Show Notes
The privatisation casualties are starting to stack up – earlier failures included Railtrack, and more recently there is Thames Water. Royal Mail is struggling to deliver the post; Bulb and over half the energy supply companies failed; and BT is struggling to find a way forward. Is there a trend behind this, and what does it mean for the UK’s core infrastructures?
As real interest rates rise, the financial engineering that regulators allowed to happen has started to unravel. Thames Water geared up to 80%, Heathrow even higher, and most of the energy distribution companies are carrying a lot of debt. Their priorities risk becoming the servicing of their debt over and above their capital maintenance and the performance.
Some think that it’s simply a question of reversing the privatisation, but it’s hard to see how nationalisation will resolve the issues. Abolishing dividends does not abolish the cost of capital. Finding the money for investment just gets a whole lot harder. The Treasury has other competing priorities in a highly constrained public finance context.
Proper regulation is what is needed now to deal with the casualties and to prevent a trickle becoming a flood. Failing companies need to be taken into special administration and restructured, with a proper balance sheet and with new owners brought in to run the company. This needs to happen to Thames Water – if it doesn’t, a terrible precedent will be set. Clear performance and environmental requirements need to be reimposed. A line needs to be drawn, with companies regulated to operate in the interests of their customers; nationalisation simply kicks the can down the road.
More from Helm Talks - energy climate infrastructure & more
Many voted to stay in the EU (including me). Rejoining the EU may sound simple, but the Europe Britain left no longer exists. With a string of major elections approaching and far-right nationalist parties surging across the continent, a future EU could be shaped far more by figures such as Le Pen (France), Meloni (Italy) and the AfD (Germany) than by the centrist consensus of the past. If a more Gaullist Europe emerges, one of the biggest obstacles to re-entry may be a simple question from Brussels, Paris and other capitals: why would they want Britain back?
Britain faces a crisis of delivery. From nuclear power stations to airport runways and water infrastructure, costs have spiralled and timelines have stretched into decades. How has a major modern economy become so incapable of building what it needs? From amongst the most expensive nuclear power stations in the world, to huge costs for airport runways and the absurdities of the HS2, Britain is an infrastructure basket case. This matters not least to ensure that the economy can grow, as the politicians keep talking about.
As oil prices continue to fluctuate in global markets, Britain’s energy costs have become a distinctly British crisis. They cannot be explained away as a temporary consequence of global events. Industrial electricity prices continue to be among the highest in the developed world, consumer bills remain high, and there is little prospect of relief even in the longer term without a fundamental rethink of policy.
Recent prime ministers have become very good at the politics of the long grass, and Andy Burnham is at risk of following this line. Promise the big things: growth, clean rivers, better defence, cheaper energy, new nuclear, decent transport and social care. Then push the hard choices beyond the next election, offer short-term palliatives, and hope that someone else will eventually pick up the bill. The result is not merely delay; such an approach actually results in higher costs in the long term, weaker infrastructure, and yet another obstacle to the growth that he, and many of his predecessors claim to want.
Following on from the latest change of Prime Minister and announcements about his new Cabinet, what is going to change? Andy Burnham has a new ten-year plan, and is promising a fundamental revision of politics, but Britain’s deeper economic problems remain unresolved. The fact is, underneath the headlines, the country is still trying to live beyond its means, with high borrowing, weak growth and rising debt interest putting serious pressure on its public finances.