Renationalising utilities may be a vote winner but it's utterly impractical

EDITOR'S BLOG: Jeremy Corbyn wants more public ownership and even Theresa May is railing against energy firms, but renationalisation is a lot more complicated than some would suggest.

by Matthew Gwyther
Last Updated: 11 May 2017

The process of privatisation of nationalised industries began in a systematic and politicised way in the UK way back in the 80s under Margaret Thatcher. She ‘Told Sid’ big time and flogged-off vast swathes of nationalised industry - starting with BT, BP, the railways and the utilities, just about anything that can be sold off has been in the last 30 odd years. Taking them off the balance sheet also enabled many capital-starved industries to borrow money to improve and modernise. Also, in theory, to benefit customers by introducing competition. It’s amazing when you look at a list of the odds and sods that were at one stage or another held by government: Lunn Poly, Rolls Royce Motors, Amersham International, BBC Books...

Now riding what is quite a popular wave the Labour party is including widespread re-nationalisation of several privatised industries in its manifesto. Corbyn wants energy plus the railways brought back under government control and that may only be the start. The energy companies have now become Public Enemy Number 1. Even Theresa May claims their bosses wear horns and sport a cloven foot. Never mind the bigger picture stuff about our lights all going out if we don’t build some more power stations pronto, all the attention is on the section of the population who, for whatever reason, don’t shop around and never change energy provider. Being ‘left behind’ includes not being bothered to go onto to MoneySupermarket and checking out where you might come by some cheaper electricity.

And it’s not just energy. This week even the Financial Times has produced a long and pretty damning report on Thames Water which has become the lucrative plaything of international private equity and sovereign wealth outfits who use every financial trick and manipulation in the book to screw customers and avoid paying any business taxes. These days it looks like a DelBoy ‘no income tax, no VAT!’ outfit, which is passed around Aussie and Gulf State interests like a bauble that just keeps on spewing out safe dividends.

Thames Water could hardly even be said to be a business - there is no risk involved, there is no competition. I cannot ring Severn Trent and ask them if they’d like to consider bidding to take off my kid’s Number Twos for a year via a sewer pipe stretching from South West London to a cess pit in Cheltenham. To keep things ‘competitive’ and make sure water companies act nice, all you have are a huge number of pen-pushers at Ofwat who try to act like rather wet Sunday football referees. ‘I say, don’t you think that bill might be a little bit steep?’ The central point is that by no stretch of the imagination could this utility be said to be operating principally in the public’s interest. God’s water falls from they sky and they monetise it big time.

The last time YouGov asked the public, 68% said the energy companies should be run in the public sector, while only 21% say they should remain in private hands. 66% support nationalising the railway companies while 23% think they should be run privately. The British people also tend strongly to prefer a publicly-run National Health Service (as it is now) and a publicly-run Royal Mail (as it was until recently). With opinions like these I think it’s high time we held a referendum on these important matters. I mean what’s the worst that could happen?

There is, of course, one major reason why the re-nationalisation will never occur, even in the highly unlikely event of Labour coming to power. The shareholders of all these businesses are not going to go away quietly without massive pay-offs. If, for example, Thames Water were to be taken back into public ownership it currently has a regulatory capital value of just under £12 billion. And don’t think a cheque for that would be the end of it - there are massive, PE-style borrowings to be paid off not to mention the king-sized hole in its pension scheme. Not that these factors will have dawned on Jeremy Corbyn.

When Corbyn first floated the idea of taking the energy sector back into public ownership a couple of years back it was calculated that such a move would cost his chancellor £185 billion. Even if he moved against only the big six generators and National Grid he’d have to find £124 billion. He came up with a story that the stakes would be less than 100% ownership but this wouldn’t work as the Stock Exchange rules are that once you get beyond 30% you’d need to make a bid for full control.

There’s a final delicious twist to the story. The other organisation that will cry foul and maybe even forbid re-nationalisation, for example, of railways is the EU. The organisation we are leaving is energetically pro-market and competition. It has more Railway Directives than Virgin Trains has passengers sitting in its corridors. So expect the European Court of Justice to make its views known PDQ.

Image source: Glyn Baker/Geograph


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