Every socialist and idiot - but I repeat myself - is insisting that if Thames Water goes bust then this means every water company in England needs to be nationalised. This is, of course, wrong but then we are talking of socialists and idiots. The correct answer is that if Thames Water goes bust then this shows the joys of capitalism itself. Capitalists get things wrong and they lose their money. This is precisely the process by which the market system encourages people not to get things wrong.
Now, I’m at ASI, the very people who designed water privatisation in the first place, so of course I am going to say this. Yet it is still true even so.
Now note that this specific piece is about the specific issue of Thames going bust. Yes, yes, everyone wants to have arguments about how water privatisation has diminished the quality of water - something that is absolutely not true, not true in the slightest. English water has increased in quality more, at a lower cost to consumers, than the government owned Welsh, Scottish and NI waters. English waters may well have shit in them as a result of storm overflows - but less than they used to and less than in the other Home Nations. The quality and price effect of privatisation to profit making companies has been beneficial.
But, you know, socialists and idiots.
So, to the going bust bit:
The parent company of Thames Water has defaulted on a £400m loan as the crisis at Britain’s biggest water supplier deepens.
Bondholders were alerted to Kemble’s breach in a letter on Friday, triggering a formal restructuring process that will determine the fate of the company which supplies a quarter of UK homes.
Kemble’s failure to fulfil interest payments earlier this week comes just days after Thames announced that shareholders had cut off funding from the company, fuelling speculation that it could enter special administration.
And:
Everyone – Thames itself, its customers, the regulator and the Government – is at the mercy of its foreign ownership.
Self-interest has already kicked in among shareholders, who have refused to honour a pledge to pump close to £4bn of fresh capital into the company unless industry watchdog Ofwat agrees to a series of demands including massive increases in customer bills.
That Ofwat has refused to bow to these terms is neither a surprise given the industry’s longstanding track record of risible service and environmental damage, nor is it unreasonable.
As someone close to Ofwat rightly told me when shareholders pulled the plug last week: “They are looking for a very generous settlement. ‘Investability’ cannot mean customers are paying for financial engineering that has gone wrong”.
Now we can also mutter about how if people want more invested in the water system then people are going to have to pay more for their water. That’s what the price limitations are about here. The regulator is suggesting that more investment should come in without those investors getting anything for their investment - because the regulator won’t allow prices to rise to pay for the new investment. You know, standard political cakeism.
That foreign money bit is simple misdirection. We care if foreign capitalists lose their money, do we?
But to the going bust bit.
So, there are really two companies here (actually, many, but we can collapse them to two). There’s Kemble, which has defaulted on that loan, which is the holding company for the whole shebang. There’s also Thames Water, which is the operating company that also supplies the water. Thames Water is a regulated company. It’s got cash to keep going for another 13 months. At least. It’s ringfenced. The regulator keeps a beady eye on its finances and no, money cannot just flow upwards from Thames to Kemble. It can only do that if the regulator says yea.
Now, the allegation is that Kemble collected the dividends from Thames and paid them all out to shareholders. And that it then borrowed more to also pay out to Kemble shareholders. Leaving Kemble sitting on a vast pile of debt and then interest rates rose. Oh Dear.
The aim and purpose of quantitative easing was to encourage exactly this behaviour. Interest rates were deliberately and with malice aforethought lowered so as to encourage companies to borrow lots more. But even leave all of that aside.
So, the situation has changed. Interest rates are higher. Kemble can’t pay its debts. Kemble goes bust.
Good. Because capitalists who fuck up should lose their money. That’s the bit of the system that encourages capitalists not to fuck up.
Note what’s been happening at the government owned water companies in Wales and Scotland - they’ve not invested as much, not improved water quality as much and have also raised bills as much if not more. But they’re not going bust - because they’re not subject to capitalist market discipline.
Yes, sure, this does all seem a bit whistling in the graveyard. But it’s also true. The aim and point of sticking infrastructure companies into the capitalist and profit making (OK, attempting to make profit) sector is that the capitalists win when they’re efficient and lose their cash when they fuck up. This encourages efficiency and dissuades from - tho’ obviously not fully prevents - fuck ups. This also only works if fuck ups lose their money.
This is why we want infrastructure to be done by capitalist and would be profit making companies.
No, really, think of the alternative. The water companies could be run as efficiently as HS2……..