The Money Flowed Like Water

The country needs water: fresh, clean, plentiful, safe water -- delivered to homes and businesses up and down the land for a fair price.

Private companies are required to act in the interests of their shareholders, to maximise the return on their investment using their skills and business acumen to cause the share price to rise and to generate enough profit for regular and sizeable dividends to be paid.

In a country where customers cannot pick their water company, and therefore competition cannot keep the worst excesses of sharp business practice in line, it is therefore vital for a regulator to ensure that water is delivered, bills are fair and profits are reasonable.

(Oh, and that investment is made in infrastructure, that sewage is dealt with appropriately, that leaks are repaired in a timely manner, and so on and so on.)

Because the private company would be required to charge as much as possible while doing as little as possible. It is for the regulator to determine how much is 'as much as possible' and how little is 'as little as possible'.

Ponzi

A Ponzi Scheme is one in which new investors' deposits are used to pay supposed profit share to previous investors. It's entirely dependent on a continuous (and accelerating) stream of new investors coming on board forever. Clearly that cannot happen and so, sometimes sooner than expected, the scheme runs out of suckers to draw in -- at which point it promptly collapses. Jail may then ensue.

Consider this business strategy:

• Acquire public infrastructure at attractive price.
• Borrow vast sums of money, secured against the value of the infrastructure and the certainty of receipts from captive customers.
• Pay dividends using the borrowed money.
• Enjoy higher share price due to the size of the dividends.
• Enjoy lower borrowing costs because of the higher share price.
• Borrow more money at attractive rates.
• Pay more dividends.
• Etc

The amount borrowed by the water companies is very similar to the amount that has been paid out in dividends. Close to nothing that was borrowed has been invested in the company.

If no dividends had been paid, the share price might have been lower. This might have made borrowing more expensive. But if no dividends had been paid, no borrowing would have been required. So the only advantage of the borrowing was to make the borrowing slightly cheaper than it would have been otherwise -- except that it probably wasn't needed anyway.

And the customers will be paying the interest on the borrowed money.

This is not a Ponzi Scheme but it has something in common with one. It is as though someone has manufactured a 'stable' version of the Ponzi scheme, with the executives and the shareholders as the original investors, continuously being fed 'profits' from everyone else.

Insult

And, as a wonderfully insulting flourish, now that the water companies have been found wanting, they have kindly agreed that investment will be made in the infrastructure.

And that investment will, of course, be entirely paid for by their customers.

It has to be -- the borrowed money has gone as dividends, it cannot be clawed back. The debt is still there as a huge drain on customers' money -- but that's okay because they will be paying it back through their bills, probably forever.

The one saving grace is that many of the shareholders are pension funds so some of this vast borrowed pseudo-profit will go towards paying out pensions. Unfortunately, many of those pension funds are based in foreign countries so that's not going to help the thoroughly victimised customers very much.

And, even if all the pension funds were British, would it be a clever idea to pay pensions based on overcharging the general public for their utilities? And via a circuitous route involving dividends, loans and interest charges? How much are the banks making out of these loans?

Illegality

As far as I'm aware, nothing even slightly illegal has occurred.

Private companies are expected to behave in a way that maximises their advantage while paying no regard to anything else.

The legal framework that set up this system, and the regulator who must have known what was occurring, are clearly not fit for purpose. But that's very different from finding out that laws were broken and that there was an obligation to make things right.

Solution (that won't happen)

• Change the law to vastly increase the responsibilities of the water companies.
• Increase the power of the regulator with a view to keeping prices very low indeed.
• Wait for the companies to go bankrupt and take everything back into public ownership at zero cost.
• If possible, get the loans written off when the companies go to the wall. Rather than venture capitalists and American pension funds now owning all our reservoirs and sewers.

We cannot comment on individual cases

How many times have you read that at the end of a news article?

The journalist has set out the details of the shoddy treatment experienced by someone, including background, detail and aftermath, together with interviews with all the key people involved.

Well, not quite all the key people involved because the ones responsible, the ones who (probably) caused this, the ones who could (probably) fix this, just say that...

We cannot comment on individual cases

We are all individual cases. What happens to us is an individual case. There's little point in proudly announcing that 95% of stuff is handled well if that means that a few thousand people every week are in the remaining 5%, the group that was done over, the group that cannot be helped, that cannot be commented on, whose difficulties will instead be inflicted on some other unlucky candidates next week.

Because if we are to learn anything, it is from the individual cases.

Why did it go wrong?

There are only three answers to this one:

1. It didn't go wrong. This is how it's supposed to work. Deal with it.
   
   
2. The process isn't supposed to happen like this. Someone made a mistake. We'll get them in for a chat and make sure it's put right for you and that this doesn't happen again.
   
   
3. The process is wrong, which means cases like yours end up like this when we follow the process.  It's not the fault of the person who did this for you. We'll change the process, then no one will experience this again.

So, if only you could comment on individual cases, you could tell us which of those three answers is the right one. And then you can take action:

1. Announce proudly that this is how it's supposed to work! Why wouldn't you be proud of it? If it doesn't need fixing and it's behaving as intended, then say it loud and say it proud. You can handle the nay-sayers, can't you? Because you know why this is the way it should work and you can easily defeat their petty arguments. (If you can't handle the nay-sayers, at least consider the possibility that this is not the correct answer this time.)
   
   
2. Our intentions were pure but the doofus who handled your case needs to be reeducated, if you know what I mean. Sorry for your trouble, have a boiled sweet and a sticker for your trouble.
   
   
3. Good lord, this process must have been designed by the previous administration. Looks like another one of their screw-ups fell through the net. But we know about it now so we'll put it right and bring it all up to snuff. Sorry for your trouble, have a boiled sweet and a sticker for your trouble.

See? It's not so hard. Once you accept that individual cases are just, you know, cases, then you can behave like a human being and actually say something meaningful.

For example?

Consider the German punk band, Trigger Cut, who were denied visas to perform in Britain in the last few days. No one really knows why because there was no official comment on this individual case. But what possible use is that?

1. If Trigger Cut got their application wrong, then tell us what they got wrong so that others don't fall into the same trap.
   
   
2. If the Border Force official got the process wrong, then apologise to Trigger Cut, try to make it good as best you can (maybe money?) and tell us that it was a mistake by an individual, who didn't understand the process that was supposed to be followed.
   
   
3. If the whole process is a complete mess and no one understands it, then fix it. Once you've done that, explain to us how it's supposed to work.

Instead, what we actually got from the government was (highlighting is mine, of course):

A government spokesman declined to answer questions about why Trigger Cut were refused entry to the UK.

They said: “Musicians and performers are a valued and important part of UK culture with the country attracting world class entertainers and musicians from around the globe. This is why we offer a dedicated immigration route for creative workers.

“All visa applications are carefully considered on their individual merits in accordance with the immigration rules. The application process is designed to ensure that all visa decisions can be made using the most accurate information and is fair for all applicants.”

At no point could it be argued that the government spokesman has explained any aspect of what went wrong in this case. And it might have been helpful if they had.

Another example?

Doctors' pensions -- this one has been rattling on for a while now, e.g. four years ago when half of doctors, apparently, were proposing to retire early as a result.

In a (non-financial-advisor approved) brief nutshell, changes in tax laws meant that senior doctors were hitting some tax/pension threshold that meant that vast sums of additional tax were being demanded from them. In some cases they would have been left earning almost nothing because so much of their income was disappearing in tax. Which would certainly make some people think early retirement would be a better option.

Now, it doesn't really matter what the exact details of this tax legislation mean -- which is fortunate because I have no intention of reading up on the detail. But we know, from many anecdotes in articles such as the one above, what the effect has been.

And, at this point, rather than declining to comment on individual cases, it would have been so much more helpful to pick one of the possible three answers:

1. This is a fair and equitable tax situation which is working as intended and which we do not plan to change.
   
   If you're picking this option -- well done! You're proudly sticking up for the skill of whoever wrote this tax law, together with the genius of the politicians who decided to implement it. Because if this is what you meant to do, why wouldn't you proudly say so?
   
   
2. This is an unintended consequence of trying to do something else. (What? Who knows? Ask a tax/pensions expert.) While the principle was sound, we've accidentally affected more people than intended and will be urgently redrafting the legislation and guidance to deal with this mistake. And, obviously, reimbursing anyone who faced a huge tax bill.
   
   It's a reasonable halfway-house answer. We had the right intentions, slipped up a bit with the execution, but, don't worry, trust us, we'll make it all right. Thanks for pointing it out to us...
   
   
3. I think this whole thing was crafted on a Friday afternoon when Geoff came back from the pub three (or more) sheets to the wind. Goodness only knows how it got so far and why no one spotted it earlier. But we're withdrawing it now, and promoting Geoff up a bit to where he can't do as much harm. And, obviously, reimbursing anyone who faced a huge tax bill.
   
   Maybe this is the truth at the heart of the crisis -- but we'll never know because a response like this would never come out. Instead, Geoff would get his promotion, the legislation would be polished up a bit at a totally different time, and some people might receive hints that there was an application form to reclaim unreasonably high pension/tax bills.
   
   

Overall

You've got to admit there is a problem before you can begin fixing it.

And the only way you can see problems is by looking at the individual cases and commenting on them. Otherwise, we're all just dots or ants -- because if you look at any person or people from far enough away, it becomes so much easier not to care.

Orson Welles explained it rather well -- not sure which of the four writers was responsible for the words: Graham Greene, Orson Welles, Alexander Korda and Carol Reed.

Alternatively, take the coward's way out. Refuse to comment, change the subject and say that everything you do is "using the most accurate information and is fair".