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A public debate about privatisation

Yesterday I tweeted from the Financial Times. I subscribe to the FT, so perhaps that's not too surprising.

Martin Wolf is their Chief Economics Commentator and has seen sufficient economic shocks during his life as a journalist to deserve to be listened to when he writes as he did;

"We almost certainly [...] need to take the provision of at least some essential public services out of the hands of privatised businesses."

He has also commented, a week ago, on some of the effects of the pandemic on countries already struggling, saying;

"in emerging and developing countries, the crisis threatens severe underfunding of important health and welfare programmes"

I am not here to heap peons of praise upon his already "be-jewelled" shoulders. Others can do that. But he does alert us to the need for radical public policy and practice shifts.

I have not seen him commenting on the merger of the UK's Foreign Office with the Government's international aid efforts. But I would be surprised if he did not regret the proposed moving of moral action, the provision of aid, into the sphere of international power plays.

Will the UK Prime Minister receive a Christmas card from Martin Wolf this year? Probably not.

My own exposure to the workings of some state-owned companies as a Government Minister has left me with views on the matter of their successes and limitations. As the saying goes; experience is the greatest teacher.

Scottish Water is an exemplar in its industry. I saw it innovating in the detail of how is discharged its duty to deliver potable water across our country. And how, through its commercial arm, it competed with some success in providing water services in the English market.

But for state and consumer, the easiest success to measure is that it costs less to buy your water from them than from privatised companies south of the border.

Like other companies, it has to look to its shareholder, the Government on behalf of the citizens, for much of its funding. But in turn, it delivers dividends and repays its debts.

Is it perfect in every detail of its operation? No - but it sits firmly near the top ranking by any measure of ethical standards and business efficiency. Occasionally, its dialogue with local communities has seemed to focus too much on speaking rather than listening. Its communications have perhaps been lacking in the "plain English" which would aid understanding of its actions. But on this, it seems to be on an upwards curve of achievement.

Like any other company, it has to pay a fair salary to those who work there. In an age of grossly excessive, yep - that's my judgement call, pay for too many public company chief executives, the reward that comes with being the companies boss might seem modest.

Like many companies, there is a plan to link senior rewards to performance. Not the crude link that many PLCs apply of a constantly rising share price. There is an "Annual Out-performance Incentive Plan" which measures under four headings:
  • 40% - Regulated Profit before tax ex. depreciation
  • 25% - Customer service OPA performance
  • 25% - Customer experience measure
  • 10% - Customer Benefit – Overall Measure of Delivery
Its priority to customers over shareholders is a key differentiation from the private sector.

The three top executives earn in the range in the range £274,000 to £366,000 (source: page 55 https://www.scottishwater.co.uk/-/media/ScottishWater/Document-Hub/Key-Publications/Annual-Reports/240619ScottishWaterAnnualReport1819.pdf).

The size of the company can crudely be seen in its net assets which are £5.377 billion.

For Thames Water, a privatised commercial company, the comparable figure (source: page 14 https://beta.companieshouse.gov.uk/company/02366623/filing-history/MzIzOTAxMjM1OWFkaXF6a2N4/document?format=pdf&download=0) is £2.377 billion. Some care required here as Thames Water employs no one. The directors are paid by Kemble Water Holdings (whose net assets are a minus figure of £1.372 billion) who own Thames.

The highest-paid director at Kemble gets £325,000 (source: page 62 https://beta.companieshouse.gov.uk/company/05819262/filing-history/MzIzOTAxMjM2NWFkaXF6a2N4/document?format=pdf&download=0).

So a private water company about half the size of Scottish Water pays its boss about the same.

Now it's as well for me to state that I am not an accountant. But I have read many annual reports over the years. Let's just let the numbers speak for themselves. We are paying well at Scottish Water but not excessively.

The difference lies in the outcomes which are incomparably better. One has as its central purpose the delivery of a public good. The other exists to make money and delivers a public good only as a means to make a profit.

Does that mean that a company owned by a government on behalf of the people will always do better than one in the private sector? Hardly.

Those of us old enough to remember British Rail would shudder to think about a return to their lack of achievement. But probably be quite prepared to un-botch the hotch-potch disarray of companies that can equally make a mess of things today. Londoners on commuter routes could well-informed comment.

But I think when the FT starts to question the effects of privatisation, maybe the rest of us should join the conversation.

I suppose that brings us back to the stars of the public sector that are the four National Health Services in the UK. They have gone through some tough years in England where constant fragmentation, re-merging, changes in oversight, have demoralised staff, cost money and lowered performance from what could have been achieved.

But when one looks at bills of over a million dollars for a fortnight's stay in the US system should one catch COVID-19, one realises two things. Our systems work; theirs doesn't. Ours are cost-effective; theirs taxes the ill beyond the point of despair.

Are they perfect? No system developed by, and dependent on, people can be.

The pandemic has forced many overdue changes in working practices which should become permanent. For rural areas, in particular, remote consultations should become the norm for most first contact with primary care. That helps deploy medical practitioners far beyond the boundaries of a traditional medical practice.

My mother, my GP father's secretary, receptionist, first-line triager, albeit a trained teacher, not a nurse, was used to phone around country locations to find the doctor. That's how emergencies were once handled.

The pandemic emergency has taken us further down the improvement road.

And will inform discussions about who should provide public services.

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