Water, railways and public v private
The business news that matters
Hello everyone and welcome to the latest Off to Lunch…
These are challenging times for the water industry. The government is working on contingency plans to take Thames Water into temporary public ownership because of concerns about its £14 billion of debts. Meanwhile, water bills may have to increase by up to 40 per cent in the UK to pay for sewage and upgrade facilities according to a story by The Times. Oh, and United Utilities has more than 200 engineers trying to fix a wastewater pipe that has been leaking since June 13 at a site in Fleetwood, Lancashire. There have been no-swim warnings at beaches in the area since the incident, including at Blackpool, pictured above.
The story about Thames Water was first reported by Mark Kleinman at Sky News. It came after Thames Water announced yesterday that its chief executive, Sarah Bentley, was unexpectedly leaving with immediate effect. The price of Thames Water’s debt has fallen sharply on bond markets today following the Sky News story. The Telegraph has reported that Thames Water is asking for £1 billion from investors to bolster its finances. Story here
Thames Water is owned by a collection of pension funds and sovereign wealth funds. These include Canada’s Ontario Municipal Employees Retirement System, which owns 31.8 per cent and is the biggest shareholder, the Universities Superannuation Scheme, which owns 19.7 per cent and is the pension fund for academic staff at UK universities, and the Abu Dhabi sovereign wealth fund, which has 9.9 per cent. Other shareholders include China’s sovereign wealth fund and Hermes, which manages the BT pension fund…
A spokesman for the Department for Environment, Food and Rural Affairs has responded to the Thames Water story today by saying:
“This is a matter for the company and its shareholders. We prepare for a range of scenarios across our regulated industries - including water - as any responsible government would. The sector as a whole is financially resilient. Ofwat [the water regulator] continues to monitor the financial position of all the key water and wastewater companies.”
The news about the potential increase in water bills comes from a story in The Times, which was the splash of the paper this morning…
You can read the story in full here. Sir John Armitt, the chairman of the National Infrastructure Commission and a highly-respected industrial figure, told BBC Radio 4’s Today programme this morning that an increase in bills was “probably not unrealistic” given that billions of pounds is needed to improve infrastructure. Sir John said that an estimated £50 billion is needed to improve sewage overflows over the next 25 to 30 years and that £20 billion is needed to boost water supply by 2050.
“As you can see we’re talking about very large sums of money to restore and enable our water infrastructure and our sewage infrastructure to be fit for purpose….”
He then added:
“Overall it doesn’t matter whether we are talking about water, road, railways, energy. At the end of the day, we pay - either as a consumer to the company who provides it to us, or we pay to the government through our general taxation. But we as a society have to decide what quality of infrastructure we want and then decide how we are going to pay for it and what we can afford.”
Sir John tried to calmly lay-out the public v private debate without being drawn on the emotive subjects of executive pay and dividends. It feels like this debate gets louder in the UK every day. Look at the railways too. More on that in the “And finally” section of today’s newsletter. You can read more about the leak in Fleetwood here
Other stories that matter…
1. More news on the housing market and house prices, which have taken a central role in discussions about the outlook for the UK economy as the cost of mortgages rises. Two in five sellers are accepting offers more than 5 per cent below their asking price according to a new report by Zoopla, the property website. 15 per cent are accepting offers more than 10 per cent below their asking price. Zoopla expects prices to fall by up to 5 per cent this year. You can find its full report here. However, David Smith, economics editor of The Sunday Times, says in his latest column that house prices won’t crash unless unemployment rises sharply, and that looks unlikely. Piece here. Lastly, the Resolution Foundation says that stamp duty should be halved on the purchase of people’s main homes. The think tank has proposed this tax cut as part of a package of measures that would make the tax system fairer and boost economic growth. Report here
2. An interesting summary of how AI technology has been implemented so far by Platformer, the tech newsletter. In short, AI is creating more trouble than it’s worth at the moment. This paragraph from writer Casey Newton summarises the piece:
When GPT-4 came out in March, OpenAI CEO Sam Altman tweeted: “it is still flawed, still limited, and it still seems more impressive on first use than it does after you spend more time with it.” The more we all use chatbots like his, the more this statement rings true. For all of the impressive things it can do — and if nothing else, ChatGPT is a champion writer of first drafts — there also seems to be little doubt that is corroding the web.
You can read that piece in full here
3. James Watt, the co-founder and chief executive of Brewdog, has written a new book called My 50 Biggest Mistakes as BrewDog CEO, which is due to be published next year. The craft beer brand has faced allegations from former staff that it has a toxic culture and has been criticised for closing bars. Watt has given an interview to Bloomberg about the book and how the company is aiming to float by August 2024, with London the preferred destination. Watt also criticised Brexit…
You can read more about Brewdog’s plans in Bloomberg’s news story here
4. Should UK businesses offer grandternity leave to older people to try to keep them in the workforce? Saga offers five days of paid leave to staff who have just had grandchildren and companies in the US are starting to do the same. Wall Street Journal story here
5. The Wall Street Journal has also looked at how the use of drugs has become widespread in Silicon Valley as tech entrepreneurs try to think of creative new ideas and demonstrate to venture capital investors that they are extraordinary. Piece here. Bloomberg’s Matt Levine has more on this, saying: “If you are a certain sort of tech founder you might start taking hallucinogens because your board of directors loves them, and then later have to stop taking hallucinogens because your board of directors hates them.” You can find Levine’s latest column here
And finally…
Ben Elton has written and presented a documentary for Channel 4 about the state of Britain’s railways in the north of England. Those who live in the north will be well aware of what Elton finds - train services are constantly delayed or cancelled and the ageing infrastructure desperately needs new investment.
Elton says he is passionate about railways, which is why made the documentary, but he is also a self-confessed “Labour luvvy” who described Rishi Sunak as a “mendacious narcissistic sociopath” on Laura Kuenssberg’s BBC show on Sunday. So his political bias is clear. Nonetheless, the documentary includes plenty of interesting facts, speaks to frustrated commuters and features an exasperated Andy Burnham, who is the mayor of Greater Manchester.
Elton travels from London to Manchester and then to Huddersfield, York and Durham. Those who live around these areas will be glad that the spotlight has been shone on the state of their train services. The documentary says that the UK government, and therefore taxpayers, are paying three times as much cash to railways as they did when it was British Rail and state-owned. “We are now paying more tax for a less reliable and much more expensive service,” Elton says. The railway is “locked in a spiral of managed decline”, he adds.
It’s an interesting documentary no matter what your political stance. You can find it here
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Best
Graham
Quite the juxtaposition to have the failing (privatised) railways and failing (privatised) Thames Water in the same post!