‘Complicated and expensive’: Burnham is right about the risks of nationalisation | Nils Pratley

gGood news for Andy Burnham: one of the top 10 water privatizations of the Thatcher era has already returned to public ownership. Thanks to a complex corporate saga at the turn of the century, Welsh Water, which serves 3 million people, gained not-for-profit status in 2001. They have no shareholders. Financial surpluses “go directly to keeping bills low and taking care of your water and beautiful surroundings,” As stated in the introductory article of the website.

How’s it going? After a quarter century without dividend-hungry shareholders, has the model proven its superiority? Not exactly. Welsh Water generally scores high on customer confidence measures, but its performance on bills and spills generally comes in the middle.

Wales Water was recently acquired “Sanctions package” worth £44.7 million – Fine from Ofwat by another name – due to “serious and unacceptable” Breaches in the operation of sewage plants “leading to excessive leakage into the environment”. Most companies faced fines in the regulator’s industry-wide investigation, but as a percentage of turnover (a measure of regulatory severity) Welsh Water’s 7.5% was the highest. Invoices, above industry average at £683 per year. Hafren Dyfrdwy, owner of Severn Trent, which is licensed in parts of north-east and mid-Wales, charges £48 less than his houses.

The sample size of one person is small, of course. But Welsh Water reminds us that it is too simplistic to think that all the sector’s woes can be solved simply by changing ownership. Boring factors such as access to capital, operational efficiency, technical prowess, management accountability, and regulatory rigor also tend to be important.

One suspects Burnham knows as much. Despite the excitement generated by calls for “stronger public control” over water and energy, he is vague on details. His only specific commitment was to say that nationalization was “what should be done” on the Thames, and even that statement is not entirely clear.

Does he mean full permanent nationalization? Or is he talking about private administration, which is different because it could mean a return to the private sector once Thames’ creditors have cut the inevitable part of their debt? (Shareholders have already been deleted).

For the non-Thames part of the industry, Burnham appears to have a long-term view. “This is about a 10-year plan with more public control, more public ownership,” he said. “I don’t think everything should be nationalized right away, because that’s complicated and probably expensive, but you look at different situations in different parts of the country.”

“Complicated and expensive” is a fair analysis. The Thames could probably be nationalized quite cheaply as the bargaining power of lenders (such as the market value of their bonds) weakens under political pressure. But nationalizing solvent water and energy companies is a different ball game. It would be difficult to buy for less than fair market value unless Burnham is prepared to go through a legal wrangling with institutional investors, whom he would likely want to keep around for other infrastructure adventures.

Two FTSE 100-listed water companies, United Utilities (licensee in the north-west of England) and Severn Trent, are valued by the stock exchange at around £10bn each, to which their own debts must be added. The government would receive assets appropriate to its spending, so transactions could be considered neutral from day one, according to a kind of Treasury accounting. But extra gilt exports would still be large. And the sums would rise even further if energy transmission networks were added to the list of targets, as some prominent think tanks claim. National Grid is worth £62bn; however, much of this figure reflects large assets in the US; SSE is valued at £29bn. These are big companies.

As for complications, yes they are real. High voltage transmission operators are in the first phase of a £70bn, five-year upgrade of the grid. It could take up to 18 months for ownership to change, and the difficulties are likely to cause Energy Secretary Ed Miliband to miss the 2030 deadline for clean energy.

Likewise, water companies are in vital catch-up mode to repair tired sewer and water treatment works; This is one of the reasons why Keir Starmer’s administration is not considering nationalisation. The state-run experience on HS2 is one to be feared, as high-speed rail also makes heavy use of third-party contractors to build new infrastructure, as do water companies. On HS2 these contractors had a picnic at taxpayers’ expense.

Meanwhile, comparisons with Burnham’s reorganization of Manchester’s buses are unhelpful. The city’s Bee Network is capital-lite; Public services are capital intensive. Nor are there any lessons on how train operators are brought in-house. This process was accomplished at zero cost by waiting for the franchises to expire (usually seven years, fixed). Water companies, by contrast, own their own assets and have 25-year transit licenses.

None of them say it can’t be done. If you believe that only the state should provide services such as energy and water, expropriation is of course the only way to go. And it has an undeniable benefit; The state can borrow more cheaply.

But remember that Sir Jon Cunliffe Independent Water CommissionIts report “compared results in countries quite similar to England and Wales”, which formed the basis of the clean water bill outlined in the king’s speech, and said its analysis “does not show that any model is universally better than another”. It was felt that “regardless of the ownership model, strong, evidence-based regulations are critical to ensuring the protection of customers and the environment.”

It is therefore suspected that the first phase of Burnham’s 10-year plan for greater “public control” could become a modified version of what the Starmer government already intends. As a reminder, the goal of the clean water bill is to “move the industry away from a system where water companies do their homework by implementing stronger, active control and oversight through a new and powerful regulator that can manage the water system in an integrated manner.”

The stronger element Burnham could inject would be more local direction in line with the devolution agenda she outlined in her speech on Monday. Indeed, Cunliffe’s water commission report contained an incentive to do so. Burnham had high praise for how the Greater Manchester Combined Authority played a role in demonstrating “how regional water planning can be further achieved through cross-sector voluntary participation”. The report cited a partnership between the GMCA, the Environment Agency and Combined Public Services to provide extra funding, prioritize certain projects and include more local input into planning overall.

One of the commission’s less heeded recommendations was that such partnerships should be formalized through “strategic committees” that include local political leaders. Elected mayors should have “opportunities to influence, inform, and be informed of water system plans for the purpose of sustainable growth,” the report said. All of this seems to tick a few boxes in Burnham’s thinking about devolution and “sense of place.”

Would this contribute to “more public control”? Of course not, if that means outright ownership of every British water company. Advocates of pure nationalization would not be satisfied. But politically speaking, Burnham can say that he took the current government’s blueprint and injected it with Manchesterism as a first step. The threat of tougher measures in the next parliament may remain in the background. In a fiscally constrained world where the government is struggling to finance its defense commitments, this would be a pragmatic path.

The Thames can still be treated as a separate case. For the industry’s biggest disaster and other companies caught in the same situation, all options for a solution may be left on the table. Even the water commission has acknowledged that a not-for-profit model, styled Water Wales, “could offer a possible way out” for companies entering private administration.

But it is suspected that Burnham’s “stronger public control” for the water sector as a whole will translate into a stronger role for local authorities in planning and steering the system. As Welsh Water shows, it is a world of exchange.