For The Observer/Guardian UK
I SPENT my last night on the Observer ‘s expense account at the Groucho Club killing a £30 bottle of claret. I had convinced the editor I needed a wad of dosh to maintain my cover as a grasping yuppie. But my mark, a young New Labour lobbyist, was in no mood for good vintage. ‘It’s appalling,’ he moaned, head in hands. He was horrified that competitors, former aides of Messrs Blair, Brown and Mandelson, had passed confidential Government information to me and to their clients, US power companies.
The Americans, who owned seven of England’s 12 regional electricity companies, and their British comrades in water, gas and telecoms, were concerned about the new Government’s tough plans to end the windfall profits and fat-cat pay-outs that marked the Tories’ befuddled regulation of utilities. That was June 1998. Last week, the feared reform plan, the Utility Bill, debuted in the Commons.
In Opposition, Labour had no shortage of tales to tell of Tory regulation buffoonery. In 1994, Ofwat director Ian Byatt authorised water companies to collect £3 billion a year that the utilities claimed they needed to maintain the nation’s rotting pipe network. The companies duly collected the repair surcharge – then diverted the cash to pay dividends and bonuses. In this past year alone, underspending on operations hit £420 million.
Rather than thunder at the companies for ‘gaming’ (the industry’s term for fiddling the system), Byatt poured praise on them for maintaining the system at a lower-than-expected cost. As their just reward, Byatt let shareholders keep what he oddly called ‘efficiency gains’. But the companies did not maintain the system, they merely dumped workers off the payroll. Meanwhile, nearly a third of the nation’s water simply bleeds out of leaky pipes.
Over the 10 years of Byatt’s watch, the amount of money shifted from operations and upgrades to shareholders easily topped £4bn. Operating profits now eat up an eye-popping 45p out of each pound charged on a water and sewer bill. ‘We’re still on the learning curve,’ says Byatt. The public has spent quite a lot on his education.
Byatt was not alone in his amateur act. In 1996, when the electricity regulator Professor Stephen Little child was asked how he distinguished capital expenditures from operating expenditures, he replied: ‘Does it make a difference?’ Answer: Only to the customers who pay the bill for his loosey-goosey accounting rules.
The basis of Keystone Kops regulation is the strange, cabbalistic system of price setting Professor Little child designed for Margaret Thatcher.
Regulators determine prices in secretive, closed hugger-mugger with utility chiefs and their accountants. Consumers are barred from looking at company accounts. If the regulator, a virtual hostage to industry data, fails to do the utilities’ bidding, companies may appeal to the Competition Commission. But consumers have no right to appeal against higher prices. Shareholders get the gold mine, customers get the shaft.
Labour promised radical change. In its Utility Bill, the Government does not back away from its commitment. It performs a complete flip.
Consumers’ right to appeal? Forget it. And if a customer wants to eavesdrop on meetings of the regulator and regulated? Scram, Sam.
To give the bill a little PR panache, the Government gives the organisation a spin. Out go the single regulators, in come panels. To watch over each new Regulatory Panel, hand-picked by the Department of Trade & Industry Minister, the Government will set up a Consumer Panel, also picked by the Minister.
What if real live bill-paying consumers want to look at the utility accounts seen by either the Tweedle-Dee panel or the Tweedle-Dum panel? ‘That,’ sniffed a DTI spokesman, ‘will be taken care of under Mr Straw’s Freedom of Information Bill.’
Indeed it will. The proposed FOI Act bars regulatory agencies from releasing information given to them, ‘in confidence’ or which may be ‘commercially sensitive’ or which ‘may affect share prices’. In the utility regulation game, that’s just about everything.
In case some information leaks through, the Bill provides for the Minister to issue a blacklist of additional items banned from public inspection.
Back in the mists of time – 1996 – Labour proposed that consumer groups, trade unions, industrial customers and environmental organisations have the right to take part in price reviews. The Bill now reads: ‘The Secretary of State shall consult the holder of the Licence [the utilities] and such other persons as he considers appropriate.’ I suppose that’s better than democracy.
Lord Neill’s just-released report on corruption and influence in government is the Utility Bill’s well-timed companion. While the proposed utility law slams the front door of government to the public, the Neill Committee holds open the back door for lobbyists and corporate chiefs.
The committee’s report dedicates an entire chapter to the Observer ‘s Lobby gate investigations. But after hearing from influence peddlers and their clients protesting their innocence, Neill concluded there is no need to register nor regulate lobbyists nor the business fixers who glide in and out of Downing Street.
However, Neill boldly recommended that ministers and special advisors meeting with businessmen record these policy swap-fests in their official diaries. These are sealed for 30 years. ‘The Circle’, as Blair’s advisor Roger Liddle calls it, remains unbroken. From Ofwat to the Downing Street Policy Unit, the secrecy industry is back in business.
Yet, despite this Government’s best efforts, some information leaks out. US State Department memos obtained by Guardian reporters Rob Evans and David Hencke under America’s Freedom of Information Act confirm what the lobbyists told me last June, that US utilities knew the timing and content of UK Cabinet deliberations on energy policy that month. This intelligence permitted the US Secretary of Commerce to quietly, and quite successfully, lobby the Blair Government on its legislative programme.
So there you have it. The proposed Utility Bill will keep Britain’s consumers out of the decision loop, but rest assured British policy is in good hands: Bill Clinton’s, or rather, corporate America’s.
You can put your head in your hands and say it’s appalling, but concede that Labour’s shift from consumer friend to foe is amazing. It only took 1,000 days.
Gregory Palast’s other investigative reports can be found at www.GregPalast.Com where you can also subscribe to Palast’s column.
Gregory Palast’s column “Inside Corporate America” appears fortnightly in the
Observer’s Business section. Nominated Business Writer of the Year (UK Press
Association – 2000), Investigative Story of the Year (Industrial. Society – 1999), Financial Times David Thomas Prize (1998).
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