View from City Road: Labour makes waves

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Water has long been the privatisation ministers would like to disown. Controversial from the start, it has never managed to establish public acceptance in the way other sell-offs perhaps have. In some respects this is unfair but then it was never going to be easy to sell the idea of privately owned monopolies that can drive up charges in real terms. Even the regional electricity companies seem better suited to private ownership than water, despite the fact that in truth electricity companies are being allowed to milk the consumer to a greater degree. At least with electricity, prices are going down in real terms, not up.

Ian Byatt's review of the water pricing regime, although tough, has done nothing to help perceptions. In the meantime share prices have continued to rise gently in the belief that investors are getting the better end of the deal. Until this week, that is, when a broadside from Labour unsettled the position. Clause 4 never meant a great deal as far as water was concerned. Labour long ago abandoned the idea of renationalising the industry. Instead, it now talks of 'tough public control'.

What this means is anyone's guess even after this week's speech by Chris Smith, Labour's environment protection spokesman, at the Labour Party conference in Blackpool. The speech was mainly political hot air. Labour would, for instance, end the 'barbaric' practice of domestic water disconnection. There would also be measures to curb boardroom excess. Beyond that, however, there was not much substance. None the less, the market plainly fears the worst and shares were marked sharply lower.

What else could Labour do? The greatest fear seems to be that Labour would appoint a much tougher regulator with the brief of securing a better deal for customers. It might also impose a one-off windfall profit tax on the companies. It has to be said, however, that a Conservative government might be as likely to impose these measures as a Labour one. John Major's government is long past the stage of feeling an obligation to shareholders. Water and electricity, despite the recent price reviews, face a considerably tougher and more restricted medium to long-term future regardless of the colour of the next government. The only real surprise is that it has taken the City so long to realise it.