We knew that Labour’s manifesto would be nationalisation-heavy but there were still late surprises. Openreach, BT’s broadband division, was added to the list in the final stages. And, more quietly, the big six household suppliers of gas and electricity were included within reforms for the energy sector; previously only the grid and the networks, which own the pylons and the wires, were the focus for nationalisation.
Those companies are now part of a public ownership agenda that is headed by trains, English water companies and the Royal Mail. Labour is betting that nationalisation is a winning pitch. That analysis may or may not be correct, but either way do not expect the Tory manifesto to mount a rousing defence of the Thatcherite privatisation revolution. Conservatives would prefer to talk about almost anything than privatised utilities.
In boardrooms, they should be asking themselves why trust in private companies to deliver public services has rarely been lower. The flagship privatisation of BT, the first big sell-off, was in 1984. More than 30 years later – more than enough time to demonstrate the supposed virtues of private ownership – entire industries are widely loathed.
One explanation is arrogance at the top. There were early warnings of how the public would react to excess, but they have not been heeded. In 1995, Trevor Newton, managing director of Yorkshire Water, briefly became a national figure of derision when, during a summer drought, he claimed that he had “not had a bath or shower for three months”. It was later revealed he had been crossing the county border for a soak.
Then there was the outcry that followed a 75% pay rise for the chief executive of British Gas, Cedric Brown, in 1996. Union activists took a 30-stone pig, also called Cedric, to the shareholders’ meeting to illustrate how the boss was feasting in “the trough of privatisation”.
The penny never dropped in boardrooms. Pay scandals have kept coming, with packages of £2m-plus now regarded as “normal” for running a private monopoly. After the great takeover rush in the water industry, a handful of companies (Thames, Yorkshire and Anglian) saw no problem in setting up financing subsidiaries in the Cayman Islands. New private owners regarded their investments as “infrastructure plays”, to be spiced with financial engineering. The complexity of the financial structures was near-impossible to explain to the poor bill payers.
In the retail energy market, former Labour leader Ed Miliband was dismissed as an economic ignoramus when he suggested a price freeze on bills in 2013. Competition would be destroyed and investment would evaporate, it was argued. Five years later, a Tory government introduced a price cap and the sky did not fall in. The only noticeable difference is that company share prices have fallen.
The other part of the story, of course, is dozy regulators armed with weak powers. Relations between BT and Ofcom were poisonous for years, with the communications regulator eventually forcing the legal separation of Openreach in an effort to accelerate investment in fibre broadband. In water, Ofwat officials must have wished for a “fit and proper” test during Macquarie’s 10 years of ownership of Thames, which finally ended in 2017. The Australian investment bank enjoyed bumper dividends while Thames became mostly known for environmental fines and missed performance targets.
These days, every privatised utility has a “corporate responsibility” charter and says it aims to be good citizen. Some of these boasts appear more credible than in the past, it should be acknowledged, and stronger regulation might be a quicker route to customer-friendly outcomes than full-blown nationalisation. But you can understand why Labour took the radical route: too many directors of privatised utilities never stopped to think about how their behaviour came across.
New broom at TSB, same old story
TSB’s problems just won’t go away. New boss Debbie Crosbie is expected to unveil a fresh strategy for the bank on Monday, but this will be overshadowed by more questions about its IT meltdown last year and the £21m it paid for an investigation into the fiasco.
The bank has been desperate to move on from the April 2018 IT failure, which tarnished its reputation and left almost 1.9 million customers locked out of their accounts.
The board hoped that by publishing an independent report into the botched computer migration programme last week they could hand Crosbie a clean slate. But the 257-page document has raised more questions for the beleaguered lender, including how it could justify paying law firm Slaughter & May £21m for the long-delayed report.
The size of that bill – for 18 months of work – is unlikely to go down well with TSB’s parent company, Spain’s Banco Sabadell, which is looking to Crosbie to boost income and cut costs. The total cost of the error is now £366m.
And TSB customers are still facing problems. On Friday, a fresh glitch meant wages, benefits, pensions and other payments were not paid into TSB customers’ accounts. But the lender was quick to blame staff rather than technology, calling it a human processing error.
Staff whose jobs are at risk will also have gripes over the cost of the Slaughter & May report. Cuts planned under Crosbie’s predecessor Paul Pester, who was ousted last year over the IT debaclelast year, were put on hold when the project went pear-shaped. Now, with extra contractors brought in to deal with the IT problems, more jobs have had to go.
Crosbie has cut some head-office posts since joining last May. TSB is now in a race to shed £100m of costs from its 544-branch network. Crosbie could announce up to 100 branch closures on Monday, putting another 400 jobs at risk.
Saudi Aramco float could sink crown prince’s $2 trillion ambition
Saudi Arabia’s decision to partially float its state-owned oil giant on the public markets was once expected to be the most spectacular initial public offering in history. But the market debut of Saudi Aramco next month may prove to be this year’s most striking anticlimax.
Crown Prince Mohammed bin Salman first whetted international investors’ appetites in 2016 by offering to sell 5% of the world’s most profitable – and most polluting – company. At the time, salivating investors were told that an international listing could value the jewel of the Saudi economy at $2 trillion, which would have meant a $100bn windfall for the Saudi government.
The IPO represented a more troubling transaction too: in exchange for a stake in the most lucrative market debut of all time, the kingdom’s ambitious crown prince was hoping to earn a rebranded respectability in the eyes of the international community. Both have since proved to be a mirage.
After several delays, the IPO has now been scaled down; early next month, trading will begin in no more than 1.5% of the company, and only on the local stock market. The debut will value Aramco at $1.7tn at the most – well below Prince Mohammed’s ambitious aspirations.
Meanwhile, the 25 eager banks and financial advisers that Aramco hired to form the biggest IPO syndicate of 2019 stand to make far less from the flotation than they first thought. Some may be wondering whether they were right to put aside serious concerns about Saudi Arabia’s record on climate and human rights for a share of the company’s oil riches.
If the prince had hoped to persuade the world that Saudi Arabia is a world economic power, this collision of carbon and capitalism could prove the opposite to be true: the Aramco float might fail to deliver.