FLAWS in the funding formula for private companies which have taken over public services explain why consumers of water, power and rail travel are paying the highest prices in Europe, a new report claims.

The report by Scots economist Jim Cuthbert, which says firms that have taken over public utilities have been allowed to profiteer on a grand scale as a result of "gross errors" in the formula covering their capital investment charges.

His complex analysis, published by think tank the Jimmy Reid Foundation, states that in an era of low inflation and cheap credit the utility companies have been allowed to charge 20% for their loan charges on capital work and pass this on to the customer.

Loading article content

Mr Cuthbert, a retired Government economist, has tracked the flaw back to the original formula used by the water industry regulator south of the Border, a formula used since then in the gas, electricity and rail industries.

Mr Cuthbert said of his findings: "The first thing to be done in sorting out this mess is to involve customers in rethinking the philosophy of customer charging: and then to make sure that the resulting charging model is applied correctly."

Robin McAlpine, director of the Jimmy Reid Foundation, said: "If people are wondering why the price of a rail ticket has soared yet again, this report explains it. They may not be surprised to discover that once again they are the victims of a profitable form of financial speculation."