Heightened political risk is eroding investors’ confidence in Britain’s utility sector, industry figures have warned.
The qualities which previously made the sector an attractive destination for overseas investment have been undermined by recent political developments, said Anglian Water director of regulation Alex Plant.
Speaking at the Utility Week Congress in Birmingham, Plant listed the priorities for investors as political and regulatory stability, secure property rights, fair taxes, strong growth potential and access to free trade.
“Now, we could look back at the last 30 years and say the UK’s been pretty good on a lot of these things,” he told delegates. “If you look at them now, I’m less sure.”
Plant said these attributes allowed the water sector alone to secure around £150 billion of investment since privatisation, much of it from overseas. However, he said the UK’s reputation among investors has been tarnished by developments such as the Brexit vote and Labour’s pledge to take utilities back into public ownership.
He said even if Labour’s plans come to nothing, “there’s a risk that politicians and regulators seek to look for perceived short-term gains at the expense of the interests of customers tomorrow”.
With background risks increasing, Plant argued it is more important than ever for regulators to provide certainty: “There’s an opportunity here for the regulatory system to actually step up to the plate and be a point of stability in a period of time when other things are volatile, uncertain, ambiguous and complex.”
He said regulators need to strike a careful balance between, on the one side, submitting to “populism and short-termism” by clamping down excessively on returns, and on the other side, offering companies a “free ride” and giving “a further burst of oxygen to the calls for renationalisation”.
His concerns were shared by First Utility policy and regulation director Natasha Hobday, who joked that the current situation for investors is “probably not” the worst since privatisation, but only because “if we can predict anything, we can probably predict it’s going to get worse.”
She worried about a loss of legitimacy, not just within utility sector but throughout public life, saying growing wealth inequality has led to a “burning sense of unfairness”.
Hobday said she was caught off-guard by the strong support that was recently exposed for public ownership of utilities: “It doesn’t look like that’s going to go away and I’m not sure what investors do about it, but I think they ignore it at their peril.”
“I suspect if left to ourselves, it’s just going to get more and more political, and more and more unstable,” she added.
Hobday said one of her greatest concerns is that whilst much of the public feels apathetic and “completely powerless” at the moment, successful innovation will depend on active participation from as many stakeholders as possible: “Those two things seem to be totally incompatible.”
Earlier at the event, Ofgem chairman David Gray warned energy networks to be “mindful” of their legitimacy after following the publication of a report by Citizens Advice claiming networks are on course to make £7.5 billion in unjustified profits.