17 July 2013
It is time to end reckless profiteering in the water industry and get a better deal for consumers, a new report by CentreForum urges.
Backed by former Director-General of the water regulator Ofwat, Sir Ian Byatt, the report presents a devastating critique of water companies' financial activities since the turn of the century. It describes an opaque, overleveraged and poorly regulated industry that consistently places short term profit maximisation above the interests of consumers and taxpayers.
The report says that in the drive to deliver profits to shareholders water companies have set up offshore tax avoidance structures and borrowed excessively to the point where they are in danger of becoming too indebted to finance their own infrastructure improvements. The example it gives is Thames Water which has requested taxpayer support for its 'super sewer' project despite recording bumper profits over a number of years.
Overleveraging is considered to have had a knock on effect on consumers. The report says that water bills have crept up partly because debt servicing requirements make it difficult for companies and the regulator to cut prices. In addition Ofwat is said to have mistakenly overestimated companies' capital costs when setting price levels. This again has come at the expense of the consumer, the report argues.
The report makes a set of recommendations for the government, Ofwat and Department for Environment, Food and Rural Affairs select committee to implement. It urges amongst other things the imposition of a levy on 'highly geared' (overleveraged) water companies, as well as German style earnings stripping rules to prevent all companies from drawing excessive loans with the intention of avoiding tax.
The report also calls for greater corporate transparency at a time when most English water companies have passed into the hands of private equity funds. It says that Ofwat should impose London Stock Exchange disclosure requirements on non-stock market listed water companies, and require public disclosure of all intermediate holding companies and ultimate controlling companies.
Report author George Turner said:
"For years now customers have been paying too much for their water and shareholders have been running off with giant profits. This is unacceptable in an industry which is so fundamental to people's lives and where customers cannot chose their supplier."
"What is worse, excessive profits have come about through a weakening of the financial strength of companies built up over many years of public investment. It is now time for parliament and the regulator to demand better standards from the water industry."
Sir Ian Byatt, former Director-General of Ofwat, who wrote the foreword to the report, said:
"This report sets out the issues involved in the financing of investment in the water sector with great clarity, making them accessible to non-expert readers, while providing a set of well thought out suggestions for action both by parliament and the regulator."
NOTES TO EDITOR
The CentreForum report 'Money down the drain: getting a better deal for consumers from the water industry' by George Turner can be downloaded.
26 June 2013
We are delighted to have been crowned Prospect Magazine's UK Economic and Financial Think Tank of the Year 2013.
The Prospect judges were impressed by our joint report with Policy Exchange on Heathrow expansion and the impact it continues to have on the public debate. It was previously endorsed by the Economist, Financial Times and House of Commons Transport Committee amongst others.
You can view the full list of categories and winners here.
5 June 2013
The lack of funding for UK postgraduates has reached crisis point, a new report by CentreForum warns.
Backed by Julian Huppert, Liberal Democrat MP for Cambridge, the report brings together leading figures from business and higher education who unite behind the case for a postgraduate funding settlement. It includes chapters by the British Academy, Confederation of British Industry (CBI), GuildHE, Higher Education Commission, National Union of Students (NUS), Russell Group, Sutton Trust and respected economists Joanne Lindley and Stephen Machin.
The report likens education's highest tier to "an exclusive golf club" – the preserve of affluent individuals from the UK and abroad – which is becoming increasingly exclusive amid rising tuition fees and real terms reductions in research and funding council support. These factors have contributed to a fall in the number of home students undertaking postgraduate courses, despite the rising value of these courses in the global economy.
31 May 2013
Quantitative easing (QE) should be superseded by innovative monetary alternatives and a more activist fiscal policy, a new report suggests.
Writing for the think tank CentreForum, entrepreneur Jo Owen argues that the Bank of England's policy – through which it has so far bought £375 billion of assets – is "past its sell by date" and should only be used in future as a "weapon of last resort".
QE is considered to have had harmful side effects since its introduction in 2009, including propping up an asset bubble, making the rich wealthier, and building an economy dependent on low interest rates. But the report says that the reversal of existing QE should not happen in the foreseeable future, as the costs would be too great for the UK's recovering economy to bear.
It instead urges the Bank to start exploring alternatives to QE, such as remunerating marginal excess reserves by the banks at below the base rate to encourage more lending, and recapitalising RBS and Lloyds.
The report calls for monetary, regulatory and fiscal policy to be better aligned, suggesting that monetary policy cannot do all the "heavy lifting" and that radical alternatives such as "helicopter money" should be avoided.
It also calls for additional capital expenditure while the government continues to follow its fiscal mandate of reducing current spending. It recommends the establishment of an independent Office of Capital Expenditure to ensure current spending is not reclassified as capital expenditure through "creative accounting" at the Treasury.
Report author Jo Owen said:
"QE is past its sell by date. It was a short term solution to a crisis, but with unpleasant side effects. The Bank of England needs to move on from the monthly ritual of discussing QE. Monetary policy cannot do all the heavy lifting. The Bank and government need to make sure monetary and fiscal policy work together to ease the UK out of austerity."
NOTES TO EDITOR
The CentreForum report 'The wrong sort of money: options for quantitative easing' by Jo Owen can be downloaded.
ABOUT THE AUTHOR
Jo Owen is one of the founders of Teach First and is also a founder of six other charities in education and reoffending including Teaching Leaders, Future Leaders and Start Up which has helped 250 offenders start their own businesses on release from prison. Previously he was partner at Accenture; built a business in Japan; worked in brand management at Procter and Gamble. He has worked with over 100 of the best, and a couple of the worst, businesses on our planet in most industries and continents.
He is the author of 14 books on management and business, including 'How to Lead' and 'Tribal Business School'. He led a study into Anglo-French leadership with Oxford University. He has appeared on the BBC, in the Financial Times and most leading media. He holds an MA from Cambridge University and an MSc from London Business School.