The next election will be effectively fought between the Conservatives and Labour – and the world will look very different for utilities depending on who wins. David Blackman reports from their recent party conferences.
The role of the state in the economy has returned to the centre of UK political debate. After decades when it seemed as if the question of public ownership had been settled, nationalisation is back on the agenda.
And utilities are in the frontline of this political battle. The water industry has been lined up by John McDonnell, shadow chancellor, as the first sector that will be taken back into public ownership if Labour wins the next election.
The party conference season, which has just ended saw the country’s two main parties entrench their positions on this issue. Labour has begun to flesh out how it will reintroduce public ownership. Meanwhile, with their review of utility regulation, the Conservatives have begun to articulate a response to the challenge laid down by the opposition. While the Tories initially seemed nonplussed by Labour’s reversion to pro-nationalisation type, this party conference showed that they plan to tackle the issue head on.
So what did we learn about the two major parties’ stances on the issues that count for utilities at this year’s party conference season?
The biggest bombshell to hit the utilities over the past fortnight has been the Treasury’s announcement of a review of utility regulation.
The review was unveiled with little fanfare, tucked away in a Treasury press announcement timed to coincide with chancellor of the exchequer Phillip Hammond’s set piece party conference speech.
But the ramifications could be wide-ranging. The National Infrastructure Commission, which has been charged with carrying out the exercise, said it would seek to strike a balance maintaining investment and innovation in the utilities while ensuring services remain affordable.
The study’s remit will include examining the key drivers of the changes that will affect regulated sectors over coming decades, and whether regulation encourages sufficient competition and innovation to support the efficient delivery of infrastructure.
Robert Jenrick, who holds the junior ministerial post of exchequer secretary at the Treasury, was clear at a Conservative party conference fringe meeting that the review is about “regaining and retaining” the ideological initiative from Labour. He told the meeting the aim is to make the regulated industries more consumer focused and inject greater competition.
Utility regulation should be “much more front-footed” in responding to changing pressures on consumers, said Jenrick, who expressed his scepticism about the price cap before entering government.
He said that among the “radical options” the review might consider are creating a more “nimble and flexible” single watchdog covering the regulated industries.
Fellow Conservative MP John Penrose called for the existing system of industry-specific regulators to be scrapped and replaced by a single watchdog for the utilities’ network functions.
These networks have to remain monopolies so they require ongoing regulation, he said: “There is a network monopoly at the heart of most of these privatised utilities. We need something to regulate that, otherwise they will rip you and me off as customers: we need something regulating that market.
“For all the other bits and pieces, let competition reign and find ways of creating more competition in those industries.
“Its job would be to get out of the way and let competition bloom in all those industries and make sure you and I have the choice, which we increasingly expect in every other avenue of our lives whether buying a tube of toothpaste or a coffee.”
The Somerset MP, who heavily criticised Ofgem during the backbench parliamentary campaign to introduce a cap on energy prices, said the existing regulators are “part of the problem”, arguing that they are “holding companies back and failing you and I as consumers”.
Penrose was backed up by another Tory, MP John Redwood, who was one of the architects of Margaret Thatcher’s original privatisation drive in the mid-1980s when he headed the policy unit at Number 10.
He said: “The best regulation is competition and the main change we want to see is the regulator being told to drive more competition and rely less on rules and price caps, which are not nearly as good as a competitive market to keep prices honest and keep people innovating and investing.”
Dr Tony Ballance, director of strategy and regulation at Severn Trent, said: “Our regulator in the water sector is doing a good job but I can see merits of having a look at this given that we are 30 years into privatisation. There have always been arguments for merging utility regulators.”
The Conservatives’ move to review utility regulation was triggered by Labour’s push to renationalise the water industry and much of the energy sector.
Labour had set the tone for this party conference season by pledging at its own conference to make water the first industry lined up for privatisation, if and when it is elected into government.
Labour has been criticised until now for providing insufficient detail about its renationalisation plans.
But a document, entitled Clear Water and published during Labour’s conference, puts some flesh on the bones.
It said the regional structure of the industry would be maintained, with ownership of the existing suppliers transferred to new Regional Water Authorities (RWAs) under an act of parliament.
As well as nationalising the companies, this legislation would also contain provisions to safeguard the renationalised entities from being sold again.
Ofwat would be scrapped under Labour’s blueprint, with regulation of the industry transferred to a new National Water Agency within the Department for Environment, Food and Rural Affairs (Defra) , which would be responsible for policing economic and performance standards.
Each RWA board would contain elected representatives of the respective region’s local councils and one each from each of the industry’s three biggest trade unions. In addition, the boards would each have an environmental and a consumer representative, nominated by Citizens Advice and the Environment Agency respectively. The membership would be completed by a community representative put forward by Water Observatories, new bodies to be set up to promote public participation in the industry.
The RWA boards would hold public meetings in different locations each month, broadcast live on the internet with all papers made public, as happens with local councils.
McDonnell said the idea was to avoid the top down, central control that characterised the nationalised industries of the post-war period.
Clean Water proposed that existing owners would have to exchange their shares for bonds, with deductions made for pension fund deficits, “asset stripping since privatisation”, and any state subsidies the privatised water companies had received since privatisation.
The companies themselves would be modelled on Transport for London. They would be self-financing from user charges and debt, except for occasional government grants awarded for specific public interest projects.
Prime minister Theresa May attacked Labour’s plans head-on in her keynote speech at the Conservative party conference.
The Tory faithful heard that public ownership would mean consumers paying twice over: “Once when they use the service, and again every month through their taxes.” And she claimed that renationalisation would cost £1 trillion to deliver.
Water minister Therese Coffey suggested there is little appetite for renationalisation of the industry, pointing towards figures showing that 85 per cent of its customers are satisfied with the service they receive.
The unions lapped up Labour’s plans,but unsurprisingly the water industry took a dim view. Michael Roberts, chief executive of Water UK, said: “To replace managers who have decades of experience in running successful water companies, and put much-needed investment at risk by handing the industry over to politicians, risks years of chaos in an essential public service.
“At the moment there’s a well-run water industry that’s delivering lower bills, increasing investment, and which has cut leakage by a third over the past 20 years.”
At a fringe meeting at the Conservative party conference, sponsored by his organisation, Roberts highlighted the risk that investment would fall under nationalisation.
He said: “It’s not obvious that water would be as high a priority as schools and hospitals. It was privatised because water was not seen as a priority and failing to deliver.”
And he highlighted the risks of absorbing the industry’s regulation into the government.
Labour upped the stakes on renewable energy at its conference. Rebecca Long Bailey, the party’s shadow secretary for business and energy, signed up the party to cutting emissions to “net zero” by 2050.
This effectively outpaced the government’s commitment to get the Committee on Climate Change to explore such a move this autumn.
To demonstrate Labour’s commitment to meeting what is an ambitious goal, Long-Bailey outlined how the party would first ensure that 60 per cent of UK energy was derived from renewables and other low carbon sources within a dozen years of a Labour government being elected.
The party has pledged a sevenfold increase in UK offshore wind power to 7,000 turbines and 52GW capacity, which Long-Bailey claimed would power 12 million homes. Labour also aims to double the UK’s onshore wind and almost triple its solar power output.
By contrast, last week’s Conservative conference contained no new pledges on renewable energy except for a hint from the Treasury’s Jenrick that the area would be addressed in the upcoming Budget.
But the pressure was building on minsters at last week’s conference fringe to review policy on onshore wind and solar. They are the two cheapest forms of renewable generation but both currently lack a route to market.
Tom Glover, UK chair of RWE, told one meeting the government is “missing a trick” by not allowing onshore solar and wind projects to participate in its contract for difference (CfD) auctions.
He said: “It is clearly the cheapest renewable technology and yet currently doesn’t have a route to market. We now need support of future auctions so we can get that pipeline going.”
James Heappey, the Conservative MP who chairs the Parliamentary Renewable and Sustainable Energy Group, told the same fringe meeting that large-scale solar projects were close to being able to operate without subsidy. But the former army officer said the Conservatives must “rehabilitate” onshore wind. Reaching for a military metaphor, he said the government had “double-tapped” onshore wind, or shot it twice, by both making it harder to grant planning permission and closing off the CfD route for such projects.
“If we have strengthened the planning system and done it properly so that wind cannot be built without local consent, there’s nothing to fear from pot 1 auctions because undeniably it’s the cheapest form of generation,” he said.
His fellow Conservative MP Peter Aldous, chair of the All-Party Parliamentary Group on Energy Storage, said the government should persevere with both a carbon capture and storage trial project and the Swansea Bay tidal lagoon scheme.
“Both didn’t pass Go because they were perceived as being expensive, but I don’t think the government has given up on either.”
Dating back to the cull of renewable energy and insulation initiatives after the 2015 election, the Treasury has often been fingered as the biggest block to progress in such areas.
Jenrick responded to Heappey by arguing that onshore policy wind policy is a matter for the Department for Business, Energy and Industrial Strategy, but he added that the Treasury is interested in seeing how energy can be delivered as cheaply – and competitively – as possible.
And referring to clean energy, he said the Treasury is keen to make this a “significant part” of the Budget, which is due to be delivered at the end of this month.
Energy costs didn’t get much of a look-in during the latest party conference season compared with last year when Theresa May rounded off the Conservatives’ annual gathering with a pledge to legislate a cap on standard variable tariff prices.
This year, by contrast, the price cap received only a nod in May’s speech as proof of the Tories’ commitment to fix broken markets.
The passage of the energy price cap legislation has taken the sting out of this debate, although this could be temporary: Labour’s shadow energy minister, Alan Whitehead, raised concerns at his party’s conference that vulnerable households could end up paying more than other customers due to the way the ceiling is calculated.
In what could herald a longer-term fix for prices, the party conferences saw a greater focus on energy efficiency this year.
Labour’s environment manifesto contained a bold promise to invest £2.3 billion in upgrading four million homes to Energy Performance Certificate (EPC) band C standard during the party’s first term in government.
The topic is also on Conservative minds. The Parliamentary Renewable and Sustainable Energy Group’s Heappey called for a rethink on the winter fuel payment, which provides all pensioners with up to £300 of help with their cold weather bills, regardless of income.
He said: “It’s spewing money out to incentivise people to burn fuel. Every winter we hand over cheques to people irrespective of how effectively they are spending that money thereafter.”
He suggested converting those payments into vouchers, perhaps by bundling up several years of payments into one lump sum, which could pay for installing energy efficiency measures that would then deliver greater long-term benefits.
Pledges to maintain these payments, outlined in both the Conservative and Democratic Unionist Party general election manifestoes, mean they are “unlikely” to be scrapped, pointed out the Treasury’s Jenrick.
But setting an energy efficiency example with the public estate will be a focus of the Treasury’s upcoming spending review next year, with Jenrick saying his department is “really interested” in the topic.
From the conference floor:
John McDonnell, shadow chancellor
“With figures like that, we can’t afford not to take them back. But let’s be clear, nationalisation will not be a return to the past. We don’t want to take power away from faceless directors only to centralise it all in a Whitehall office, to swap one remote manager for another.”
Jeremy Corbyn, leader of the opposition
“Labour will kick-start a green jobs revolution that will help tackle climate change, provide sustainable energy for the future and create skilled jobs in every nation and region of the UK.”
John Redwood, Conservative MP
“The water industry demonstrates that shifting ownership is helpful but doesn’t introduce the big advantages you get with competition.”
John Penrose, Conservative MP
“It’s high time we put a full competitive regime into water. Its job would be to get out of the way and let competition bloom in all those industries.”
Richard Howard, head of research, Aurora Energy
“We need a big push on energy efficiency: it doesn’t get you all the way there but it gets you part of the way.”