Labour in Liverpool: more clarity on ‘public control’ and investment routes for water?

(by Karma Loveday)

As the Labour Party conference continues in Liverpool this week, ministers are expected to set out more thinking on ‘public control’ and how water should be run and financed, as part of an agenda to drive long-term public good from essential services. 

Mayoral control / public benefit companies / public ownership:

A potential frontrunner policy is that turf rolled in The Telegraph a couple of weeks ago: that nine new regional bodies will be created (as proposed by Cunliffe) with mayors sitting on their boards alongside public health, customer and environmental officials. These bodies would reportedly set water company objectives, hold executives to account and consult with customers. The idea is that this fulfils the public control objective without saddling the state with the cost of nationalisation.

The idea has had a mixed reception. Investors – spooked by Andy Burnham’s pre-premiership talk of public ownership for Thames – seem all too happy to accept the regional authority plan idea. The new boards would not have fiduciary duties. At the very least, the model would be the lesser of two evils and preserve the existing model of financial control; at best it might help restore public trust and therefore political stability.

Critics range from those who fear an extra layer of bureaucracy, to those who outright reject that this route meets the moment. The latter includes some Labour MPs, such as Clive Lewis.

Meanwhile, public ownership campaigner We Own It has adopted the position of “No local leadership without local ownership”. Its response to the idea of mayoral control has included an open letter to environment secretary Angela Eagle and regional mayors, making the point that this falls short of need. It has also produced a new paper urging Ofwat and Burnham to let failing water companies (and other utilities, Royal Mail and social care providers) go bust and then scoop them back into the state at rock bottom cost. The report, How and why Andy Burnham should deliver public ownership, argues real public ownership requires all profits to be reinvested; 100% ownership by elected authorities; borrowing at cheap government interest rates; and representation for households, workers and the environment (“like anti sewage groups for water”) sitting on the boards of publicly-owned companies.

Similar points will be pressed in fringe meetings in Liverpool, including at the Good Growth Foundation’s ‘No watering down! What does the route to public control of water look like?’ event, and ‘The campaign for public ownership of water’ meeting hosted by SERA, Compass and Surfers Against Sewage.

Meanwhile, River Action has stepped up its campaign to press for Thames to be put into special administration (SAR).  Alongside a call for supporters to email Andy Burnham on this point, the group has demanded that SAR deliver in the public interest; that the SAR framework be strengthened through the Clean Water Bill; and that Government commission an independent feasibility study evaluating all ownership, financing and governance models for water companies. To capture interest, it has produced a book parodying The tiger who came to tea. The tiger in The tiger who came for our water represents “greed and financial extraction”.

An alternative route to public control without cost liability was floated in The Guardian this weekend by Will Hutton and Andy Haldane: that water firms be turned into public benefit companies. They argued this could be introduced within the current ownership and licensing framework, evading the need to compensate existing financiers, while constitutionally obliging the companies to prioritise the public interest and deliver high quality services. Potentially, the Government could take a ‘golden share’ in each company to hold them to high governance standards. Meanwhile, retaining commercial discipline and expertise (including possibly through a requirement for some publicly-traded shares) would further efficiency objectives. 

Infrastructure investment through public corporation debt: 

Assuming the industry remains in private ownership, Labour is understood to be keen to challenge the existing investment model in water, to prioritise patient capital over aggressive private finance. Exactly how remains to be seen, but one route for major project investment could be to enable public or development corporations to borrow from bond markets to finance significant construction projects. These corporations are independent but state-backed bodies, and typically can act as a one-stop-shop for planning and investment, often in a defined place. The Government has already created the Greater Cambridge Development Corporation to coordinate the swell of this nationally-important growth location. Others are proposed, including for new town developments.

Under the approach, costs and revenues (land value uplift, business rates, transport fares, affordable housing receipts) are structured so the project is viable and self-funding – not reliant on future general taxation. Capital is then raised on capital markets (directly or indirectly) as public corporation debt.

According to Number 10 documents leaked to Sky News, this idea was considered by the Starmer government, but is expected to be a good policy fit with the new government’s devolution agenda, enabling growth-critical infrastructure while skirting either spending cuts elsewhere or a general tax hike.

It would require an exemption to the fiscal rules, so public or development corporation debt is not counted in the national tally. That is the typical arrangement in Europe, and public corporations used to be very active here, including in the creation of the post-war new towns.

At The UK Water Report/Indepen Infrastructure Summit in June, Thomas Aubrey, founder and chief executive of Credit Capital Advisory, made the point that the UK’s infrastructure and housing challenges stem largely from a failure to integrate infrastructure investment with spatial planning and from an outdated approach to funding and financing, especially the near-disappearance of self-funding public corporation debt. Regarding water infrastructure, Aubrey noted for example that the successful expansion of Cambridge would help de-risk and spread the costs of the planned reservoirs in Cambridgeshire and Lincolnshire, as more households and businesses would share the cost base. Where the cost of capital is a concern, reservoirs could be financed directly via public corporation debt rather than purely private capital.