Why is nothing working?

Everywhere you look in Britain, there just seems to be crisis. And recently, the level of discussion about market intervention and regulatory failure has caught up, and is unlike at any time in recent history. 

Thames Water, drowning in £14bn of debt, has become the latest in a line of indications that regulatory regimes are failing. The wider water industry faces around £60bn of debt, which had been allowed to amass as cheap debt under historically low interest rates. Alongside this, Ofwat have allowed bills to stay low, dividends to be high and investment to be underfunded in less testing economic times. Now, with a cost-of-living crisis and historically high tax burden, bills will rise and the taxpayer may have to foot the bill for Thames Water’s financial collapse.

Ofwat have been slammed from across the political divide for all this, but it is not just the water sector where people are calling for intervention.

A couple of weeks ago – out of curiosity – I had GB News on in the background. Almost every single story was about regulatory failure and pressure for intervention. The CMA investigation into supermarket fuel prices was the top story; Conservative MP Bob Seely was on the channel slamming supermarkets’ corporate greed and regulators for being “asleep on the job”. Energy bills were up next, with Angela Knight – a Conservative – criticising the regulator’s failings over several years. A story on the FCA investigating greedy banks profiteering by not passing high interest rates to savers was third up. Then, a discussion about Ofwat, Thames Water’s failings, the ‘revolving door’ between Ofwat and the industry, and Nick Timothy’s musings on ‘untrammelled capitalism’.

We are in a unique political moment, where there is a notable degree of consensus from left to right, and among industry, consumers and government, that regulation has failed in key sectors. 

A Conservative government has brought four train operators into public ownership in five years. They introduced an Energy Price Cap under Theresa May, which itself wasn’t enough to insulate the country from the events of the last few years and had to be superseded by Liz Truss’ Energy Price Guarantee. Rishi Sunak’s intervention during the pandemic was of course unprecedented, but essentially ceded the argument to state intervention. All of this exists alongside a record tax burden. 

They are not enthusiastic about doing any of these things. They have failed to make a compelling centre-right argument for a smaller state amid these interlocking crises.

Labour’s Caution 

So, here lies a weird paradox. Despite the amount of recent market intervention and calls for more, Labour are hesitant to seize the moment to enthusiastically take control of the commanding heights of the economy. 

They are, instead, determined to demonstrate pragmatism and fiscal responsibility, and maintain market confidence, after Jeremy Corbyn’s leadership and Liz Truss’ premiership. July 2023 polling revealed 67% of voters back price controls on essential goods, and left-wing Labour MP Richard Burgon has called for price caps. But both Labour and government frontbenches have voiced scepticism about such radical government intervention

The same goes for renationalisation. Even if Starmer’s Labour was inclined to renationalisation, the cost would deter them. All evidence from the last couple of months suggests that if it costs much at all, it isn’t going in the manifesto.

With all this attention rightly being paid to regulatory failures, it is also important not to lose sight of the deeper, structural problems. Rail is not just broken because of individual failings at TOCs and the ORR: Britain has underinvested in rail for decades due to the state’s short-termism, a London-centric economic mindset, and an allergy to building very much at all.

Labour’s Mission-Driven Approach

As part of Keir Starmer’s drive towards a ‘mission-driven government’, Labour has committed to ending “short-term sticking plaster politics”, where political cowardice allows a problem to grow into a crisis, until a kneejerk or temporary fix is put in place. Labour are keen to project themselves as rejecting what they see as crude policy instruments to deep, structural problems. It is in this context that Lisa Nandy called rent controls a “sticking plaster”, despite last autumn saying she was “personally very interested” in the possibility of local leaders imposing temporary rent controls in their areas over the winter. Commendably, Labour is giving serious attention to housebuilding, and even building on the green belt, drawing a dividing line against Rishi Sunak’s Conservatives at a high political risk. What this shows is an increased willingness to risk upsetting some groups, like the party’s own left flank, and NIMBYs. It is important to note that this is at a time where Labour feels it has the political capital to do so after an unedifying period of government chaos.