Monmouthshire County Council’s decision to restrict non-recycled waste to one bag a week shows the dangers of monopoly provision. The government should legislate to allow private providers to contract directly with households
My little boy Marcus is now at that tricky stage in his life when he has to pick a football team. This is a stressful business for his mother and me, as we both made bad choices as children and have wasted 40 years of our lives following mediocre sides who were once good in the 1970s.
The difficulty of any long-term commitment to a lost cause is spotting that it is actually a lost cause. Football is a series of short events and each one provides the opportunity to kid yourself that this is the turning point, the moment when things stop declining and start to come good. I have ruefully reached the conclusion that the real skill in life is spotting the moment that tells you decline is terminal, things are never going to come good and you are better off doing something else all together.
For Communities Secretary Eric Pickles, I think that the recent announcement by Monmouthshire County Council that it is limiting residents to one bag of non-recycled rubbish per week is just this moment. It’s the point at which he realises he is backing a lost cause when it comes to local government involvement in the waste industry.
Step back from the pappy PR words of the council’s press release and you realise that this is a monopoly provider telling its customers that it is unilaterally reducing service levels without any corresponding reduction in price. And the nice people of Monmouthshire have no choice but to suck it up or move somewhere else.
What they cannot do is contract with another, more reasonable, waste collector because the council has a carefully guarded legal monopoly on organising the collection thanks very much. So tough.
Now you would hope that this is an isolated case in an industry famed for its focus on customer service. But you and I both have long experience of dealing with recalcitrant binmen and we know that this is not the case.
The domestic waste collection business has the classic symptoms of a long-term monopoly; low levels of technical innovation and investment, inward looking priorities and an appalling disregard for customer service. This is not a surprise, it’s what any monopoly becomes given long enough and that is why they are generally seen as bad idea.
Furthermore, the existence of a public sector monopoly on procuring waste collection actively discourages investment in new technology. Basically there are two ways for the public sector to get the private sector to invest in anything; you either give them long-term stable contracts for 15 years plus or you step out of the equation all together and give them direct access to the customers without any contracts at all.
Take Tesco for example. They have contracted income of about 30 seconds, ie everybody currently standing at the checkout, but last year they invested £1bn in the UK. This is because they know they can market directly to consumers who have an unfettered choice and the public sector does not stand in their way waving an exclusive contract it has unhelpfully signed with Sainsbury’s on my behalf.
The worst thing the public sector can do is to inhibit consumer choice without a compensating long-term contact. So, if you let a three- to five-year waste contract and do not allow any other means of access to your household waste stream, nobody will build anything. They sinply cannot recover their investment in such a short space of time and they know they cannot circumvent the public sector to market directly to householders.
Awarding short-term monopoly contracts in any capital intensive industry has the entirely predictable effect of favouring incumbent suppliers that have already paid for their old-fashioned plant thanks very much, can charge the public whatever they can get away with and, hence, any technical innovation is strangled at birth.
I suspect that at this point a lot of you who have jobs within the comfortable confines of the monopoly will be snorting. You’ll say that there is no alternative to the existing arrangements and the council has to organise waste collection no matter how many Monmouthshire councils there are out there.
You would say this wouldn’t you? However, it is simply not true. Of the 288 million tonnes of waste that were collected in the UK last year, the public sector arranged the collection of about 31 million or 11%. The remaining 89% was cheerfully collected by a thriving private sector industry contracting directly with waste producers without the stifling hand of the public sector.
This isn’t just commercial or construction waste, it is bulky waste and skip collection direct from households. And elsewhere in Europe, direct private to householder sector collection schemes exist with weekly and even daily collections. So it can be done, the question is how?
I think the answer can be compressed to three simple steps:
1. Identify the existing cost of collection and disposal per household per council and make this figure public knowledge;
2. Legislate to allow registered private sector providers to directly contract with households on terms, collection formats and frequencies set by the market not the council;
3. Each household that directly contracts with a private sector provider (and hence opts out of the council monopoly) gets a rebate on their council tax equivalent to the costs set out in 1.
It’s not rocket science and what’s the worst that could happen? Nobody opts out from the council collection, the market doesn’t work and the existing situation persists. At worst the government has published some embarrassing stats and passed a bit of enabling legislation.
You may gloomily predict more dire consequences will arise ie giving the householder a choice will lead to a torrent of fly tipping, but why would it? The other 90% of the UK waste stream is not piled up in laybys and, besides, under my clever plan, households can only contract out of the council monopoly if they contract with somebody else.
A second objection is that taking the council out of the equation will undermine recycling initiatives, but again this is a fallacy. Landfill tax is the best policy we have to stop people burying waste and this applies universally.
My exhortation to Pickles is to stop focusing on the ‘why nots’ being articulated from within the cosy confines of the monopoly and think about the ‘why yes’ of opening up the market. All monopolies can construct apocalyptic arguments as to the consequences of exposing them to market forces and the post-war history of the UK shows us that these dire predictions rarely happen.
A more likely outcome is that the private sector invests, innovates, focuses on customer care and all the other good things that tend to happen when you replace public sector monopolies with regulated markets.
Think BT, BP BA, British Leyland, British Aerospace. Don’t think BR but do think British Gas as despite the torrent of bad publicity, UK domestic gas prices in 2012 were unbelievably the second lowest in the EU 15 group of countries.
So, I think it's time for Eric Pickles to wearily say ‘enough is enough’. The public sector procured waste collectors have predictably behaved just as badly as any other artificial monopoly has and we have ended up with an industry that doesn’t innovate very much, is indifferent to the customer and escalates costs relentlessly.
Life is too short to back lost causes and its time for the government to start supporting somebody else.
Michael Ware is corporate finance partner at BDO. @michaelware13
