The water industry needs investment, not confiscation
Renationalising Thames Water will deter the investment Britain needs to grow, says Lord Johnson
Andy Burnham enters Downing Street with lofty, and in many ways admirable, ambitions to generate prosperity in the regions. But his plans will come to naught if he cannot first find economic growth – and the outlook is bleak.
The IMF expects Britain to grow by just one per cent this year, down from 1.4 per cent in 2025. The CBI has trimmed its forecasts yet again. Whoever leads the next government will inherit an economy that is stagnating, and a public that is running out of patience with excuses.
The government should look to investment, particularly from abroad. As investment minister, I saw how foreign capital creates businesses, brings new technology and boosts trade. A growing economy attracts more capital in turn, creating a virtuous circle. In a single 12-month period, we secured £91bn of investment into the UK – from Japan, the United States, Korea and the Gulf, from Tata in Somerset, Nissan in Sunderland and Google’s $1bn data centre.
We should remember that “Manchesterism”, the model on which Burnham now builds his national ambitions, was itself a triumph of private capital. Oxford Economics calls Manchester the star performer of the UK economy since 2008, and attributes that success to a stable, consistent investment framework for the private sector. I worked with Andy to get investment into the region. He was pragmatic, dynamic and sensible. In my view Burnham knows as well as anyone that Manchester’s revival, as one recent profile put it, was built on “striking hard deals to get capital flowing into the city”. It was not built on expropriation of assets from the private sector.
Yet for one of our most capital-hungry sectors, Mr Burnham now proposes precisely that. He wants greater “public control” of water companies – a “spectrum of intervention” running from tougher regulation to outright public ownership. On Thames Water he has been explicit: there is, he says, “an overwhelming case for public ownership”.
Since privatisation in 1989, water companies have invested more than £236bn in England and Wales
For all the dislike, even hatred of water companies, since privatisation in 1989, water companies have invested more than £236bn in England and Wales. Annual investment has more than doubled since the nationalised era. The story is the same in energy and telecoms. Does anyone seriously believe a renationalised industry would out-invest that record?
Of course, there have been problems, specific and general. As I have argued previously, politicians and regulators mistakenly focused too much on the immediate cost to the consumer and not enough on the industry’s long-term viability. The initial mandates also allowed excess leverage. Some companies have not been seen to be the custodians monopoly providers have a duty to undertake.
Welfare vs water
However, it seems bizarre to me that people think the state can run services. We have tried this to destruction. If you can give me one public service that you think is well run – let me know. We cannot even defend ourselves or keep the peace, let alone administer schools or hospitals. Please give me an example of a public infrastructure project that has been delivered on time and on budget. Faced with a choice – welfare or water infrastructure; which one will win? The rivers will lose. The economy will lose. You will lose.
The key issue here also remains the investibility of this country. International inward investment accounts for the majority of the water companies share base, as well as billions in financing. Confiscating their assets – as proposed by Reform UK’s Richard Tice – risks plunging the UK into a dark age of capital at a time when our very survival depends on being able to raise money for our companies. We should also note that our own pension funds are also heavily invested in this sector – this could be a terrible act of self harm to our own savers too.
Mr Burnham calls his approach pragmatic. The pragmatic lesson of his own city is that capital flows to where it is welcome and stays where it is treated fairly. If the next government is serious about growth in the regions, it must court international investment, not chill it. That is the only path to truly deliver prosperity across the country.
I always believe that the only way to get re-elected is to make your citizens better off then when you found them. The best way to do this is to encourage investment into the UK and not take, as we so often have, the easy path of nationalisation and confiscation. I hope the new PM does what he has done in the past and make this country the best place to invest in the world. Then we will prosper again.
Lord Dominic Johnson is a former investment minister