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Monday, 27 May 2013

London's New Sewer - A Hot Investment ?

London badly needs a new sewer - a super-sewer which will stop raw sewage being discharged into the River Thames when it rains hard. Add heavy rain to lots of sewage and London's Victorian sewers can't cope.

According to the Financial Times (27 May 2013), the projected "Tideway" sewer will be 16 miles long and cost a projected £4.1 billion. By way of comparison, the lowest (Government) estimate for the cost of replacing the UKs four nuclear weapon carrying Trident submarines is £15 - £20 billion.

Thames Water, the water industry regulator OFWAT and the Government want China to pay for the new sewer. China has a sovereign wealth fund - the China Investment Corporation - and it has lots of money which has to be invested.

The UK does not have a sovereign wealth fund (SWF). Only creditor nations have those - China, Norway, Qatar. Thirty years ago, when it found that it had North Sea Oil and Gas, the UK was in a position to create a future-oriented SWF from the massive royalties and taxes generated. But Mrs Thatcher decided to spend the money on tax cuts in order to ensure that Mrs Thatcher got re-elected, which she did: Britain's voters aren't interested in the long run - in the long run, they say, we're all dead. They don't say that in Norway which also found it had North Sea Oil and Gas and did use it to fund a SWF which it still has today.

Should China pay for London's new sewer? And if not, who should?

The starting point, I suppose, is to realise that in the UK no one really wants to pay for the new sewer. It's a long term infrastructure investment - and in the long run, we're all dead.

Suppose you said that Londoners should pay for a new sewer to carry away their piss and shit and stop it polluting their local river. To this, Londoners might object that since their city is full of business visitors and even more full of tourists - who all piss and shit too - then it's unfair that the cost should fall (wholly) on them.

True, many Londoners make their living out of servicing the requirements of London's visitors - but the taxes they pay on their earnings, the VAT they collect, the Stamp Duty they pay on their houses - these all go to national government not the London County Council. There isn't a London County Council.

So should the UK Government pay, since it collects an awful lot of tax from Londoners? Unfortunately, the UK government doesn't have any money and, even if it did, Londoners' taxes are earmarked for other things:

- transfers to prop up the ailing regime in Northern Ireland ( reckon a few billion a year)
- transfers to prop up the ailing regime in Wales (reckon a few billion )
- transfers to prop up Northern England ( a few billion)
- defence of the Falklands where an awful lot of bored squaddies have to sit it out (at around a billion)
- and, yes, Trident replacement where on the most conservative estimate one submarine will cost as much as 16 miles of sewer

You get the picture. Since it might be hard to persuade the Chinese to fund the submarines (though they could probably build them as well which would make it more attractive), you can see why they are being shepherded towards the shit. Probably the Chinese also believe, as we do, that where there's muck there's brass.

But if there is, why isn't the City of London agitating for a public Bond issue, free standing or linked to Thames Water, which would allow all those wealthy Londoners (and there are many) to subscribe to the cause of building the sewer which will not only carry away their shit but promise a handsome dividend on the investment?

Why not indeed? Is the problem that the Londoners are looking for short term profits? Is it that they can't be persuaded that a sewer is as good as a dot com bubble?

But that can't be the way that their  Pension Funds think, can it? Don't Pension Funds have to think long term too? So why aren't they elbowing to put their money into this wonderful project?

Answers please. Especially ones which would persuade Mr Cameron to do a deal with China on the submarines.

1 comment:

  1. Irrespective of who provides the capital for investment, Thames Water customers will eventually pay for the improvements through higher bills. Better that than cholera.