Utilities drag the chain on investment levels

Studying the detail of government statistics must for most people seem about as interesting as watching paint dry, but just occasionally the exercise throws out a revealing fact. One such is that investment spending by the utilities has been falling for three years now. While this might be well known to close followers of these industries, and while it may be entirely understandable and justified, it none the less comes as a bit of a shock to those of us sold the line that privatisation would lead to a renaissance in spending by companies milked dry while part of the public sector.

It is hard to generalise across the gas, electricity and water industries, but it seems to be the case that after an initial burst of activity when spending was indeed dramatically higher than prior to privatisation, the utilities are now falling back into bad old ways. Last year, for instance, spending across these three industries was nearly a fifth lower in real terms than the year before.

Much has been made of apparently poor investment levels in the UK economy. But if the utilities are stripped out, the position actually doesn't look that bad. Progress is admittedly not brilliant, but at least investment in the rest of the economy is rising.

So what is happening with the utilities? Are they under-investing? Both the water and electricity regulators profess themselves satisfied with the situation. What is now happening is characterised as a trough after a prolonged period of high spending. Furthermore it may be the case that the utilities are becoming more efficient in their use of capital. The water industry in particular seems to be getting a lot more for a lot less than anticipated at the time of privatisation. To some extent the benefit of this is already being shared with customers.

But this is by no means the whole story. Price controls were set on the assumption of particular levels of investment spending. As the gas regulator has already pointed out, if spending is not as great as anticipated, it means, in effect, that we are being overcharged. The evidence of this is in the huge repayment of capital to shareholders being undertaken by the electricity and water industries through share buy-backs and special dividends. These companies have got more money than they know what to do with. Rather than investing it, or cutting their charges, they are handing it over to shareholders. Nobody is saying they are breaking the rules, but there may be an element of cutting investment to maximise profits.

In the case of a monopoly utility, there is actually a very reasonable case for arguing that the money should be ploughed into investment whether or not it is commercial to do so, for there is an ill-defined general public and economic benefit in having a spanking new infrastructure. The Channel Tunnel will undoubtedly one day be of great economic benefit to Britain, but nobody would have invested in it had they not been hoodwinked into believing it a commercial enterprise. But perhaps not. Even Labour these days finds the idea of non-commercial investment a pretty heretical one. No wonder it believes the case for a windfall profit tax - an alternative of sorts - has been strengthened by the new investment figures.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Day In a Page

Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there