AQUA BRITANNIA ! How UK Water plc can maintain high investment levels – within acceptable pricing limits – and raise its profile overseas.
Published: August 2009 (Economic Research Council)- By Ngel Hawkins
Key points from the paper:
• COMPETITION – Trying to produce competition between water companies has been a 20 year failure, which seems destined never to produce tangible benefits. It is time for OFWAT to give up on this and focus on bearing down on excessive investment by the water industry.
• WATER SUPPLY SOLUTIONS – A sharp rise in water metering – a financial gain to the consumer – would weaken the case for costly new reservoir investment. Water leakage from the UK’s 325,000 km of mains remains costly to fix and can only achieve a limited increase in supply. Desalination plants are very expensive. A National Water Grid is financially nonsensical. Building a pipeline to transport a cubic metre of oil which costs £200 makes sense, water only costs less than £1 per cubic metre.
• OFWAT – For the 5 years between 2005/06 and 2009/10 was too generous in its investment allocation to the Water Industry (the WACC – weighted average cost of capital), which resulted in higher than necessary prices for consumers. Unlike OFGEM, who saw sense in not proposing a draft WACC when debt markets are so volatile for the next 5 years, OFWAT is taking a risk with consumers money by believing it can set the correct rate. Instead it should set the WACC for a three-year period with a provisional figure for the two years thereafter.
• PRIVATISATION – A future government should make plans to privatise Scottish Water, Glas Cymru, Northern Ireland Water and British Waterways.
• GOVERNMENT SHOULD – repeal the water-specific mergers legislation and take initiatives to encourage UK Water plc to expand its franchise internationally where huge opportunities await.
NEW NUCLEAR BUILD IN THE UK – THE CRITERIA FOR DELIVERY
Published: February 2008 (Economic Research Council)- By Ngel Hawkins
Background – March 2008:
Britain’s government seems to think it can just give nuclear power stations the green light and they will magically appear. The truth is that only probably three European utilities, EDF, E.On and RWE, have the financial strength – market cap. and portfolio diversity – and the inclination – to take on the risk of building new nuclear power stations and the government may have to negotiate directly with them.
Key points from the paper;
• Using a financial model, based on four units and with an allowance for First-of-a-Kind (FOAK) costs, the overnight capital cost is estimated at £1.5 billion per 1,250 MW unit
• The government may need to issue a Financial Indemnity for the accruing debt – similar to Network Rail – and also require electricity suppliers to sign up to a long term Nuclear Purchasing Obligation
• Over a 40 year lifetime, unit costs are estimated to be between 3.0p and 3.4p ker KWh, with a Weighted Average Cost of Capital of 7.5% (based on 70% debt and 30% equity).
PLAYING WITH MONETARY FIRE
Published: December 2007 – by Tim Congdon CBE (Economic Research Council)
In the year to September 2007 new lending by the UK’s banks and building societies amounted to over £240 billion, with mortgage finance accounting for almost half of the total. In 2008 new lending is likely to under £150 billion, with mortgage finance being two-thirds or less the 2007 figure. Lower house prices will be welcome to first-time buyers, but first-time buyers may find it difficult to obtain finance.
Congdon’s paper surveys the facts of the relationship between the quantity of money – dominated by bank deposits – and the levels of national expenditure and income in the 43 years from 1963 to 2006. He attacks claims that the ‘velocity of circulation is unstable’. He shows that the growth rates of households’ and companies’ money holdings over this very long period were similar. The ratio of households’ money balances to national income did change, going up by 2 and a half times because of such developments as the payment of interest on current accounts. But money balances themselves have soared by almost 87 times and national output by 40 times! Congdon’s verdict is that ‘the behaviour of bank deposits is basic to the determination of national income and asset prices in the UK, as in other economies’.
The Spectre at the Economic Feast – Why Our Schools Should be Privately Financed
Published: June 2007 – by Prof. Dennis O’Keeffe (Economic Research Council)
The UK’s educational status quo is dire; millions cannot read, write or count and millions more can do so only barely. The causes of our low standards lie in state-directed and financed education, which accounts for 93% of our education system. Meanwhile, the continuing inflation in private school fees (3 times the rate of inflation 1985-2005 or 103% in these two decades and hitting an annual rate of 6% in 2006, according to the Halifax) suggests two points;
i) That Private Schools work better than government schools
ii) That there aren’t enough of them
O’Keeffe says that whilst there is no magic wand which could wave an end to Britain’s education woes, we would go a long way to helping those at the wrong end of society if we were to:
Bring in small, cheap, private schools with generous, tax concessions by government and/or reliance on private philanthropy at nursery, primary and secondary levels.
- Reintroduce the 11 plus on a voluntary basis
- Reintroduce grammar schools, perhaps without catchment areas
- Close down much of the education bureaucracy and quangos and cut their regulations to a minimum
- Lower the school leaving age and reintroduce commercially based apprenticeships
- Decentralise drastically the remuneration of teachers
- Encourage prestigious schools like Eton and Harrow and other distinguished places to offer more scholarships and to open up lower-price wings
CRACKS IN THE FOUNDATIONS?
Published: April 2007 – by Professor David B. Smith (Economic Research Council)
Smith lucidly illustrates how over the last 10 years the following cracks have emerged in the intellectual and institutional foundations of British monetary policy:
The removal of the Bank’s debt management and regulatory responsibilities was a probably an error, in part because of the resultant loss of market ‘feel’ when the Bank had to act as a lender of last resort.
The sole reliance on base rates has left the MPC with an inadequate tool kit to deal with all monetary challenges.
The Bank’s main forecasting model is flawed, relying too much on assumed theory and too little on empirical observation.
Smith recommends that some of these cracks can be closed with the following reforms:
The introduction of additional monetary instruments.
Re-integrating the Debt Management Office into the Bank.
Restoring the Bank’s supervisory powers over the deposit-taking institutions whose liabilities correspond to M4 broad money.
Making the Bank- not the Office for National Statistics – the main source for compiling and disseminating the UK’s macroeconomic statistics.
Creative Destruction in the Music Industry – The Way Ahead
Published: December 2006 – by Andrew Ian Dodge (Economic Research Council)
Britain’s music industry is is in crisis; sales of singles and albums are collapsing while digital downloads – often illegal – are exploding. Meanwhile UK artists are failing to exploit the new technologies and sales channels that could give them a competitive edge and the record companies continue to work on a pre-digital redundant business model – one where they have a monopoly of recording, releasing and distributing music.
Published: October 2006 – by Lewis Page (Economic Research Council)
Britain’s military is in crisis; under-equipped, undermanned, undersupplied and severely overstretched. Spending is not matching aspirations and there is an emerging consensus that this must be addressed. But what is the most intelligent way to apportion those funds in terms of costs versus capabilities?
Lewis Page, author of “Lions, Donkeys and Dinosaurs – waste and blundering in the Armed Forces” to explore how the UK could radically reorganise its Armed Forces within the existing budget to finally move them beyond their redundant Cold War footing. Page explains in detail what equipment and capabilities needs to be bought and discarded and how funds can be found for a 50% pay rise for combat troops. Page lucidly illustrates how;
Disproportionate resources in money and personnel are spent on;
- Anti-submarine warfare
- Surface-based defence against enemy air attack
- Overcoming enemy armoured forces using ground units
- Delivery of explosive strikes deep in enemy-held territory
Insufficient effort is being made in;
- Provision of deployable ground combat troops with a small logistical footprint
- Utility/transport helicopters
- Both heavy and light military air transports
- Sea-based aviation of every type
THE NEW ECONOMICS OF ENERGY SECURITY
Published: July 2006 by Prof. Colin Robinson, Sir Bernard Ingham and Dr Eileen Marshall
Sir Bernard Ingham, Margaret Thatcher’s former Chief Press Officer, contributes his thoughts on the benefits of going nuclear. His paper is entitled, “Nuclear power – the most secure and economic option.” The second part of the paper focuses on energy security. With the G8 summit beginning on 15 July in St. Petersburg, Professor Colin Robinson and Dr. Eileen Marshall CBE, argue that, “Competitive markets – not governments- enhance energy security”.