18 FEBRUARY 1989, Page 6


The unpalatable taste of water on the rocks


Woe betide the minister whose bill is described as a 'flagship' of the Govern- ment's legislative programme. This is a method of inviting nemesis alinost on a par with getting yourself described as a possi- ble successor to the Prime Minister (some- thing which has never happened to Mr Nicholas Ridley, though not so long ago he was being described as a potential succes- sor to the Chancellor), or being singled mit as a junior rising star (something which happens constantly to Mr Michael Ho- ward, the Minister for Water and Planning at the Department of the Environment). The Governinent's Water Bill is not only a flagship; it is also an icebreaker, carving out a path for the even more colossal privatisation of electricity which is due to follow it in 1990-1. And all the reports of the last few days suggest that Mr Ridley is now completely surrounded by pack-ice, with the temperature dropping rapidly.

First there was the condemnation last week by Mr Carlo Ripa de Meana, the EEC Environment Commissioner, of the Bill's provision for improving the purity of water supplies. Mr Ridley proposes time- tables of improvement for the water au- thorities and their successor companies, and promises not to prosecute them for non-compliance with the safety standards provided they are making real progress towards meeting them. Mr Ripa de Meana is not satisfied with this, and has threatened to have these clanks of the Bill declared illegal by the European Court.

Then there was the threat by four local authorities to challenge the Government's right to sell off assets which were transfer- red from them to the water authorities in 1973. Mr David Widdicombe QC, one of the country's leading experts on the laWs relating to local authorities, expressed the opinion that the Government does not own the water authorities.

Then the National Consumer Council (whose chairman is Mrs Sally Oppenheim- Barnes, a former Tory minister) published a report which argues that privatisation in itself does nothing to improve a public utility, and which criticises the Water Bill for its lack of sufficient safeguards for the consumer. And finally, this Monday, a poll in the Daily Telegraph suggested that only 15 per cent of the population favour the privatisation of water, with 75 per cent against. Even among Conservative voters, only 33 per cent of those questioned said they wanted more privatiSations • of any kind.

Some of these warnings can be disre- garded, of course — and there are few people better versed in the art of disregard than Messrs. Howard and Ridley. The National Consumer Council's criticisms can be answered by pointing to Clause 35 of the Bill, with its threat that 'if a water undertaker fails to meet a prescribed stan- dard, it shall pay such amount as may be prescribed to any person who is affected by the failure'. And the opinion polls can be ignored on the grounds that if governments paid any attention to polls on such matters we would still be dithering over whether or not to denationalise Thomas Cook and the pubs in Carlisle.

No one doubts that the Bill can be pushed through. But passage through Par- liament is not test of feasibility. Parliament is a command economy, with the produc- tion of votes largely dictated by central planning at the Whips' Office: Thatcherites need not be told, surely, that- the real test of any legislative product comes not in such artificial environments but in the harsh real world of the marketplace. And if the flotation itself is going to be a flop, all the whips and guillotines in the world will not save Mr Ridley. Old privatisation proverb: you can take a market to Water, but you cannot make it drink.

We are on the verge here of what may be the biggest and most embarrassing failure of official policy in the Government's present term of office; and, so far, the political implications of this have hardly begun to sink in. Previous privatisation launches have had their ups and downs, bUt none of their faults has been intrinsic and fundamental. Offer prices may be set too low (Amersham International) and plans can always be overtaken by events (as the BP sale was by the crash of 1987); Such problems are either incidental or extraneous. If the market refuses to buy the water companies, it will be for the most fundamental reason of all: that it does not know what they are really worth, and does not think it will ever get an adequate return on its money. The Government can scarcely say that it has been taken unawares. In 1986 Mr Ridley underwent the public embarrass- ment of shelving his plans for the privatisa- tion of water on the grounds that he needed more time to work out the details. Most of the Governments's thinking in the meanwhile has been concentrated on the areas of regulation and consumer protec- tion. It has tried to satisfy the popular mood of consumerism and environmental- ists, and has succeeded in doing so not enough to arouse the enthusiasm or even the approval of the public, but just enough to arouse the mistrust and suspicions of the market. And if the market's experts are mistrustful of the Government's myste- rious 'K' formula for limiting the profit element in the water companies' charges, what hope is there for the investor in the street, whO probably thinks that the 'spe- cial K factor' is one of those things you find listed, along with niacin and riboflavin, on the side of a breakfast 'cereal packet?

Profit regulation is not the only problem. Two kinds of massive capital injection are needed: one to meet the new high stan- dards of water purity, and the other to make up for decades of under-investment in the infrastructure of pipes and sewers. Some of these costs will be passed straight on to the consumers, giving the public the impression (already carefully cultivated by the 29 statutory water companies) that privatisation means huge price .rises. But m the costs will also partly be met by the Government, either overtly by giving extra last-minute grants for purification plant, or more discreetly by writing off debts or lowering the offer price. Politically, this will be the worst of both worlds. The public will feel that the industry is being sold off cheap, or that public money is being poured out to lubricate the sale; and at the same time it will notice the rise in its water bills in a way that it haS never noticed such rises before. The Government will be able to explain until it is blue in the face that people are getting better water and better drains, and that they would have paid for them one way or another in any case. But it won't wash. This is a privatisation which will earn nothing but blame and recrimina- tion. And if the voters pour cold water on Water, we can hardly expect them to be galvanised by Electricity during the crucial run-up to the next electidn. '