A new water regime must still reward private investors

Spectator

4 days ago

The weekend's torrential Yorkshire rain amid a hosepipe ban offered a handy metaphor for the chaos that has befallen the privatised UK water industry. Sir Jon Cunliffe's Independent Water Commission report – aiming for a 'fundamental reset' to restore public confidence, clean our waterways and ensure future supply – is welcome for the clarity of its central conclusion: that unfit-for-purpose Ofwat and a jumble of other regulators should be replaced by a single body with more teeth and comprehensive oversight of the sector.
So far, so good. Cunliffe – a veteran of the Treasury, the Bank of England and Brussels – can also be applauded for his bureaucratic cunning in tabling no fewer than 88 recommendations, in the hope that perhaps eight of them might actually be adopted. But one reform he was forbidden from contemplating was the renationalisation of water companies, whatever the alleged extent of their failures and dividend-gouging under foreign and private-equity ownership.
And that means future investment in leak-free pipes and reservoirs, supply to new housing and elimination of sewage slicks remains dependent on the willingness of private investors to put capital at risk – a mechanism widely misunderstood by consumers and campaigners who believe all shareholder rewards from water supply are somehow exploitative and wrong. Cunliffe's report talks about creating a stable regime that reduces uncertainty and thereby attracts 'low risk, low return' long-term investors, rather than (though he doesn't quite put it this way) the fast-buck financiers who gamed Ofwat so effectively in an era when successive governments were far less concerned with infrastructure improvement than the voter optics of lower water bills.
In the Commons, Environment Secretary Steve Reed gave grudging spin about 'fair' returns for shareholders who meet their obligations. I note his previous career in educational publishing and hope he has texts in praise of capitalism on his bookshelf, because having ruled out state ownership he must now embrace investors who will naturally be sceptical of Labour promises. At least Cunliffe has given him a blueprint.
Man of secrets
David Alliance, who has died aged 93, was a man of secrets. An Iranian immigrant trader who started buying up Lancashire cotton mills in the 1950s, he eventually controlled, in the Coats Viyella combine of the 1990s, most of what remained of the British textile industry. That he liked to hold his cards close to his chest made him a potent deal-maker but a difficult client for his ghostwriters, of whom for a year or so I was one – though my version of his memoirs remained unpublished, eventually to be overtaken by Ivan Fallon's A Bazaar Life (2015).
'You research it,' Alliance would say with a hint of irritation when I tried to probe him about his takeover battles or his clandestine role in rescuing Falasha Jews from persecution in Ethiopia. So inscrutable was he that in the end I missed the core objective of my commission, which was a book saying that treacherous boardroom colleagues had thwarted his efforts to sustain Coats Viyella as a global competitor against cheap foreign rivals, before forcing his 1999 resignation.
I suspect neither a nine-digit fortune from his second business empire in mail-order, nor a Lib Dem peerage, nor his name on what is now the Alliance Manchester Business School, brought consolation to his rather lonely later life. He seemed to have few real friends and I was never one of them, but I salute him as a remarkable entrepreneur.
Sinking flagship
'The knives are out for BP's Norwegian chairman Helge Lund,' I wrote in April. This followed the energy giant's shareholder-driven U-turn, refocusing on fossil fuels and dumping the commitment to renewables for which Lund and his former chief executive Bernard Looney were largely responsible. Sure enough, Lund's own plan to step down 'most likely during 2026' has been accelerated to this October. His successor, Albert Manifold, previously ran the Irish building materials group CRH whose product range, embracing concrete, aggregates and bitumen, demonstrates a relatively low level of ambition to approach net zero any time soon. Tellingly, its share price has more than doubled over the past three years while BP's has stayed exactly where it was.
Underlying that difference is the fact that CRH also led the current fashion for seeking higher valuations elsewhere by shifting its primary listing to New York in 2023. As the activist BP shareholder Elliott Management shouts about a need for decisive leadership to counter chronic underperformance, watch whether this sinking flagship of the FTSE 100 follows CRH across the pond. In one dramatic move, I fear that would nullify most of Chancellor Rachel Reeves's recent initiatives to inject new life into London's capital market.
Storm warning
I set off for my summer sojourn in France with a nagging concern about relative values. The Financial Times reports that the global cryptocurrency market has reached $4 trillion (£3 trillion) and is likely to go higher as funds flood in following the passage of Donald Trump's pro-crypto legislation. The market capitalisation of Nvidia, the Californian AI microchip giant, has also passed $4 trillion and here too pundits say there's further to go. Both those markers easily surpass the combined market value of the FTSE 100 – the top one hundred London-listed companies – at £2.1 trillion, which itself reflects an all-time high for the index at 9000.
Yet economies flatline, inflation ticks up, government debt soars and geopolitics are in perpetual turmoil. Something surely has to give, maybe next month, maybe in the more traditional crash month of October. Ah well, fine French lunches should keep me sanguine – and, I hope, beguile you when I write about them.