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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is MP for Witney and a member of the business and trade committee
Historically, the UK has been considered a good location for investors because we had an international reputation for having sensible, effective rules, which would keep their investments safe. They could take comfort both from the rules themselves and from the regulators, who could be relied on to ensure that they were upheld.
But the previous government showed a growing disregard both for the rules and the regulators and, disturbingly, the current government now seem to be following in its footsteps.
I was recently given permission to intervene, and speak for the public interest, in the court hearing where Thames Water’s proposed debt restructuring plan was being considered. But the regulator, Ofwat (and the government for that matter), have been completely absent from the formal proceedings.
The terms of this emergency loan are extraordinary: £900mn of the first £1.4bn of new debt will be siphoned off in eye-wateringly high interest rates and advisory fees. In other words, less than half the amount the company is looking to borrow will be available to provide any of the repairs to our water and sewerage system that are so desperately needed.
Without the court allowing me to speak for them, the interests of Thames Water’s 16mn customers would have been entirely unrepresented — even though they will ultimately be the ones footing the enormous bill because they are the only source of revenue for the company. Customers are already seeing their water bills go up by more than 35 per cent and Thames Water believes they should go higher still.
Yet Ofwat chose neither to appear in court nor call Thames Water out on its appalling financial mismanagement. Instead, it has repeatedly overlooked breaches of the company’s licence. For example, Thames Water is required to have two investment grade credit ratings. Currently, it has none. S&P now ranks the company’s debt 12 notches below investment grade and Moody’s 9.
Thames Water’s appalling and illegal pollution record is well known. But it was not Ofwat who brought attention to their record of illegal sewage dumping — instead it has been a small army of citizen scientists testing waterways in their local area and campaigning for a clean-up.
Now Ofwat has somehow managed to overlook what amounts to a change in who has ultimate control of Thames Water, a key term in its licence to operate. It has refused to acknowledge that lenders are now the ultimate controllers — they now have “material influence” over it — even though this was discussed in court.
Ministers seem reluctant even to express an opinion, preferring to rely on the findings of Sir Jon Cunliffe’s inquiry into the water industry more widely which will only be published in June. They should not be sitting on the fence: Thames should be brought under the government’s special administration regime as a temporary measure.
Its privatisation in 1989 was not designed in such a way as to encourage a true market or competition — indeed, it is hard to have effective competition where there is just one pipe network and no rationale for more. This is why tough regulation is so important.
But government appears to confuse measures that are helpful in ensuring healthy competition with those that pander to big business under the guise of supporting growth.
Take the Competition and Markets Authority — the very organisation charged with ensuring fair and healthy competition — where the former country manager of Amazon UK has been installed as interim chair. Ministers say this sends a pro-growth message. To me, the message it sends is that monopolists can now rest easy.
As for the Financial Conduct Authority, the city regulator’s response to the business and trade select committee’s robust questioning of clothing company Shein ahead of its bid to list in London, shows that it is not doing what is required by investors. At a minimum, the FCA needs to ensure that necessary disclosures are made, in this case regarding the risks of forced labour in supply chains.
Here’s the point: enforcing robust rules keeps prices low, stimulates innovation, encourages growth and protects both consumers and investors. For our beaches and waterways, which have suffered from decades of neglect and even deliberate damage by the water companies, regulation has been ineffective, failing on all these points.
The government promised to secure the highest sustained growth in the G7. It is clearly not on track. But encouraging regulators to be slow and weak will not help tempt investment to the UK. Instead, the government needs to give them proper teeth — and encourage them to use them to ensure free, fair and open markets.
