We need to talk about profit

Accounting profit is necessary for publicly traded companies to survive; it's not a sign of extortion.

Profit is seen as a pretty ugly thing for public services to be dealing in. Take the Guardian's Terry Macalister in April (only picked because it's the most recent I can find):

The big six energy suppliers have been accused of "cold-blooded profiteering" after official figures showed they had more than doubled their retail profit margins over the last 18 months and were now earning an average of £95 profit per household on dual-fuel bills.

To be clear, the profit motive is a fair target. There's a real debate to be had over whether or not companies providing public services should be operating under a legal structure which requires them to try to maximise the amount of cash (over the long term) they can return to shareholders, rather than, say, maximising the quality of service provided for a given investment, or providing a set level of service at the minimum cost possible.

But given public services are frequently run by private companies, attacking the amount of profit they actually make is concerning, for one simple reason: money costs money.

It's a basic fact of the economy, one which explains why it takes so long to pay off credit card bills, why the bank pays you if you've got a savings account, and why Greece is finding things tricky at the moment.

But while we're all familiar with debt finance – the act of borrowing a sum, and then paying it back with interest – corporations have an alternative way of paying for the money they need: equity finance. Rather than paying interest on top of borrowed cash, they return a share of the money they make with their loans to the people who loaned to them in the first place.

That money being returned – the equivalent of the interest which we all have experience paying – is profit.

If companies don't earn some profit, then the shareholders are likely to cash out, safe in the knowledge that they can earn more by putting their money elsewhere – maybe by buying shares in another company, or putting it in a high interest savings account. The amount of profit that companies have to earn to stop this happening will vary based on the perceived riskiness of investing in them, as well as the value of investments elsewhere, and is known as the "cost of capital".

Power companies need to be able to make investments, frequently valued in the billions of pounds (Macalister quotes one industry analyst who estimates £50bn is needed just to hook up new gas supplies). It's only by making profit today – that is, by rewarding the shareholders who bought in to the companies before – that they can ensure that they have enough funding to carry on paying for investments tomorrow.

None of this is to say that there can't be such a thing as "too much" profit; if Thames Water were to suddenly make Apple-sized margins, we could be pretty sure that they were overcharging or underinvesting. But simply making accounting profit, even at the same time as pleading penury and raising prices, is not a sign of underhandedness. It's just a sign of a business working as normal.

Companies which deliberately and continually make no profit do exist. But they aren't traded on the open market, and have no access to equity finance. That's fine for some, but worrisome if they suddenly need to find large amounts of cash to invest – or to stave off the creditors.

Perhaps public services should be run as non-profits, or not be run privately at all; but if they are, attacking them for making profit is foolish.

Hinckley Point nuclear power station. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Theresa May "indifferent" towards Northern Ireland, says Alliance leader Naomi Long

The non-sectarian leader questioned whether the prime minister and James Brokenshire have the “sensitivity and neutrality” required to resolve the impasse at Stormont.

Theresa May’s decision to call an early election reflects her “indifference” towards the Northern Ireland peace process, according to Alliance Party leader Naomi Long, who has accused both the prime minister and her Northern Ireland secretary James Brokenshire of lacking the “sensitivity and neutrality” required to resolve the political impasse at Stormont.

In a wide-ranging interview with the New Statesman, Long – who is running to regain her former Belfast East seat from the DUP for her non-sectarian party in June – accused the Conservatives of “double messaging” over its commitment to Northern Ireland’s fragile devolution settlement. The future of power-sharing province remains in doubt as parties gear up for the province’s fourth election campaign in twelve months.

Asked whether she believed the prime minister – who has been roundly criticised at Stormont for her decision to go to the country early – truly cared about Northern Ireland, Long’s assessment was blunt. “We have had no sense at any time, even when she was home secretary, that she has any sensitivity towards the Northern Ireland process or any interest in engaging with it at all... It speaks volumes that, when she did her initial tour when she was prime minister, Northern Ireland was fairly low down on her list.”

The timing of the snap election has forced Brokenshire to extend the deadline for talks for a fourth time – until the end of June – which Long said was proof “Northern Ireland and its problems were not even considered” in the prime minister’s calculations. “I think that’s increasingly a trend we’ve seen with this government,” she said, arguing May’s narrow focus on Brexit and pursuing electoral gains in England had made progress “essentially almost impossible”.

“They really lack sensitivity – and appear to be tone deaf to the needs of Scotland and Northern Ireland,” she said. “They are increasingly driven by an English agenda in terms of what they want to do. That makes it very challenging for those of us who are trying to restore devolution, which is arguably in the worst position it’s been in [since the Assembly was suspended for four years] in 2003.”

The decisive three weeks of post-election talks will now take place in the weeks running up to Northern Ireland’s loyalist parade season in July, which Long said was “indicative of [May’s] indifference” and would make compromise “almost too big an ask for anyone”. “The gaps between parties are relatively small but the depth of mistrust is significant. If we have a very fractious election, then obviously that timing’s a major concern,” she said. “Those three weeks will be very intense for us all. But I never say never.”

But in a further sign that trust in Brokenshire’s ability to mediate a settlement among the Northern Irish parties is deteriorating, she added: “Unless we get devolution over the line by that deadline, I don’t think it can be credibly further extended without hitting James Brokenshire’s credibility. If you continue to draw lines in the sand and let people just walk over them then that credibility doesn’t really exist.”

The secretary of state, she said, “needs to think very carefully about what his next steps are going to be”, and suggested appointing an independent mediator could provide a solution to the current impasse given the criticism of Brokenshire’s handling of Troubles legacy issues and perceived partisan closeness to the DUP. “We’re in the bizarre situation where we meet a secretary of state who says he and his party are completely committed to devolution when they ran a campaign, in which he participated, with the slogan ‘Peace Process? Fleece Process!’ We’re getting double messages from the Conservatives on just how committed to devolution they actually are.”

Long, who this week refused to enter into an anti-Brexit electoral pact with Sinn Fein and the SDLP, also criticised the government’s push for a hard Brexit – a decision which she said had been taken with little heed for the potentially disastrous impact on Northern Ireland - and said the collapse of power-sharing at Stormont was ultimately a direct consequence of the destabilisation brought about by Brexit.

 Arguing that anything other than retaining current border arrangements and a special status for the province within the EU would “rewind the clock” to the days before the Good Friday agreement, she said: “Without a soft Brexit, our future becomes increasingly precarious and divided. You need as Prime Minister, if you’re going to be truly concerned about the whole of the UK, to acknowledge and reflect that both in terms of tone and policy. I don’t think we’ve seen that yet from Theresa May.”

She added that the government had no answers to the “really tough questions” on Ireland’s post-Brexit border. “This imaginary vision of a seamless, frictionless border where nobody is aware that it exists...for now that seems to me pie in the sky.”

However, despite Long attacking the government of lacking the “sensitivity and neutrality” to handle the situation in Northern Ireland effectively, she added that Labour under Jeremy Corbyn had similarly failed to inspire confidence.

“Corbyn has no more sensitivity to what’s going on in Northern Ireland at the moment than Theresa May,” she said, adding that his links to Sinn Fein and alleged support for IRA violence had made him “unpalatable” to much of the Northern Irish public. “He is trying to repackage that as him being in some sort of advance guard for the peace process, but I don’t think that’s the position from which he and John McDonnell were coming – and Northern Irish people know that was the case.” 

Patrick Maguire writes about politics and is the 2016 winner of the Anthony Howard Award.

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