Thursday 24 January 2019

Infrastructure investment politics 2

I've blogged a couple of times before about the political challenges facing investment in infrastructure. In the last couple of days there have been a couple more news stories that show how sharp these issues are getting.

First up, the FT ran a piece about overseas institutional investors putting a "blanket ban" on investing in UK infrastructure. Essentially this is due to political (and therefore regulatory) risk and, importantly, investors say this is no longer restricted to Labour policy:
Investors point to the effect that opposition leader Jeremy Corbyn has had on the government, which has adopted some Labour policies. This includes the surprise decision to abolish the future use of the private finance initiative in last year’s Autumn statement as well as environment secretary Michael Gove’s criticism of the privatised water companies, which he accused of “playing the system for the benefit of wealthy managers and owners”. “What Corbyn has achieved is a reaction within other parties,” one infrastructure investor told the FT. “There is no one in the political arena defending us any more.”
Water bosses were startled at a conference in November when a senior Conservative politician, Sir Oliver Letwin, appeared to express indifference as to whether the sector was in private or public hands. 
I think the point about their being no political support for private ownership is particularly telling.

Then today Reuters ran a piece about investors seeking creative ways to protect their existing investments in UK infrastructure against the threat of renationalisation:
Some major shareholders in water companies are seeking to safeguard their investments from nationalization should the left-wing Labour Party win power, by shifting their stakes to holding companies in Hong Kong, according to investment industry and legal sources with knowledge of the matter.
Funds including Australia’s IFM Investors are aiming to take advantage of a bilateral investment treaty between Britain and Hong Kong designed to protect against state expropriation of assets, the sources told Reuters.
As I blogged before, the fact that these stories are appearing tells you something in itself. People are talking about, and planning for, changes to public policy around the ownership of infrastructure assets. There obviously remain significant obstacles to major changes to ownership in practice. Until a political party committed to change takes power, critical words about private ownership might be all the action that there is. In addition, the cost of renationalisation remains... err... large, and its benefits may not be strongly felt.

Nonetheless, these the high-level politics around public ownership are pretty straightforward now. Few MPs are going to see much sense in fighting to defend the right of Macquarie to run a UK water company. No political party is going to run a "defend privatised utilities!" campaign - at best they will silent, though eve those who are ambivalent are more likely to criticise (like Gove) thus making it easier for others to act. And that's pretty scary for investors.

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