Karma Loveday says trust and confidence are necessary for all public-private utilities and asks whether the current relationship can be repaired

Utilities, because of their public-private nature, are highly visible to political and media scrutiny. Since privatisation in England and Wales, the social contract with utilities has been an agreement between investors and companies on the one hand and government (on behalf of society) operating through regulators on the other.

Privately owned utilities’ relationships with their regulators has been central to company decisions about strategy, investment and operations and senior executives have devoted much time and thought to managing their relationship with regulators and complying with regulatory requirements.

But now the contract between society and private utility businesses seems unwell, and is in danger of getting worse. Private providers of services that are essential for society – including energy, water, waste, telecoms and transport – find themselves exposed to challenges few of us envisaged a few years ago. Politicians (on left and right) and the media (including the business-friendly Financial Times) are critical of the existing arrangements and of how some businesses providing public services behave.

Environment secretary Michael Gove has strongly condemned the poor health of business generally – including utility businesses. He pointed to the following symptoms.

• monopolisation,
• excess corporate debt,
• money that should be invested going to shareholders in the form of dividends and share buybacks,
• a poor record of innovation and productivity,
• performance pay without performance and
• generous budgets for lobbying policy makers and regulators.

It is hard to ascertain what the public at large really thinks. Polls do not give a clear picture, variously suggesting extensive support for radical change in the form of nationalisation but considerable trust in the companies that provide essential services.

The wider context is one in which technology, data, markets, the climate and demography are all shifting. Customers and citizens continue to expect to be increasingly well off and to reverse the damage to their environment, but since the global financial crisis, we have had a growth-free decade, a consequent slowing in the growth of government expenditure, a degree of Brexit-induced uncertainty and a widely held perception that some sections of society are being left behind.

Utility sectors appear to have lost credibility with politicians of all parties, some opinion formers, and the public.

 

What are our options?

There is no shortage of proposals for changes in the social contract. They fall into two groups:

Moral suasion. This takes the form of calls for culture change, better behaviour, longer-term thinking, attaching more value to resilience and sustainability and putting customers at the heart of the businesses.

Instrumental proposals. These are changes in the environment within which the utilities operate that will lead to changes in their behaviour and performance.

At a high level, the “solution” might be a new contract between society and utility businesses.

The stakes and risks are high. The situation and the problems are complex, and the right approach is not obvious. Moreover, if the solution is to be effective, it will have to have regard to how it will be implemented. This means we need to find a constructive way to move forward together. This will require fresh thinking and a frank, multi-party conversation in an independent space. It won’t be easy because the challenges are complex and the subjects emotive.

The Water Report and consultancy Indepen are hosting a summit in London to discuss these issues on 6 November. It will hear from a broad range of parties, including relevant insights from outside the sectors in question, on what society wants from its essential services providers. It will also hear from front line stakeholders including company leaders, investors, regulators and politicians.

Email [email protected] if you are interested in taking part in this crucial debate.