General opinion has it that British utilities are a conspiracy against the public. Across all the monopolies, the market — how we pay for our essentials — is broken. With each revelation, we appreciate there is a whole slew of exploitation, tax-evasion, price-fixing, ramping of prices, exporting profits and fiddling costings and — yes — plain old-fashioned corruption.
Ed Miliband came, late, to the party but his simplistic price-freeze has set the political agenda for over a month: four successive weekly sessions of PMQs have shown David Cameron struggling, losing his rag, thrashing around for a half-adequate response. And, even with a kludge, Cameron hasn’t addressed the other, more serious, half of the Miliband ploy —
“That’s why it’s so important that we implement Labour’s price freeze, which is what we’ll do, and reform a broken market so there’s proper competition, proper transparency and a regulator who can cut prices for consumers.”
Plans to curb hikes in water bills are being drawn up by the Government in a bid to halt above-inflation rises.
The Prime Minister’s spokesman said “action on water bills” will be announced next week and said the Government wants regulators to assess whether the market was “delivering for consumers”.
It is the latest industry to be targeted as part of David Cameron’s efforts to see “household bills coming down” and follows comments by Ed Miliband that water companies needed to be properly “scrutinised”.
A Malcolmian metaphorical aside
It’s a well-known factoid that success and victory have many fathers, while failure and defeat remain a bereft orphan. John Kennedy said so, of the Bay of Pigs episode. Admittedly, Mussolini’s son-in-law, Count Ciano got there in his diary, 9th September 1942:
La victoria trova cento padri, a nessuno vuole riconoscere l’insuccesso.
He was, in turn, glozing Tacitus from around AD98:
Inquissima haec bellorum condicio est: prospera omnes sibi indicant, aduersa uni imputantur.
Sure enough, among the political ever-open-mouths, there will be a whole cohort of wise-acres who saw this one coming, and claim ownership of the magic bullet.
Why, then, should one be surprised to spot eponymous Hands put to the pumps:
Disclosure of previous convictions
What is remarkable here is that Ofwat splashed in three weeks back:
Industry regulator Ofwat has rejected proposals from Thames Water to impose an 8 per cent rise on customer bills, saying the utility was not doing enough to control costs and pursue delinquent customers.
The UK’s biggest supplier of water and sewerage services by customer numbers put itself on a collision course with the watchdog in August, when it asked permission to add a further £29 to an average household bill that now stands at £354. Those bills are already planned to rise 1.4 per cent above inflation next April as part of the existing five-year pricing settlement.
This gives us a gauge of how successful Cameron’s intervention might be. If it’s an average of just £29, then he has gained nothing beyond what Ofwat has already committed.
Anyone reading the Financial Times earlier this week will know where this is going. There would seem to be two main approaches:
First, the Treasury has finally woken up to the water companies’ evasion of corporation tax. Thames Water (as the largest, plumpest and most egregious of the exploiters) paid no corporation tax on half-a-billion quids worth of operating profits. Moreover, those profits are based on a stupendous inflating and shuffling of debt:
Thames Water, which primarily raises its debt through a company based in the Cayman Islands, said it did not engage in any tax planning activities “that would be considered as artificial or aggressive tax avoidance”. The company is owned by Kemble Water Holdings, which is ultimately controlled by the Australia-basedMacquarie Group.
Net debt rose from £7.8bn to £8.4bn over the year. The cost of financing the debt weighed on pre-tax profits, which fell from £222m to £145m. However, a fall in the rate of corporation tax from 24 to 23 per cent from April allowed Thames Water to book a £5m tax credit towards post-tax profits. Revenues rose from £1.7bn to £1.8bn.
Even case-hardened Tories are taken aback by such depredations of private and public purses. Robert Halfon, the MP for Harlow (majority 4,925, Con gain in 2010) was calling for a windfall tax back in July:
“When I started looking into the sector I was genuinely shocked by what I discovered. We need tougher penalties on leakage, an immediate inquiry and we need to consider a water windfall tax, with the money handed back to consumers.”
Mr Halfon, of course, is quite flexible in his views. While he regards his own interventions on water as positive, he is more negative when similar proposals apply to energy:
Ed Miliband’s proposed energy price freeze is seductive for two reasons. First, it shows a real attempt to alleviate financial pain because of high utility bills, and second, it taps into a deep unease about the actions of big corporations. The public instinctively know that many large multinationals are behaving unfairly, charging more than they need for essential services, while their directors give themselves huge pay rises or bonuses.
However, seduction is not the same as a long-term solution. The price freeze is flawed because it will push up prices in the short-term and long-term. It is not clear how the freeze would work in the event of large increases in the worldwide energy markets. It could also put badly-needed investment in infrastructure at risk, threatening our long-term energy security.
Second, the government still has it in for the lower orders. Iain Duncan Smith’s assault on the undeserving poor can now be extended to their water supplies, to the greater public benefit:
Ministers will use the water legislation to allow companies to take more aggressive action against customers who fall behind on their bills. The government wants to force landlords to give companies access to details of their tenants so they can be taken to court if necessary. Ministers estimate that this could shave £15 from other customers’ bills.
So, we can expect Cameron sporting the breastplate of righteousness at next week’s PMQs. For, by no coincidence, Owen Patterson, the Environment secretary, will be making a statement immediately thereafter. If Patterson cannot go beyond a pledge of fifty quid off (based on Ofwat’s £29 and this £15), it’s all a paint job. Be assured, too, the popular press will be counting the money, rather than any airy pies-in-skies.
Whether it distracts the nation’s attention from Miliband’s more valuable offer is another matter.