Roads privatisation meets a watery grave

Simon Hughes asks the Prime Minister about water company profits today

Simon Hughes asks the Prime Minister about water company profits today

David Cameron, UK prime minister, was quietly defensive today of the regulated asset model that underpins the British water supply industry, when tackled on the issue at Prime Minister’s Questions. And well he might, because it’s the same model his government was toying with for the roads network.

Plans for introducing private capital into the roads network were officially promised in March 2012 – although they had been under consideration for far longer, I can reveal. The report was originally promised for the autumn of that year, and still hasn’t been published.

Although the precise model was never revealed, and has baffled mainstream journalists who weren’t sure whether it amounted to PFI on a massive scale, I can tell you that it would have involved carving up the strategic roads network (motorways and major A-roads) into regional companies, who would have charged drivers based on vehicle kilometres travelled. Roads would not directly have been tolled.

Because these road companies would be natural monopolies, they would have to be regulated in terms of capital structure, tariffs and so on – under a regime that would very likely look like that of the water network, another regulated monopoly.

But these plans now look dead in the water (whatever the Daily Mail claimed this week – if its best source is someone at the AA, it’s a long way from the truth). A privatisation model which the public could stomach for their water pipes seems to be too sensitive to apply to roads, which (as Labour found out when it tried to introduce road charging) drivers feel they’ve already paid for through taxes.

The regulated model effectively guarantees the infrastructure owner a profitable return from their asset, because they can recoup their investment costs through bills. The same guarantee allows the companies to borrow against future profits, which by happy coincidence (and with help from the usual offshore arrangements) allows them to minimise their tax bill. Trouble is, that can lead to accusations of excessive bills, unreasonable profits and bill payers paying for improvements that the company can well afford. All accusations that could easily be levelled one day at BritRoads Ltd (parent company Macquarie European Infrastructure Fund 26).

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About René Lavanchy

You can contact me at rene dot lavanchy at googlemail dot com.
This entry was posted in Roads, UK policy and tagged . Bookmark the permalink.

One Response to Roads privatisation meets a watery grave

  1. Pingback: UK government buries roads privatisation | Infrastructure Punk – René Lavanchy's infrastructure blog

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