“It’ll be too costly.” “They’ll have other priorities.” “The UK is a place where the rule of law is supreme”. These are just some of the responses we’ve received over the past 30 months or so since it became clear that Jeremy Corbyn, leader of the UK’s main opposition party, was intent on nationalising the water, electricity and rail industries, as well as hundreds of PFI contracts.
The Labour Party during this period had provided little detail about the policy in response to these claims, leaving the issue largely as one of ideological rhetoric. However, that all changed last week when plans on how a Labour government would nationalise the energy transmission and distribution sectors were formally revealed.
So, will a Corbyn government respect the rule of law? The party says all nationalisations will be carried out through a two-step act of parliament, as has happened in the past.
How high do nationalisations rank in the party’s to-do list? Labour has said it would carry them out “immediately” upon taking office.
And would they be too costly? A Labour government certainly won’t be paying the £64 billion ($80.4 billion; €71.2 billion) at which industry regulator Ofgem has valued the UK’s gas and electricity network. Instead, parliament will decide the level of compensation, which will involve replacing shareholders’ equity with bonds. There will also be deductions to take into account “pension fund deficits; asset stripping since privatisation; stranded assets; the state of repair of assets; and state subsidies given to the energy companies since privatisation”. No exact figure was provided.
Bad bank, bad precedent
If one is searching for the logical roots of where this all begins, Labour cites the nationalisation of Northern Rock, which was brought into public ownership in 2008. But comparing a collapsed bank to an industry whose combined value could stage the London Olympics six times over is beyond likening apples to oranges.
Yet the ‘logic’ continues. Labour has said that as it brings in its plans over the course of its first term, the day after an asset has returned to public ownership will look “almost identical to the day before”. What’s more, the renationalised companies will be “managed by the same professionals” who ran them when they were part of the private sector. The idea that these professionals, who are often close to the shareholders that have just been booted out, will happily stay and work for their conquerors is optimistic, to say the least.
At this point, some of the party’s own criticisms of the energy sector must be addressed. It’s hard to argue that profits have not been excessive when Ofgem is seeking to bring down returns by about 50 percent in a bid to get a better deal for consumers. Labour has also had a swipe at the lack of investment in decarbonising the networks, a criticism that is harder to quantify. According to Ofgem, the industry has invested £100 billion since privatisation. And, at the time of Labour’s announcement, the UK had gone for more than a week without using coal to generate electricity.
An additional criticism was not just the fact that energy assets are privately owned, but the identities of the owners. “Many people would be surprised to learn that the cables and pipes that transport electricity and gas to their homes are owned by investment banks on Wall Street, multinational conglomerates from Hong Kong to the United States and sovereign wealth funds from China to Qatar,” stated Labour’s policy document.
They would also be surprised – given the omission of these less-convenient truths – that millions of UK citizens also have ownership in these companies through their pensions, which would suffer a significant dent should Labour’s plans come to fruition. Polling from 2017, conducted by YouGov, found that 83 percent supported nationalising the water industry. However, more recent polling, conducted by ComRes on behalf of industry trade body Water UK, found that only 29 percent supported nationalisation once they had been told it would hit their pension pots.
As embattled politicians in the UK frequently point out, the only poll that really matters is the next general election. A possible Labour victory means investors will need to be ready for battle. Logical or otherwise, the party will not abandon its nationalisation policy without a fight.
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