Victor Anderson sees some dangers lurking in today’s investment summit.

The Financial Times on Wednesday October 9th ran a story on its front page reporting that investors have been complaining to the Government that the water industry is regulated too strictly! This is a view diametrically opposed to that of the vast majority of the British public, as numerous opinion polls have shown.

For example, a survey by the Chartered Institution of Water and Environmental Management (Spring 2024) found: “Ultimately, it’s clear that the public wants action and thinks the Government and regulators need to be tougher on polluters. Three quarters of the public think reform of regulation of the water sector should be either the main or one of the main priorities for the Government. A majority of people – about two thirds – believe water companies make too much profit.”

It’s also a view which contributed to some of the Labour, Lib Dem, and Green constituency victories in the general election.

The chief executive of the Global Infrastructure Investor Association was quoted as helpfully pointing out: “Some 30 international investors in UK water are also potential investors in energy, transport and digital infrastructure. But perceptions continue to be coloured by their experience in water, where the regulatory environment remains a red flag.”

The implicit threat here provides an explanation of why Labour’s response to the crisis in the water industry has been, though of course as always better than that of the previous government, so much weaker than the types of response favoured by the public.

The new Labour Government has set itself the task – with today’s international investment summit as a key moment – of raising more money from overseas investors in order to fix the UK’s crumbling infrastructure and some of the public services.

That puts them in a dilemma: either they promise weaker regulation than we already see in the water industry – and it would be hard to imagine the impact on energy customers or rail passengers, for example – or they promise higher than normal rates of profit for the investors. The latter seems a more likely option, but that takes us back to something like the 1990s Private Finance Initiative, which piled debt onto many hospitals and local authorities.

It will be interesting to see how they fine-tune the distinction between PFI, widely thought of as a discredited model, and the new arrangements. There is a debate in the House of Commons on Thursday in which they should get some scrutiny on that.

But why are they choosing this option at all? The Government doesn’t actually need investors to invest in particular parts of UK infrastructure, as former Cabinet Secretary Lord Gus O’Donnell has pointed out. It can simply borrow money itself, as it does nearly all the time anyway, paying out rates of return lower than it is likely to have to pay out to investors in particular projects and companies, and avoiding the inevitable hassle with those investors about standards and details of regulation, as well as any potential conflicts with what the public wants.

Why would they not do this? The answer appears to lie in the Treasury’s accounting rules about what counts as Government borrowing. But we now have a Labour Chancellor of the Exchequer: she can change them.

Victor Anderson is Vice-Chair of the Unitarian Social Justice Network.

Image: https://pix4free.org/photo/10509/regulations.html License: Creative Commons 3 – CC BY-SA 3.0 Original Author: Nick Youngson – link to – http://www.nyphotographic.com/ Original Image: https://pix4free.org/photo/10509/regulations.htm