Ruth Kelly’s water company grovelling just won’t work

Ladies and gentlemen, this is how we in the water industry will respond to all the stuff that is being poured over us in the media. We don’t really want to expose the CEOs of Thames or Severn Trent to anything too specific, but fortunately we have the perfect candidate to deliver our mea culpa. She had plenty of practice at dealing with the press in the past as a Cabinet minister, and she has an important-sounding position in the water industry.

So we are agreed. Step forward Ruth Kelly, whom older viewers may remember for her surviving four years at the Treasury under Gordon Brown, which should be as good a training as any. She’s just the girl to say how terribly sorry we all are, and that we in the industry are shocked – shocked – at the state of our rivers and beaches. Delivered the right way, this can seem to come as big a surprise to her (and us) as it is to everyone else, and, by golly, we’re determined to do something about it.

There’s no need to be too specific here. This is a grovelling apology for past sins and a promise to behave better in future. You see, we didn’t really know just how bad our behaviour had been until recently. It is “only in the last few years, in fact, that we’ve had the data” as her script puts it.

It’s always helpful to include one large number for the headline writers to grab, and £10bn sounds a lot. Set against other numbers in this industry, it’s not much more than a drop in the bucket, pardon my French. Kelly will say she has been chastened by listening to the “upset and angry” public and this money can be described as “a tripling” of investment.

We watermen know this is a meaningless number, and we are past masters at financial prestidigitation should the need arise a few years hence. Besides, for all her fine words and grand title, she is powerless to do more than pressure the water companies to behave better.

As for where the money is coming from, well, there’s only one place, isn’t there? There has been some talk of clawing back some of the dividends or interest payments on sweetheart loans, but come on. There’s no need to mention anything about bigger bills, future restraint, or economising on executive salaries.

So the Kelly grovel will get us round the next U-bend, so to speak, and our lawyers are better-paid than those at Ofwat, the Environment Agency, the Department of whatever, or whoever is in charge of the National Overflows Plan. Ours should be smarter, too, as they always have been in the past. So well done her for catching the flak. She deserves a bonus. Meanwhile, business as usual, eh chaps? Or read the whole gory story here.

An unlikely bargain

There’s a nasty bear market in government securities. Yields have risen almost to the level they hit in the Great Trussonomics Panic, and for a government that had to borrow an almost-inconceivable £25bn last month alone, the cost of raising new debt really matters. More to the point, with an election only a year or so away, it matters to the millions of (voting) homeowners when they are confronted by a dramatic rise in their mortgage payments.

For a short time after Jeremy Hunt reversed the Truss-Kwarteng measures, it seemed that financial stability had been restored. The new chancellor promised to take hard decisions. He was as good as his word, but the tough decisions were to raise taxation to the highest proportion of national income since the end of World War II.

Even that has hardly begun to plug the gap, and it has become clear that there is no political will to tackle the other side of the government balance sheet, as the demands for “more resources” from the state continue to pour in from all directions. In addition the UK economy appears to be carrying a whole new load of post-Covid passengers who are incapable of work.

It takes a particular form of economic mismanagement to get where we are today: a combination of highest-ever peacetime taxation which is still nowhere near enough to cover the state’s spending, and an economy mired in near-zero growth.

These forces have driven the yield on the 10-year gilt past 4.4 per cent, a level which according to AJ Bell is encouraging retail buyers frustrated by the low returns offered by banks. This rate of return is still miles away from the latest inflation number, but inflation looks backwards, while yields look forward.

Just when we think inflation is endemic, the effects of the rises in Bank Rate will start to kick in. Much of the effect of rises to date has yet to filter through, both in mortgage costs and commercial property. The money supply is contracting, and the ingredients are in place for a credit squeeze. It will not be pleasant – bringing inflation under control is always painful – but those buyers of government securities today may be the ones displaying the wisdom of crowds.

My Podcast, A Long Time In Finance, with Jonathan Ford, is published every week. Get it free on Apple apps or Spotify.