Eleanor McHugh: Public infrastructure should not be a profit-making venture

Eleanor McHugh is a resident of Edmonton and a life-long Tory voter. She currently provides consultancy services relating to next-generation internet technologies and the social changes associated with their mass adoption. For light relief she produces and plays guitar with punk band 'Toxic Frock'.

> Policy summary

Some public infrastructure is vital to the life of the nation and should not be a profit-making venture (water and sewage, highways, railway tracks, gas pipelines, electricity grid, network backbone).

> Policy explanation

Privatisation works well where a genuine competitive market can be established, but where large-scale fixed infrastructure is concerned, consumers (whether private individuals or businesses) are forced to purchase their supply from whomever provides that infrastructure in their geographic region without access to alternative suppliers. This leads to grotesquely profitable monopolies, running contrary to the core Conservative belief that the fair operation of the free market will ensure an equitable price for the product supplied.

One approach is to regulate the industries as is the current case, however the controversy surrounding the water industry as well as ongoing concerns regarding the effectiveness of BAA and Network Rail suggest that regulation does not sit well with the voting public or provide the value for money expected by government. Indeed for those of us living in the southeast of England under perennial hose-pipe bans, the whole affair is reminiscent of the worst years of the nationalised industries.

The natural Labour approach would be to nationalise these companies and put them under state control, which experience suggests would lead to equally indifferent performance and doubtless increase the overall cost of their services.

As Conservatives nationalisation is not our natural instinct, so what can we do? Increasing market competition is difficult due to the exclusive nature of fixed infrastructure so how about encouraging the corporations that manage these infrastructures to restructure themselves as charitable organisations operating not for the profit of share-holders but for the most efficient delivery of services to the public?

These corporations would be encouraged to raise capital for large-scale projects through bond issues, would continue to be regulated to ensure quality of service, and would charge service-providers for access to the infrastructure. Removal of the profit motive would encourage lowering of prices and greater investment in infrastructure, both desirable outcomes.

> Political risks and opportunities

Investors would expect to be compensated and there will be allegations of nationalisation via the backdoor. This could be politically embarrassing for a Conservative administration and might lead to a drop in market confidence, but this depends upon the mechanism used. Conversely the public confidence would be boosted by removing the profit motive from services which are currently seen as the preserve of unaccountable monopolies. The Conservative party's social justice credentials would be greatly enhanced and the impact on inflation due to price increases in these sectors would be reduced. Labour would either have to nationalise or look obstructively reactionary.

> Questions for ConservativeHome readers

• How best to create effective free markets for the provision of commercial services over these non-commercial infrastructures?
• How to manage the transition to non-profit status without damaging market confidence?
• Could the same principle be applied to Local Government and/or the worthier organs of the welfare state?

> Costs

Difficult to assess, but probably equivalent to the upfront cost of nationalisation (as a pure guess, £20 billion for the Water industry), plus the investment required to reorganise management as effective not-for-profit commercial enterprises. After that the primary costs would be those associated with the regulatory process. As charities these organisations would not be paying taxes so there would be a consequent loss of revenue to the Exchequer, balanced by decreased pressure on inflation and stimulation of the market in service provision.