Cooking the Books 1 – Uninvestible

That was the word used by Chris Weston, the CEO of Thames Water, to describe how the business was regarded by its shareholders in the absence of the water companies’ regulator, Ofwat, allowing an increase in the price charged to customers (Times, 29 March).

It’s an odd word, not to be confused with ‘uninvestable’ (with an a) which refers to some item of value that cannot be invested because it cannot be money-capital. ‘Uninvestible’ (with an i) refers to a project which those with money-capital won’t invest in.

Last year the US Commerce Secretary said that businesses had told her that China had become ‘uninvestible’ because it was too risky due to interference from the government there. In the case of Thames Water it is simply a euphemism for ‘not profitable enough’:

‘Thames Water Plc said its £18.7 billion ($22.7 billion) plan to strengthen its finances won’t get funding from investors unless the regulator changes the rules to allow fatter returns. The UK’s largest water company said delivering on its full business plan, published belatedly on Thursday, rests on getting £2.5 billion additional equity from shareholders for 2025 to 2030. However, it warned that investors can get better returns in UK gilts and investment grade corporate bonds. It called on the Water Services Regulation Authority, Ofwat, to make significant changes to the rate of returns allowed for regulated water companies. (…) Thames Water called for a “material move up in the allowed rate of return” set by Ofwat in its initial guidance’ (Bloomberg).

There is little sympathy from other capitalists for the shareholders (one of which is, ironically, the Chinese sovereign wealth fund). Jacob Rees-Mogg, a capitalist as well as an MP, tweeted:

‘Thames Water ought to be allowed to go bankrupt. It would continue to be run by an administrator, the shareholders would lose their equity but they took too much cash out so deserve no sympathy and the bond holders would face a partial loss. This is capitalism, it won’t affect the water supply.’

Monopolies such as the essential utilities —there can only be one national grid for electricity, gas or water — present capitalism with a problem. If left in private hands, the capitalists who own the distribution system are in a position to hold the rest of the capitalist class to ransom by charging a monopoly price. The way the other capitalists found round this has been either nationalisation, where the state runs the industry keeping prices down, or regulation, where the state imposes a limit on the amount of profit that the privately owned utilities can make.

Historically, the US chose regulation while Britain chose nationalisation until, that is, the Thatcher government in the 1980s switched to regulation. One reason for this switch was to attract outside capital to invest in them, which made the change as much ‘internationalisation’ as privatisation. This part worked, as illustrated by the fact that, besides China, another of the owners of Thames Water is a Canadian pensions fund.

With regulation, the private owners are not in a completely weak position as they can, if they are not allowed to make enough profits, simply walk away, as the owners of Thames Water are threatening to do.

There is a lesson here for the future Labour government whose plan for growth relies on offering private capitalist enterprises an incentive to invest in some project by the state part-financing it. These enterprises, too, will be in a position to put pressure on the government by dubbing some project uninvestible unless they are allowed ‘fat returns’.

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