The slump in investment spending during the past three years occurred in the face of Government assurances that the companies would be able to spend more on improving their services following privatisation.
The Labour Party claimed the figures showed the Government's regulatory regime had failed to stop privatised companies siphoning money earmarked for investment into excess profits.
A senior Labour source indicated that in the light of this evidence the party would step up its plans for a windfall profits tax. Its initial plan to raise pounds 2bn to pounds 3bn now looked too conservative, the source said.
Capital spending on maintaining and modernising the nation's infrastructure by the gas, electricity and water industries fell by nearly a fifth in real terms in 1995, according to official statistics. This followed declines of 5 per cent in 1993 and 13 per cent in 1994.
The reduction in investment has been concentrated in the gas and electricity industries, but figures from the Office for National Statistics show that even the water companies cut their spending in 1994.
If the three industries had kept their capital spending last year at the same level as the previous year, total investment spending would have been more than pounds 1bn higher. Their capital expenditure has now returned to its lowest level since 1989.
Gordon Brown, the shadow Chancellor, said: "That they are cutting investment while they are making excess profits and handing out millions in share buy-backs and special dividends is further evidence that the privatised utilities are ignoring the long-term interests of consumers."
When the utilities were sold into the private sector, ministers claimed that they would be able to increase their investment programmes once they were liberated from Treasury borrowing limits. This was particularly the case with the water industry, which had suffered decades of under-investment.
The Conservative Party's Campaign Guide boasts that water companies "will have invested nearly pounds 30bn in improving Britain's water by the end of this decade - the largest programme of investment in the industry's history", and that British Gas has invested pounds 15bn over the past eight years.
The prices the utilities can charge take account of planned capital expenditure. Once the price has been fixed, lower investment has translated directly into higher profits.
One consultant who has worked closely with the electricity firms said: "Utilities have been cagey about committing funds in the years running up to a review because there are no rules. They did not know what the regulators would do about it."
Dan Corry, an economist at the Institute for Public Policy Research, a left-leaning think-tank, said: "Regulation by price creates an incentive to skimp on investment. If you can do less investment, you can pocket the lot."
Other explanations have also played a part. The collapse in investment in gas and electricity during the past three years followed a period of higher spending in 1990-92. For example, expenditure on Sizewell increased the figure for electricity in 1990-92 but has now dropped out of the total.
In addition, most experts think the industries have become more efficient since privatisation. Rod MacLean, a utilities analyst at City brokers Hoare Govett, said: "Levels of capital spending have been dropping because the companies are a lot more efficient now than they were in the past."
However, disappointing investment spending has begun to alarm industry watchdogs.
The gas industry's regulator, Claire Spottiswoode, last month announced stricter controls on TransCo, the transmission arm of British Gas, as a result of its spending nearly a third less on investment than it had promised.
Her statement said: "Ofgas considers it unreasonable that customers should pay in advance for expenditure which is unlikely to occur." British Gas estimates, probably over-pessimistically, that it could lose up to pounds 850m in revenues as a result.
Stephen Littlechild, director general of Offer, the electricity regulator, announced last October that electricity companies would have to provide annual reports on their investment in the distribution network and quality of supply to customers. The first of these is due to be published soon. Industry figures suggest that small increases in capital spending on distribution and supply have been swamped by cuts in investment in generation and transmission.
Only the water industry has been given a clean bill of health. Ian Byatt, Ofwat's director general, said that although the water companies spent less on investment in 1994/95, the industry had invested pounds 15.1bn since privatisation. However, individual firms have fallen short of their capital spending and drawn criticism from Mr Byatt.
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