Dampening hopes

Allowing the ‘Vampire Kangaroo’ to take control of Britain’s worst water company spells disaster Ben Marlow

Old pipes spilling hundreds of millions of litres of water every day; raw sewage pumped into the River Thames; more than £1bn in dividends funnelled to owners seemingly at the expense of investment; and a corporation tax bill reduced to nearly zero through offshore tax schemes.

The water industry has a woeful history of reward for failure but Macquarie’s decade-long ownership of Thames Water was so bad that rivals blamed the Australian investment giant for tarnishing the whole industry and fuelling Jeremy Corbyn’s nationalisation threat at the last election.

So with Southern Water, supplier to 4.7m customers in Kent, Sussex, Hampshire and the Isle of Wight, requiring an emergency cash injection, you can see why the regulator turned to Thames’s former owners to spearhead a bail-out.

It’s bad enough that Macquarie would be allowed anywhere near the sector again but the idea it is best suited to turn around the industry’s current worst performer, and its most financially challenged operator, is almost beyond parody. It’s like asking an arsonist to put out a burning fire.

What was Ofwat thinking? True, Macquarie is pumping in £1bn and has pledged to ensure bills rise by no more than inflation over the next four years but anyone would have been better than an outfit dubbed “the Vampire Kangaroo” for its skill at maximising profits. One can only assume that there wasn’t exactly a queue of prospective investors willing to step in.

It wouldn’t be the first time that overregulation has killed off investment. But it would be an unfortunate outcome to say the least if the very measures intended to clean up the sector killed off interest from more reliable, mainstream funds, leaving a field consisting only of those that the watchdog sought to weed out.

Crippled with £4.6bn of borrowings and racking up hundreds of millions of pounds in losses, the situation at Southern was so perilous that Ofwat was concerned that a £2bn investment programme in its pipes and sewers was in jeopardy. So who better to resolve this financial black hole than a fund that practically invented the financial engineering playbook when it came to Britain’s water suppliers?

“Very profound changes are required, and much overdue, to improve company performance and to strengthen the financial position of Southern Water,” Ofwat chairman Jonson Cox declares in a letter to Leigh Harrison, Macquarie’s head of infrastructure.

But Cox could easily have been talking about the stewardship of Thames when it was owned by an international consortium that included Macquarie, the BT pension fund, Abu Dhabi Investment Authority and China Investment Corporation. Over the course of a decade, Britain’s biggest water supplier was loaded up with £10.6bn of borrowings, while its investors extracted £1.6bn of shareholder dividends and paid corporation tax of just £100,000.

Ditto when Harrison decries Southern’s environmental performance as “one of the worst in the sector” after a record £90m Crown Court fine for deliberately dumping billions of litres of raw sewage into some of the UK’S most protected seas for financial gain.

The previous high watermark when it came to fines was the £20m Thames had to pay in 2017 for pumping 1.9bn litres of untreated sewage into the capital’s biggest river in 2013 and 2014. Judge Francis Sheridan said senior management must have known about the problem. This was followed up by a £2.3m penalty for pollution in 2016. This time, Sheridan described it as “high negligence”.

Yes, Southern “has failed its customers, its duties to the environment, and its stakeholders” but precisely the same could be said of Thames when it was in Macquarie’s hands, yet strangely Harrison’s correspondence with Cox fails to even mention its past association with the industry.

The regulator isn’t shy about trumpeting what a wonderful job it has supposedly done of shaking up the sector in recent years but the fact that Southern had to be rescued in the first place is hardly a ringing endorsement of its reforms, while it is impossible to see the return of Macquarie as anything other than a deeply retrograde step.

Uniting one of the world’s most rapacious banks with Britain’s worst water supplier, is a match made in hell for customers and the environment.

‘The idea Macquarie is best suited to turn around Southern is beyond parody’

Banking on the high street

It is a regrettable feature of modern banking that the humble bank branch is deemed surplus to requirements. Thousands of branches have been culled from the network in recent years, in the name of cost-cutting and the rise of digital banking.

Natwest alone has axed more than 1,000 since 2015 – roughly equivalent to one every two days and not what one would expect from an organisation that claims to be “helping people, families and businesses to thrive”.

Enter the Financial Conduct Authority with plans to prevent the big banks from pulling out of areas that are under-served. Critics will see it as regulatory overreach but closures are hugely damaging to communities. Some towns and villages have gone from being represented by all the major banks to none practically overnight to the detriment of old and vulnerable people, local businesses and the high street.

Besides, one of the reasons that branches are disappearing so rapidly is that banks are keen for cash to be consigned to history. Isn’t that pretty interventionist too?