BRITAIN FOR SALE

ON SATURDAY in the Mail, our City Editor Alex Brummer revealed the price we’re all paying in higher bills for having sold off half our companies to foreign owners. Here, in the second extract from his devastating new book, he warns that with so much of our vital utility companies in foreign hands, we are now at the mercy of conglomerates that could bring Britain Plc to a shuddering halt . . .

EVERYONE feels it’s their right to have water when they turn on a tap — just as we all assume a flick of a switch will produce light. These are public services we take for granted. We also expect our airports to function properly and care homes to treat the elderly with respect. True, most are now owned by private companies, but we tend to assume the public interest always comes first — such as plugging leaks and renewing water pipes, rather than providing fat profits for shareholders.

But what happens when most of Britain’s essential public services are no longer run by the British? It’s a crucial question that politicians dodge, as one company after another is sold off to foreign masters.

Roughly half of all our essential services — from water to bridges and ports — now have overseas owners. And in many cases, there’s disturbing evidence to suggest the public is losing out — and will continue to do so.

Why? Because not only are foreign companies out to make fat profits as speedily as possible, but they’re not as concerned as a British company would be about public opinion. They owe no particular allegiance to this country, and their foreign fortresses shield them from our bitter complaints.

Take Scottish Power, now owned by Spanish firm Iberdrola. Last year, after a series of price increases, it announced its customers would have to pay yet more for their gas. Scottish consumers were furious: in five years, their energy bills had risen by an average of 40 per cent.

So you can imagine the reaction when, just weeks after the latest hike, it emerged that Scottish Power had piled up vast profits. So much so, that it had made an £800 million loan to a sister company in the U.S.

This was not illegal. A utility company with an international reach can transfer profits from one part of the world to another rather than reinvest them in infrastructure, service and lower prices in the host country.

Among the critics of Iberdrola was Glasgow MP John Robertson, who said: ‘It seems beyond the pale to be hiking prices in the UK when the company has lent £800 million. It’s in no one’s interest to have energy companies milking the British consumer at a time when households are struggling to make ends meet.’ Struggling British consumers had to swallow the increase. Not so in America, where Iberdrola also supplies gas and electricity. Its consumers there had gas and electricity bills frozen since the mid- Nineties, until relatively modest rises last year of between four and eight per cent.

So how come Iberdrola — through Scottish Power — hikes up bills in Britain while keeping them at a reasonable level in the U.S.? It’s because different states and cities in America retain strict controls not only over gas and electricity prices, but how much the companies should reinvest into their business.

When UK firm National Grid bought several energy companies on the East coast of America, it discovered that any proposed price increase was subject to public hearings in which all interested groups have their say.

And each state demanded full financial disclosure — such as details of the salaries, perks and lifestyles of company executives. Investigations by the New York Public Service Commission of National Grid’s operations in the state found it had potentially over-charged expenses of $26 million.

The result is that in New York and other states, National Grid has been knocked back in its efforts to force through price increases. No wonder foreign companies flock to Britain and generally give the U.S. a wide berth.

Ironically, the first wave of new owners after British power companies were privatised were chiefly Americans. Attracted by the lack of regulations, they saw an opportunity to make easy profits and ship them home. They brought with them U.s.-style remuneration packages for directors which turned many into ‘fat cats’ overnight.

British consumers are making foreign bosses millionaires

The pay of the highest-paid water company executives soared by between 50 per cent and 200 per cent. And we paid, through rising prices. In the UK, we’ve ended up with the worst of all worlds: overseas ownership and no real accountability or constraint on price rises. Increases are frequent and apparently arbitrary —and push up overall levels of inflation.

Unlike its U.S. counterparts, our energy regulator, Ofgem, has only limited powers in its battle against absentee landlords.

The head of Ofgem, Alistair Buchanan, a former City analyst, says one of his principal concerns is that foreignowned utilities have a record of instantly passing on price increases to UK consumers when oil and gas prices are rising, but failing to adjust them downwards fast enough — if at all — when wholesale prices are falling.

Another concern is that our power bills are likely to soar even higher when old plant and equipment come to the end of their effective life. Foreign owners tend to have more compelling uses for their cash than building up investments for our future.

Yet, ironically, it was the urgent need for investment that helped make such a good case for privatising Britain’s water companies in 1995. Far better, thought the Government then, to get our Victorian pipes and sewage systems replaced by private companies.

One of the jewels in the crown was Thames Water, with 8.5 million water customers, 100 water treatment plants, 290 pumping stations and 235 reservoirs. In 2001, it was snapped up by Germany’s RWE, one of Europe’s largest power utilities.

By 2005, Thames profits had soared by 30 per cent to £346 million — helped by a 21 per cent price rise for customers approved by the notoriously useless regulator, Ofwat. Yet that same year, the company’s pipes were in such a bad state of repair they were leaking 196 million gallons a day.

The German owners did little to address the problem. This became a scandal in the serious drought of 2006, when customers were banned from watering lawns and washing cars.

The Daily Mail revealed that the five men controlling Britain’s most wasteful water company were paid

The City was paralysed by a power cut

£20 million a year. And while the average Thames customer’s bill was £265 a year, residents of the chief executive’s hometown — Laren in Germany — paid well under half that amount for a first-class modern network.

The ghastly publicity forced Philip Fletcher, director-general of Ofwat — until then ineffectual — to confront the issue. Describing the situation as ‘totally unacceptable’ and pointing out that the water leaked from Thames Water’s pipes could supply 2.8 million homes each day, he accused the company of profiteering.

The failure of Thames to curb leakages had contributed to water shortages in the South, he added, and could increase the need for hosepipe bans and other restrictions in future years.

Taken aback, the German owners bailed out and sold the company. They did not leave empty-handed: over their five years of ownership, the company paid £1 billion in dividends to its mainly German shareholders, including a final payment of £216 million.

The new, foreign, owner, was Kemble Water, controlled by Australian infrastructure fund Macquarie. Immediately, it started selling off some of Thames’s assets — including South East Water.

Today, as Thames imposes yet another hosepipe ban, it claims to be improving pipes, sewers and other facilities. But it’s still making a handsome profit for its overseas owners: as the Mail revealed, its directors were paid £179.5 million in bonuses in the last financial year — including £3 million for three of its executives. That money came from British pockets.

But the Thames Water experience shows that even foreign owners are not totally impervious to consumer power and negative media coverage. Overall, however, the foreign-owned water companies have shown far more interest in profits than improving the reliability and quality of our water supplies and sewerage disposal.

This method of doing business is not exclusive to them, either. Remember December 2010, when Britain shivered for days under inches of snow? Unlike other big European airports, Heathrow turned into something akin to a Third World refugee camp as it closed for 48 hours.

The British Airports Authority — owned by the Spanish company Ferrovial — had under-invested in snow-clearing equipment. In buying BAA, Ferrovial had lamentably overextended itself with debt. Despite some improvements since, our leading airport remains a poor cousin to many of its European counterparts.

And there are other grounds for alarm. By a strange quirk, several of the latest foreign owners of British