The real problem with Britain’s water companies
The real problem with Britain’s water companies
Blame financial blunders and timid regulation, not privatisation
Blame financial blunders and timid regulation, not privatisation
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Now it is time to spend more. The costs will fall on consumers: one way or another, if Britons want cleaner water they will have to pay for it. Private investors will demand a higher return on any funds they put in, especially if the water companies’ scope to borrow is limited.
But talk of nationalisation is a distraction—and a poor use of scarce public funds. Whether water companies are owned by the state or remain in private hands, a fierce watchdog will be needed to keep the industry in line. Indeed, elected politicians would probably be even more reluctant than arms-length regulators to spend taxpayers’ money or raise bills to pay for necessary investment. Those regulators will, at least, now have the cautionary tale of Ofwat’s failings to guide them.
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I think the argument of the article is:
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Privatisation + weak regulation = underinvestment, as private owners don't have the incentive to spend the money to invest for the long-term.
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Nationalisation = underinvestment, as putting politicians in charge means they'll be too sensitive to the impact on voters of charging them (either via taxes or water bills) for investment in the infrastructure.
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Privatisation + strong regulation = needed investment, as strong regulators can be more demanding of water companies but can do so at arm's length from politicians.
It's a double edged sword. A private company with a strong regulator might have more appetite for investment. However, a private company might also do their utmost to work around any rules, investing as little as possible to make the most profits.
Which is why the 'strong' bit of 'strong regulation' is key. Not just write some hands-off rules and call it job done, but ongoing supervision by the regulator.
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I just think its hard in principle to justify making money off an essential for life service.
There are many good arguments for nationalising an industry - particularly a natural monopoly - but I always find 'we need it to live' to be a weak argument. We need food to live, we need shelter, we need clothes - would you nationalise the supermarkets, the housing stock, the fashion industry? The government's role in these things should be to make sure that the things we need to live are made available to people, but I'm relaxed about whether the provider makes a profit for their shareholder or claims a subsidy from the taxpayer - either way, we pay for it.
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The difference with electricity is that I can change provider without having to move house
There is no competition between water or train companies
Trains are different. There isn't market competition between the Train Operating Companies (TOCs) so they created a system of pre-market competition when they privatised them - the competition takes place when TOCs bid against each other in the auction for the local franchises every five (I think?) years.
The bit of the rail network over which it's much harder to introduce competition is the actual railways themselves - which is partly why the railways were renationalised by Labour in 2002.
Water companies don't/can't compete against each other though - that's the reason even the Thatcher government thought it was necessary to give us a system of price cap regulation in order for them to operate privately. But as I've said above, the problem with water isn't monopolistic pricing, it's underinvestment, which wouldn't obviously be solved under public ownership either.
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Yep, which is why Spain's inflation rate has fallen so quickly because they unlinked the gas price from electricity
There is competition between electricity firms on price, unlike water though.
But, the same principle doesn't apply with trains. You can't have multiple train opcos on the same route, it should be nationalised.
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