with complex financial structures. This would never help the investment needed to modernize Britain’s infrastructure and industrial needs.

One of the paradoxes is that much of the big sell-out to foreigners, with little interest in British consumers and industry, happened in the Blair-Brown years of government with barely a raised eyebrow.

Indeed, in the case of power, Gordon Brown’s utility tax, to pay for well-intentioned youth employment programs, spurred several foreign takeovers.

With the exception of Electricite de France (ironically state-owned), most of these deals saw dividends shifted abroad rather than invested in Britain.

Trigger: Gordon Brown’s utility tax, to pay for well-intentioned youth employment programs, was the trigger for multiple foreign acquisitions

At Hinkley Point in Somerset and possibly Sizewell C in the future, EDF is proving to be a reliable partner in securing Britain’s nuclear future – using home-grown contractors.

Contrast this with Spanish, Iberdrola-owned Scottish Power, which has funneled dividends over the years to fund its wind farms around the world rather than investing more heavily in Scotland’s climate change and consumer agenda.

SSE, one of the few UK energy companies to remain listed on the London Stock Exchange, is the energy group that has invested the most in zero carbon production. As for Heathrow, the sale of BAA for £10.3bn to indebted Spanish construction company Ferrovial has been a disaster.

It hindered investment in infrastructure and proposed dividends and bonuses for foreign predators on carriers and consumers. The result is one of the most chaotic and unreliable airports in Europe.

The owners can never resist the opportunity to provide landing fees or increase user fees with extortionate parking 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 £6.2 billion in 2007 has led from one crisis to another.

Could all this have been prevented?

If the government had kept a gold stake in the public utilities in the same way as BAE Systems and Rolls-Royce, the invasion of debt-laden, financially driven buyers could have been driven out.

It is also clear that regulators, particularly Ofwat, were far too fixated on consumer prices to recognize the dangers of complex, securitized ownership structures.

The price for the sinners goes to wimpy administrations who have raised the white flag and gone with sacks of money on the horizon – and to the investors in long-term pension funds who control money over the national interest.