Thames Water Proves Privatisation Has Failed

Although he cannot resist an ill-placed dig at the unions, Ross Clark writes:

Why do the Conservatives find it so difficult to admit that the privatisation of public utilities has in many cases been a disaster? It was supposed to bring heaps of finance into public services, protect taxpayers from financial risk and bring prices down through competition.

Yet we have ended up with energy prices fixed by Ofcom, a rail industry which is swallowing vastly more subsidy in real terms than British Rail ever did – with unions bidding up pay to astronomical levels and taxpayers forced to cough up to fund those rises. Royal Mail has flogged off valuable city centre development sites while it jacks up the price of stamps and tries to wriggle out of its obligation to deliver post six days a week. And now we have Thames Water tottering under its enormous debts, its shareholders refusing to put in more money and water customers likely to be forced to bail it out.

The people who run our privatised utilities are ardent capitalists when it comes to rewarding themselves when things are going well. But then they turn remarkably socialist when things are going badly and they start looking to the government for help. Customers, needless to say, won’t have any choice because there is no competition for retail water consumers.

Is there any sign that private finance has enriched our water infrastructure? London has gained a new ring main water distribution system under Thames Water. Yet sewage is being dumped in rivers across the country at an ever greater rate (conveniently blamed on that great get-out clause, climate change), and water is frequently being rationed through hosepipe bans. Almost all the impressive infrastructure – great dams, pumping stations, sewers – was built when water companies were public corporations. All that seems to have happened under privatisation is that those inherited assets have been sweated, and in some cases sold off to developers. Private equity owners of these companies have taken out billions and piled on debt.

This isn’t capitalism. If it was, Thames Water would be allowed to go bust and vultures left to pick through its assets. But of course that isn’t going to be allowed to happen because Thames Water owns the only water supply London has. Utility companies have become complex hybrid structures which straddle the public and private sectors, with taxpayers generally the losers.

This would be my test as to whether or not an industry should be privatised: ministers must ask themselves what should happen if the privatised company gets into trouble. Can the government allow it simply to go bust or will it have to be bailed out in some way? If it is the latter, it shouldn’t be privatised.

Polls have been showing for years that there is strong support for the renationalisation of public utilities, with one recent survey showing 69 per cent in favour and only eight per cent against. But in spite of the party’s voter base having shifted to former red wall seats where voters are generally very favourable to public-run services, the party seems strangely reluctant to tap into this political gain. Privatisation is just too much tied up with fabled memories of the glory days of the Thatcher government.

There are, of course, good arguments against wholesale renationalisation of utilities: would taxpayers really appreciate having to shell out billions to buy out private shareholders? Then again, when you have a company which seems to be sinking, like Thames Water, or the rail companies which would be desperate to offload their franchises were it not for being feather-bedded by soaring public subsidies, why don’t ministers try sitting on their hands, letting capitalism do its usual, punishing work against poorly-run companies – and then pick up their assets, on the cheap, for the public good? Meanwhile, they should show some humility and admit that the privatisation of public utilities wasn’t all it was cracked up to be. The Conservatives might find themselves a bit more popular for once.