The Thames Water “market-led solution”.
By Dieter Helm, Professor of Energy Policy and Official Fellow in Economics, New College, Oxford.
The temptation, when in a hole, is to just keep digging. It’s especially tempting to politicians. It is path dependency and it is what the government and OFWAT are doing in their everlasting “negotiations” with Thames Water’s (Thames) distressed-debt specialists and other lead bondholders. Make an initial mistake, and then engage in a game of self-justification until the position becomes so unsustainable that it just can’t be sustained any longer. Having “no reverse gear” is the origin of many of the worst policy decisions.
Thames is the stand-out example, but others abound. HS2 just keeps getting ever more expensive, and still government can’t quite let go. It is now almost £1 billion per mile. Strive for a private capital financing of Sizewell C nuclear power station to keep it out of public accounts, and end up with the government being dragged into ever more shouldering of the risks, and it all goes on the public balance sheet anyway. It still ends up costing £16 billion per GW. The net zero 2030 hole is already a chasm, with the highest industrial electricity prices in the developed world, and yet the government is still reaching for more sticky plasters.
