View from the house

Another 250 government amendments, bringing the total to over 600 in what started out as a 134 clause bill.

Aside from the issue of hugely incompetent handling of this bill by civil servants and ministers – involving the withdrawal of all the clauses relating to the telecoms and water industries half way through the committee stage – the final day’s debate saw the opposition raise the issue of mutualisation.

Mutualisation of the utility sector is an unwelcome development that has been triggered by over zealous regulatory activity. It has already begun in the water industry, albeit resisted by Ian Byatt, the water regulator.

Mutualisation is the process whereby equity capital in the utility companies is replaced by debt to the extent that the company is worthless and its ownership effectively transferred to the community.

The reason behind this transformation is the requirements put on to the utility companies which are gradually making some sectors unviable as profitable businesses. The danger of mutual companies is that the absence of shareholders removes the pressure on the companies to compete. As the FT said: ‘mutual ownership … leaves big questions as to how the new management could be kept sharp in the pursuit of efficiently.’

All this has happened, of course, before the bill has come into force.

The danger is the new regulatory burdens imposed by this legislation will compound the problems and speed up the move towards mutualisation.

Privatisation has delivered huge falls in the price to consumers for gas and electricity. It is important the role of the regulator is confined to that of mimicking a competitive market where a natural monopoly exists.

Where competition is flourishing the regulator should withdraw and leave it to market forces to deliver lower prices. But even where the regulator remains, they should ensure they do not over egg the pudding and drive out entrepreneurial equity capital.

  • Nick Gibb is Conservative MP for Bognor Regis.

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