Loch Ness monster found: the sale of Scottish Water

Article by John Blundell in The Business

EVER since Denis Healey as Chancellor of the Exchequer found he could raise cash by selling off the Treasury’s shares in BP in 1976 even socialist politicians have seen the revenue potential of auctioning off the state’s strange and vast portfolio of dormant assets. Labour’s privatisation of Qinetiq for £1.3bn (E1.9bn, $2.3bn) this year is an example.

Another candidate the Treasury wants sold is Scottish Water, the biggest of the British water entities. It is reckoned to be worth £2bn. No ­wonder Brown wants to float it.

Yet there is an exquisite anomaly. Scottish Water is formally under the aegis of the “devolved” government of Scotland. This is dominated by the Scot­tish Labour Party but in close ­collusion with the Liberal Democrats. To judge from some of the hostile remarks from the Scottish political classes, it would seem this slothful water utility is a sacred object. Water, they argue, is a natural right that ­cannot be vulgarised or degraded by reduction to the language of drainage, flows, soaks or, worse, balance sheets. Some refer to it as “God’s Water”. The implication is God is a socialist.

If the Chancellor were not a Scottish MP and the heir to the Labour Party’s throne the Scottish establishment could better portray it as a desecration of a holy object but Brown cannot be portrayed as a heartless merchant banker – hence the anguish in Scotland that is a pleasure to us ­market folk to observe.

Scottish Water supplies 2.2m people and 130,000 businesses. It supplies its customers from huge reservoirs that encircle Scotland’s cities. It is the evolved result of mostly municipal enterprise. I have not seen it argued that private water flowed less freely or was of a poorer quality.

What will be amusing to watch will be the struggle between a Chancellor’s desire to raise cash against the emotional attachment to “public” ownership. Constitutionally Brown cannot instruct Scotland’s First Minister Jack McConnell to yield this agency to the stock market – but informally McCon­nell may be making an adverse career decision if he blocks the Chancellor. The Scottish Lib Dems seem hostile to privatisation yet Sir Menzies Campbell’s first policy ­prescription was to endorse the ­privatisation of the Post Office.

Even Scotalnd’s Conservatives are diffident about bringing Scottish Water to market. Murdo Fraser, their spokesman, urges it be reconstituted as a “mutual” company owned by workers.

When I was a small boy I cycled in the hills of the north of England where Derbyshire and Cheshire meet. In the distance I could see stretches of water but the accesses were blocked with barbed wire and gates with notices reading “Public Property: Keep Out”. I don’t think I grasped the paradoxical comedy of this until I studied ­economics years later. Now, with the water utility privatised the signs say “Private Property: Public Welcome”. There are walks, gardens, arboretums, a restaurant, picnic sites and parking lots.

Why do Scottish politicos think “public ownership” a blessing to be preserved? Is it that they like the patronage or dignity it gives them? It is baffling. Do they observe ­bureaucratic provision to work? It is so irrational and contrary to Scottish common sense I cannot understand their emotional responses.

Privatisation seems to me to offer benevolent transformation.

I offer the First Minister of Scotland the 10 miracles of privatisation to dent his complacency:

1. It lowers prices. Costs are ­criticised with new eyes.

2. It enhances quality. Customers ­matter.

3. It creates choices.

4. It minimises corruption. Political or bureaucratic patronage is not ­needed.

5. It boosts investment. Capital ­expenditure becomes purposeful.

6. It nurtures innovation. Experi­mentation becomes useful rather than a threat.

7. It improves management. Man­agers have more price ­information and local discretion.

8. It is more open or transparent. The requirements of plc status are much less opaque than quangos.

9. It creates critical market ­obser­vation. The brokers and other experts are alert.

10. It allows fewer or no strikes. The heavily unionised ethos evaporates.

These transformations are because a company is rich in price information. It thrives on feedback. It knows far more than a public body can do.

The case against monopoly is one of the clear lessons of economics. Scottish Water is a perfect candidate for the market but let there be some communities with an opt-out. We need the dissident forces of competition to ensure complacency can always be subverted.

I heard a stockbroker analyst argue Scottish Water could have a global appeal as the primary ingredient of whisky. This, he argued, invests it with romance. I’m not sure I believe him but it is more rational than the quasi-religious feelings of the Scottish Executive.

He also asks if the Loch Ness ­monster would count as a tangible or intangible asset in the prospectus?

I think he means the British Water­ways Board, another public agency that ought to be brought to the market.

John Blundell is Director General of the Institute of Economic Affairs

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