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Tory privatisation economics: try the London sewer, the mother of all scandals

Thamnes sewageAs an illustration of what the Thatcherite privatisations of the 1980s now mean, you could not have a better example than the London super sewer. It costs £4.2bn, and you might expect that Thames Water, the privatised company that controls the whole of its length, should obviously be expected to pay for it. Not a bit of it. They will fund just a third of it only, and the rest will be met by a team of investors which will own, manage and finance the projedt during construction and then supply sewerage services to Thames Water on a 125-year concession! But that’s just the start. Unusually for a construction project, the investors will receive an income from the first day, paid for by Thames Water’s 15 million customers. The surcharge on London water bills is likely to be £80 a year in perpetuity.

But here’s the main point. The risks of construction, including cost overruns, accidents or any other incidents at the project’s 42 sites, as well as any financial risks – such as another global collapse in credit – will be borne by taxpayers because the government is acting as guarantor. This is common for infrastructure projects where traditional insurers won’t cover the risk, so once again the privatisers take the gains and the public take the potential losses which could be billions of pounds, and Thames Water walks off all the way to the banks. There are two enormous scandals here. One is that if Thames Water were a publicly owned company or part of a national water company, the sewer could be built far more cheaply because governments can borrow money more cheaply than anyone else. Second, why shouldn’t Thames Water be made to pay for the project themselves when they have paid out dividends of £1.1bn over the past 5 years?

Then there are the tax implications. Thames Water is owned by a Luxembourg-domiciled consortium which includes the (Australian) Macquarie European Infrastructure Fund as well as Abu Dhabi and Chinese sovereign wealth funds. So Thames Water is racking up huge debts using EU-blacklisted tax havens to pay out massive dividends and executive fees, at the same time as expecting household consumers to pay a big chunk more themselves. Alongside a one-third increase in billing to its consumers, Thames Water have seen fit to grant a 60% pay increase to £2 millions a year to its chief executive – what for exactly? The mother and father of all financial skulduggery?

6 Comments

  1. swatantra says:

    That’s money down the drain, or to be more exact, into the pockets of the French and Spanish and German conglomerates.
    Its an absolute disgrace. Water and Energy must be taken back into Public ownership, at whatever cost to the Exchequer.

    1. J.P. Craig-Weston says:

      It’s merely a variant of Blair’s finical instrument of choice, PFI: In fact the physical sewer is merely an instrument, (excuse,) for what is effectively more tax farming by these large corporations and conglomerates, (acting simply as rentiers,) we build you a sewer and in return we get a potentially unlimited cut of the future UK tax take and right to extort payment from our, customers,” with threats as with the Smart metering schemes, (which allow the utility companies to disconnect even their most vulnerable customers remotely and arbitrarily without any accountability or the need for a warrant.)

      1. J.P. Craig-Weston says:

        What has actually happened here and this is at the rotten heart of all the PFI deals and why they are so economically corrosive and debilitating to both public finances and the wider economy is that for a mere £4.2bn, these consortia have now purchased a cut of our future tax revenues, (directly or indirectly,) more or less in perpetuity.

        I seem to recall that many of the same kinds of financial abuses are generally attributed as being root causes of the French and in fact of most other revolutions.

        1. Robert says:

          I’m on the smart meter my gas and electricity went off not to long ago, they said whoops sorry mistake an error a glitch but for two days nothing, we were told it was an accidental turn off .

          So they can just throw a switch and turn it off, so I asked how do we get away from this system and they said you cannot, so I said we are stuck with it, so I went to make sure and was told nope just join another provider which is what we intend to do.

          1. J.P. Craig-Weston says:

            On aggregate; cost and customer service we’ve been least unhappy with EDF, the best of bad lot, with British Gas being by far the worst on both counts.

            Our neighbor has just had a smart meter installed and has had her electricity supplier changed over to UTILITA, (a right bunch of fly by nights; who still owe their former customers money from the last time they operated as an electricity supplier,) by the housing association; without giving her notice information or asking for her consent.

            The housing association of course deny that they’d ever do such a thing, (dear me no,) but of course it’s still happened.

            Personally I’d give all these more or less dodgy scams a wide birth; Community Switch, (not a fan,) EBICO, (little more than a front for Southern Power,) and particularly UTILITA, (an appalling track record of what amounts to ripping off their customers and then doing a runner,) a wide birth.

  2. J.P. Craig-Weston says:

    By far and away the funniest, (OK; off topic but he made me laugh,) comment so far comes from Andy, “Fingers,” Burnham:

    “I’m the only person in this race who can beat Jeremy,” he said. “In the 80s, we started fighting each other and left the way clear for Margaret Thatcher to bulldoze her way through Labour communities. I’m not going to let that happen this time.”

    Shame he couldn’t muster the same amount of faux passion now being cynically deployed against JC; against the Tories instead, (among whom most people I know count, “all,” the other leadership candidates, (bar JC,) for the Labor party leadership anyway,” ) at the, general, election.

    They might even have won.

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