Environmental puritans tell us water is scarce and we should ration its use. They should take a look at their local lakes, ponds, streams and rivers. Have  they ever been to the seaside? Have they watched nature deliver  free water onto gardens and fields as rain ? Water is about  the  most common substance on the planet.

It is true some human intervention is needed to store water in convenient places and to clean it up if we want to drink it. Water is not  destroyed by use but returned to the water cycle, often in a dirtier form than before we used it from the tap.

Companies can offer us more water from rivers, from desalinating sea water, from underground water in acquifers  and from collecting more rainwater.We could each collect more of our own as rain from our roof.

If the monopoly was lifted there could be more innovation. Do we need all water to our house to be high drinking water quality? Could there be cheaper less processed water to flush loos and clean cars? Industry often has to take the additives placed  in monopoly drinking water out before using the water for their processes.They might like additive free water.

Would companies intensify  marketing home  systems for collecting and using rainwater for non drinking purposes?

I have accepted the strictures of the water hair shirt environmentalists as they have helped block bigger and growing  water supplies. I would like to be able to buy a sprinkler for my grass , use the hosepipe on my shrubs and wash my car more  often but do not  do so given the ridiculous  restrictions on supply.

What a nonsense that a leading  industry has to lecture its customers to use less of its product when it is all around us. Now there are problems  speeding digital investment in data centres given water shortages limiting potential supply to them. Why does the government of our country not want  us to be better off?

When I first made the case to  Margaret Thatcher in the 1970 s she argued “they won’t let me do that.” She was right that there was  public opposition to privatising a big utility, whipped up by Unions, management, civil servants and academics. They said a privatised BT would close all the street phone boxes still in use, would fail to invest enough, and put the prices up.
In 1982 she started to work on BT and in 1983 she invited me into Downing Street to make the case from the inside and to solve the practical and technical issues. We guaranteed the future of phone boxes , put in a price control requiring price cuts every year and licensed a new competitor who promised a big expansion of business based capacity. This got us through whilst the true answer of competition was gradually introduced.

There were immediate wins.

1. The investment spend of BT was removed from public spending for  good, Investment went up a lot with no cost to taxpayers.

2 The state got a large receipt for sale. As BT grew faster so the state got lots more tax revenue from taxing its profits.  This helped bring the deficit and taxes down whilst supporting higher spend on health and education

3.BT set about narrowing the gap with the more innovative and advanced US telecoms. BT adopted electronic switching in place of its old fashioned electromechanical system.

4. BT and Cable and Wireless  put  in large  capacity increases to power the big City expansion and service sector expansion. Public budgets would have restricted that.

5 When mobiles, then broadband arrived the private sector threw huge sums  at these exciting new products which a nationalised BT would not  have been able to do.

6.Competition brought many different phone and data service providers, often added a new cable connection to each home and greatly increased and modernised capacity.

The privatised water industry has invested £236 bn since 1990. It plans to invest £104 bn over the next five years.Its real investment rate has been double that of the nationalised industry it replaced. This rate of permitted investment has been too low to keep up with all the extra people invited in to the country, and too low to deal with all the worn out and leaking pipes it inherited from the nationalised predecessor. It has been sufficient to prevent collapse and too much rationing.

If it had been nationalised that means public sector debt would now be at least £236 bn higher. If borrowed at current rates for 30 years taxpayers would  be paying £13 bn more  debt interest a year. With all that extra  debt the interest rate charged would probably be higher.

All that assumes the industry was nationalised by stealing it from its current owners. The shareholders include UK pension funds like the Universities fund, UK savers, Canadian and Australian pension funds and other overseas investors. Advanced law abiding countries buy out existing owners when nationalising. If a government confiscates assets it leads to a collapse of private investment in that country for obvious reasons.The cost of the nationalisation would be an additional large debt burden on taxpayers.

The present government is right to rule out water nationalisation as too expensive. A nationalised industry would not speed up new reservoirs and sewers and would likely be more restricted  on how much  it could afford to invest by the state of national budgets. Many people commenting seem to ignore the big costs of the investment which would transfer  from private sector shareholders and banks to taxpayers and public borrowing. As they also want lower water bills that would mean less profit  or bigger losses by nationalised companies which would need to be paid for out of extra taxes. .

I am surprised so many of you think competition could not work with water. This  country has invited in an extra 10 m people this  century. There is no shortage of bread supplied by competing free enterprise but there is of water with Ofwat restricting monopolies from investing. There is no shortage of mobile  phones  and broadband cables supplied by competition, but a shortage  of social housing and roadspace supplied by state monopoly.

So what extra investment might be made by competing water companies?

1. More borehole water extracted and cleaned for supply to grid or direct to customers

2 More new reservoirs

3 Possible desalination plants for coastal cities

4. More sewage treatment capacity

5 Modern pipe  networks for new developments

6 Dedicated supply and pipes for  big users like datacentres and drink manufacturers

7 Possible competition to optimise use of river extraction licences

8. Possible use of canals to transport water between river basins to transfer more to drier places

9. Possible household systems to collect rainwater for garden or toilet flushing uses

10. Use of seawater for cooling of industrial plant and equipment

 

 

Making water a Statutory set of regional monopolies leads to high prices, poor service and shortage of supply. Competition is the best regulator. The competitive bread industry has expanded to meet the  demand of 10 m more people living here. Let’s do the same with water.

Too many tell me water is a natural monopoly because you only have one water pipe  into a house. Funny that. Most of us have gas heating or cookers. We only have one gas pipe . We can choose from a variety of gas suppliers competing for our business, using that single pipe.

We used to have just one copper cable into our homes to receive a phone service from a poor monopoly supplier. When the monopoly was removed by Parliament some competitors  offered to put a better quality higher capacity cable in for us to improve the service. We also started buying phones that worked on wifi.

There can be no downside to lifting water monopolies. In the  unlikely event that water is a natural monopoly nothing would happen. In practice as with gas and telecoms lifting the monopoly would give  us choice, more supply and lower prices. It could lead  to bigger better changes to be discussed another day.

 

As I have offered a rare post on the official Opposition I am  offering  a couple of posts on the Lib Dems and Reform. In  the last General election the  Lib Dems got 12% of the vote and 72 seats. Reform got 14% of the vote and 5 seats. In recent polling Reform has surged to 30% and Lib Dems are around 11%.

Both these parties support a big change to our electoral system, favouring some variant of Proportional representation. The Lib Dems made a referendum on the alternative vote system a prime demand before entering Coalition in 2010. The public decisively rejected it. The Lib Dems now argue there are better systems.

I would urge both parties to drop this key demand. The Lib Dems disproved one of their own arguments about themselves  for PR in 2024 . They say  letting the person with most votes win results in unfair representation for smaller parties.Yet  Lib Dems with 12% of the votes  won nearly 12% of the seats. It is true the Reform vote was widely spread so they got nothing like their vote share. Conservatives also got fewer seats than vote share, but as the Lib Dems showed this is not always the outcome. Challenger parties under our system can target and win more seats.

The big reason to drop the policy is PR in a 4-5 party system will usually result in no party having a majority. Any party wanting a share in government has to abandon their Manifesto and promise to hammer out a compromise government programme with others. Voters are ignored as pledges are dumped in the scramble for power.That is less democratic,as the continent shows.

Campaigning for PR by parties that lost the last election can make them look like a bad loser. If by any chance the two parties pro PR did win a combined majority of seats they would be able  to vote through a PR measure given party discipline in the early days.  Some of their MPs might be  concerned that PR would lose them their seats at the next election. If they declined they then appear as more politicians who do not truly believe in the big ideas they propose.

If a party that believed in PR won a majority under our current system they might be tempted to break their promise to introduce PR.

Hearing a BBC Radio 4 programme on the HS 2 “Business case” reminded me of why I voted No to the decision in principle in Parliament to proceed with HS2. It made me think further about the great embroidery, extension and stupidity of many modern government business cases. The more complex and expensive they got, the worse in  practice they proved to be.

The BBC took us back over one of the big disagreements during the early years of Business Case expansion on HS 2. In the first case cutting the time of the journey gave the country a “gain”. It meant those on the train were  assumed to be travelling business people, would become more productive as they would save previous minutes from the journey which they could use to work in the office on arrival. So the designers went for maximum speed at considerable extra cost to save minutes for these mythical hard workers who couldn’t work on the train.

In later iterations it was decided with new technology business people could work very effectively on the train with wi fi, laptop and smart phone, so all that “gain” disappeared. The modellers decided there were collateral gains for everyone else in the economy from the ability of a business elite to travel well with laptop on a new fast line. These too became exaggerated.

To me a business case is not based on guessing what people might do on  the train or attributing side benefits to others. These are matters of judgement that do not generate revenue for the train operator or the state, in this case the same institution. As a businessman my experience of evaluating a new investment was based on asking two simple questions. Could the investment save total and average costs of production? Could it add significant revenue? It had to add enough extra business and or subtract enough existing cost to ensure there was a profit on the investment. It needed to guarantee it  could  cover its costs of capital.

This should have applied to evaluating HS2. HS 2 was never going to add a lot to total passenger journeys. It was designed to switch some passengers off existing services by offering them a faster and better service. Some thought this could be done whilst charging  at a premium price. Others thought the HS 2 nationalised rail would need to undercut the existing rail providers to draw passengers away from the present services. This led to the danger  that it would cut revenues and prices on current lines, leading to the demand for more subsidies for existing providers. A modest win for train travellers would be a big loss for taxpayers.  It was always likely given an estimated shortfall of demand in the early years of HS 2 that HS 2 would be loss making from the start.

Part of the way through the project the government switched its case from greater speed to help business to the need for more capacity. Covid then undermined the case for more capacity. It was always likely the cheaper solution to provide more capacity for growth would be improved digital signalling on the existing tracks, to allow more trains per hour to run on a railway that already existed.

The biggest reason the Business case was wildly too optimistic lay in the forecast costs. A £37bn project became a £100 bn plus project which then had to be cut down drastically in size to limit the excessive costs. It remains a major financial disaster the more that is spent on it. The taxpayer is unlikely to see any normal cash return on this investment. It neither makes rail travel less costly nor offers the hope of enough additional   passengers.

Every time the PM and the Foreign Secretary step abroad there is more money for a foreign country. Meanwhile at home the arrival of thousands of extra migrants adds to the costs of housing and looking after them. Here is  some of the extra spending this government has done that is annoying many taxpayers. It explains why this government has created a budget crisis for itself.

 

1. Money to Mauritius for Chagos give away. 100 years of planned spending, starting at £101 m a year but rising.   Say £20bn
2. Money to Singapore for energy transition  £70 m
3. Grants to home and foreign car makers to subsidise battery cars  £650 m
4. Other subsidies and grants for battery vehicles and chargers   £3.85 bn
5. Costs of illegal migrants and asylum seekers £5m a day or £1.8bn a year
6. Extra money to France to police their border – no figure given on top of £480 m past payments
7. Unspecified open ended costs of Scunthorpe steel, said to be £700,000 a day of losses, to come out of a general £2.5bn steel investment fund
8.  Increasing government administration budget by £154 m 2026-7 over 2025-26
9. HS 2 overruns  now saying a total Phase One to Birmingham cost of up to £80 bn  (original 2009 budget for whole railway £37.5bn)
10. Gift of fish to EU worth around £12 bn over next twelve years

I will run a few pieces on the other Opposition parties after my rare posting about the Conservatives.

One of the most distinctive policies the Lib Dems and Reform are adopting is more nationalisation.

Both parties think the taxpayer should run the water industry. LibDems want to convert the  companies into public benefit concerns. Reform wants to buy a 50% stake in them with taxpayer money. The government says it would cost £100 bn to buy the whole industry or  presumably around £50 bn for a half share. The Conservative Opposition and the government do not think this a good use of taxpayer money . They are against a big increase in government borrowing for this purpose when the state is already too much in debt.

The Lib Dems claim they do not need to nationalise. However, they want to put environmentalists on the boards, put the environment as a key aim, limit profits, control remuneration and returns to shareholders.  This means removing shareholder rights and rewards under normal company law. Existing shareholders would expect compensation or buy out. Why would the private sector invest more in public projects if a government treats shareholders in that way?

Lib Dems and Reform support the renationalisation of rail being undertaken by government. Both wish to see Scunthorpe Steel  renationalised. The government has not taken over the shares  in steel but is starting an expensive intervention into the company.

If a government did buy out the Scunthorpe shares presumably for very little it would have to commit to large and continuing subsidies . In order to save new steel making it would need to shut the two ageing blast furnaces and reline with extensive maintenance probably quite soon.  Maybe better to commit to building two modern blast  furnaces   and to allow MOD, rail and other state  steel buyers access to the steel to provide some orders..

It is difficult  to see the advantage of nationalising an old works when with less money you could co fund a new works with a partner that knows how to  make and sell steel.

Both parties need to reconsider. Nationalised British Steel lost taxpayers a fortune and spent much of its time making people redundant and planning its next works closure. Nationalised water tipped plenty of sewage into rivers and the sea and did not even measure and time the discharges or tell us what it had done. Water quality and investment improved with privatisation.

 

This is the talk I gave to the Policy  Unit in 1984 when we were advising on a potential reform of the City which became Big Bang. It was released with other surviving government papers after 30 years.I re issue it as Rachel Reeves is saying she plans a Big Bang style City reform. I don’t think so.The Reform Margaret unleashed brought in billions of new capital, new ideas, new jobs.