UK Politics Thread (Part 3)

I think that is likely, it is pretty clear that the past government sort of chucked all pretense out the window. But people who believe that an infrastructure investment campaign on the order of £30B needed yesterday can be launched without some significant profit-taking are simply deluded.

For OMERS, Thames Water has become a career killer. The guy who pushed the investment in 2017 was gone by 2018, having seen Thames Water hit with a record fine just 8 days after they closed their purchase from Macquarrie. The person in charge of the file thereafter has now been shuffled out as a consequence of the final write-off in May, where the OMERS board deemed Thames Water ‘uninvestible’. It has been remarkable to see how the water sector has been in absolute crisis for at least 7 years, and on the verge of collapse for almost 3, yet most of the UK has been sleepwalking. The current round of investment plans in discussion aren’t even to have a good, modern water sector, just avoid collapse and start eliminating catastrophic spillage. There are water treatment plants that were built in the early 60’s with an expected lifetime of 30 years still operating without substantial refits at any point - they were initially privatized to avoid the public needing to make the investments required.

For those interested, a solid discussion here from the OMERS(-critical) point of view May 17, 2024 « PrefBlog

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It ultimately needs to come back into public control. Any natural monopoly like Water, transport, etc needs to be kept away from the private sector.

Time and again privatisation proves to be a failed experiment. Privatised profits, socialised risk and investment.


Yes it needs to come back under public control but that is also worrisome.

Firstly there will be a massive temptation for water companies having secured a massive capital budget to lob it over the fence to a consultant and say, “sort me a work plan”. That consultant needs to be procured via a broken public sector tendering process. Once secured at great cost they think about stuff. Cash starts bleeding, before you even get a shovel in the ground. More tendering and so on, budget gone.

I would like to hope that water companies know their asset condition and where their priorities are (I had this very conversation with parts of Welsh Water) but I strongly suspect they dont.

So sure you can lob a heap of cash in that direction but the whole process of identifying work and streamlining procurement needs serious sorting beforehand.


You could equally say the same of public ownership. I think that is really a matter of ideological predisposition. Any natural monopoly is going to produce groups that see an opportunity for rent-seeking. Handing them over to the public sector just changes the label on the groups that carve out the rents. Perhaps you happier with bloated inefficient organizations paying unionized workers to preside over decaying infrastructure than paying dividends to fat cats, which is understandable enough I guess, but it is hardly in the public interest either. Writ large, it was the lignification of the British economy with that sort of organization that created the conditions to produce Thatcher.

My personal view is that they are just inherently very difficult precisely they are such a perfect instrument for rent-seeking. All things being equal, perhaps better those rents are more widely distributed than in concentrated private hands, but the problem with public sector monopolies is they very quickly grow aware that they are indefinite - which means entrenched. At least private sector managers can be displaced over terms, but then the problem you face is the need to structure and enforce agreements that require a longer planning horizon than the incumbents have control. It is difficult to get that correct.

That said, UK privatization has been a disaster for about a generation, it is probably no more reasonable to expect that the same state will get the next private management regime right than it is to expect they will get the next massive public infrastructure investment right.


I’ve read analysis that it has been mainly the case that the markets have acknowledged that it’s because Thames Water is a basket case, rather than being the general rule.


Which is why I think how it is handled is critical. The Pratley article and the one I linked aren’t that far apart - bondholders who don’t assess risk don’t deserve a bailout, but equally they have rights under the law that the UK ignores at peril. The equity recognized a while ago they have lost everything.

But it is important to note that it is not just Thames Water, but the entire water sector - and likely everything else in the circa 2000 privatisations.

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Uk roads and highways faced a similar catastrophy back in the 1980’s and early 1990’s. It lead to the development of a code of practice for highway structures that advised owners on how to manage their asset stock. While its advice you’d have to really good reasons not to follow that CoP and budget constraints is not one of them.

Of course asset owners lent heavily on the private sector to deliver this and still do, but as I alluded to above its a license to print money as well. But there is a system in place and many if not the vast majority of asset owners know the condition of their bridge stock, where the critiical structures and issues are and the estimated budget needed to restore it.

To my knowledge no such system exists for the water industry but in my mind there is no reason why it shouldnt. The basic idea behind it is 100% sound. They are 100% reactive and while the risk to humans is small the environmental risk is huge. One could argue that they arent following environmental legislation and its not veing enforced either.

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Psst Ben, they aren’t a political party.


On the water thing, I’ve just seen that bills will be going up but the extra is ring fenced for infrastructure improvements. Cash that isnt spent will be returned to customers. New powers for OFWAT too including prosecution for directors.

Take with a pinch of salt at this stage while i fact check it.

They feel like a governnent in a real hurry at the moment.

They don’t have a great deal of choice, and are serious enough people to have prepared immediate first steps. Thames Water has already defaulted on debt. I’d be curious to know what Kemble debt is trading at, but there is a good likelihood some has been snapped up by the same sort of entities that bought up distressed Greek debt, and will try to extract a premium from Labour’s reluctance to take a hard line on the bonds that would spook the broader market.


I would love it if they took a hard line on the bonds, because ultimately that’s the point of the market. You’re not guaranteed a return on your investments, and it’s frankly ridiculous to privatise the profits and socialise the debts.

Pity Labour seems to be taking the Ming vase approach into government.


Have @PeachesEnRegalia and Grimey ever been seen in the same place together??



Labour is in a tough place because of the nature of the sector, simply leaving the process to normal administration/bankruptcy proceedings would produce that hard line for the bonds (i.e. they end up owning a company with a huge regulatory obligation and an even larger management challenge). But that isn’t particularly palatable.

I wouldn’t be too critical of Labour at this stage for taking a cautious approach. No one has really done a damn thing about this problem for over two years of what really has been a crisis, and Labour is putting it front and center within days of coming into office. They don’t benefit from taking a hard Bolshie line right from the start. The signal needed is a willingness to deal, but with a hard enough edge - so that bond holders have a secondary market to turn to, but are also driven to do so.


I don’t imagine it to be a particularly Bolshie line, considering it’s literally the basis of capitalism, if you take risks you may get rewarded, but you may also lose your money. That’s literally why the bonds are trading at a discount, isn’t it? To compensate for the risks.

Just letting it go into administration and keeping their hands off would be the easiest, but that is not really an option. There are also loads of people calling for the bondholders to be wiped out completely, by government diktat. That is the Bolshie line, and it really isn’t the basis of capitalism to say the government can decide to step in and take whatever residual value there is away because they don’t like you anymore.

The UK water sector is worth some number. That number isn’t enough for most of the equity holders to get anything, for Thames at least is very unlikely to be enough for bond holders to get everything owed. The bonds are trading at a discount because the market knows that, but that isn’t the same proposition as dispossession - which is what many are pressuring Labour to do.


There is something wrong with the UK media and some people who seriously think that the public will be interested in this tv show with this 18th century twerp.


I find it rather distasteful that Rees Mogg has constantly used his children as part of his ridiculous “brand”. Most politicians go out of their way to keep their children out of the limelight, and it is one thing that the UK media rightly abides by.


Happy St Crispin’s Day to you, too.

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I haven’t read the article yet, and I have great respect for Jonathan Freedland. But, if Southgate is the bar for COMPETENCE, then UK is screwed.