Here’s why the CBI is wrong about Labour’s nationalisation plans

pylon

14 October 2019

The CBI represents the vested interests that have been making a killing from privatisation for 40 years - and it’s scared.

Public ownership is incredibly popular, and it works - from the East Coast line to Scottish Water, from the French post office to Danish wind power.

The right wing media screams that we can’t possibly run our public services for people not profit, that it wouldn’t be efficient to stop wasting money on shareholders.

The truth is that there is no inherent difference in efficiency between public and private sector organisations. 

BUT privatisation wastes £250 million a week on shareholder dividends and cost of borrowing. 

The CBI desperately wants us to ignore this - so it is pulling out the argument that it would be too expensive to get there.

This simply isn’t true. Public ownership would pay for itself. 

Public ownership is an investment, not a cost

As John McDonnell keeps pointing out, when it comes to water, energy and the Royal Mail, we’d be acquiring profitable assets which would return billions to the public purse every year.

"It would be cost free. You borrow to buy an asset and when that asset is producing profits like the water industry does, that will cover your borrowing cost" John McDonnell, Shadow Chancellor

Once we’ve taken assets into public hands, we’ll be able to stop wasting money and reinvest our savings in lower bills and fares and more investment.

But what about the upfront cost of buying back the companies involved? 

Well, it’s not up to the CBI. Parliament will decide on compensation levels for buying back our services, based on the public interest. 

UK and European courts have repeatedly said that “legitimate objectives of 'public interest', such as pursued in measures of economic reform or measures designed to achieve greater social justice, may call for less than reimbursement of the full market value”.

So the CBI is wrong - investors cannot assume they’ll get full market value. There are various factors that parliament will take into account when deciding on the upfront cost of taking back our public services:

The CBI hugely overestimates compensation

The CBI said today that renationalisation of water, energy, rail and Royal Mail would cost £196 billion. There are two problems with the way they calculated this figure.

Firstly, they used the Regulatory Asset Base (RAB)/Regulatory Capital Value (RCV) of the companies involved. But this isn’t the real market value, it’s just a notional figure used by the regulators.

Secondly, the 30% markup is based on traditional takeover practice. But bringing assets into public ownership isn’t a takeover. 

It’s hard to imagine that parliament would justify giving shareholders 30% extra on top of RAB/RCV. Why would this huge handout to investors be in the public interest?

“The estimates of ‘market value’ which have been published by stockbrokers and commercial lawyers and others should thus be seen as an opening negotiating position by investors in a dynamic political process, rather than a serious attempt to forecast the final result of a legal challenge in the UK.“ David Hall and Vera Weghmann, Public Services International Research Unit

Actual market value is based on continued ripping us off

“The whole aim of the exercise would presumably be to stop private companies from making excessive returns from the public. Why then would the government start by paying a market premium based on those same excessive returns?” Jonathan Ford, Financial Times

If the CBI figure was too high, then how about just returning the market value of shares to the shareholders?

The problem with this is that actual, existing market value is not a fair price for buying back our assets. Why? Because we the public are the captive market, and shareholders have been receiving their billions based on continually ripping us off. 

We don’t have any choice about using these public services - water, energy networks, the Royal Mail, the railway - and that’s why they are so profitable. That’s why market value is so ridiculously high.

We could pay shareholders exactly what they put in

Arguably, it would be much fairer to pay shareholders no more than the actual money they invested in the service - the book value.

If we just pay shareholders exactly what they’ve put in, public ownership is a great deal for the public purse...

Public ownership pays for itself

Buying back the water companies in England would pay for itself in 8 years. It would cost £15 billion (the actual book value of shareholders’ investments) and we’d save £2.3 billion a year.

Buying back our energy networks would pay for itself in 7 years.  It would cost £22 billion (the actual book value of shareholders’ investments) to buy back the National Grid and the regional distribution companies and we’d save £3.2 billion a year

Buying back our Royal Mail  would pay for itself in 7 years. It would be even simpler - the private owners have managed it so badly that the market value today is only £2.2 billion, less than half of even the book value of the company - and we would save over £300 million a year.

When it comes to rail, we can take franchises in house one at a time as they come up for renewal without paying a penny in compensation. We already own the infrastructure through Network Rail. When new trains are needed, we can buy them directly on behalf of the public, and save ourselves the £200 million a year currently going to rolling stock shareholders.

We would then collectively own, control and benefit from all the assets of our public water, energy, post and rail systems.

Privatisation has failed

The savings above assume that we pay shareholders back the money they put in. However, parliament can take into account the track record of these shareholders in taking care - or not - of our public services, and the mess we now have to clear up.

That includes the failures of privatisation and the way we’ve all been consistently ripped off for 30 to 40 years.

For example, in the case of water, our bills have gone up by 40%, leakage levels are 20-25%, dividends have been extracted of £1.8 billion every year and our rivers and seas polluted with raw sewage. The private sector has also built up a debt mountain, from zero debt in 1989 to £51 billion now. This debt would be honoured by our new publicly owned water companies and so in effect, privatisation has left us with a huge burden. 

Parliament could take all of this into account in deciding on appropriate compensation levels. That means public ownership could pay for itself even more quickly than suggested above.

In every sector that Labour wants to bring into public hands - water, energy, rail and Royal Mail - there have been huge injustices which could impact the final figure for shareholders.

Bringing these assets into public ownership would not only pay for itself, it would have huge benefits for the environment, society and economy. Benefits like transparency, democratic accountability, lower bills and fares, more investment, more care and better services. 

Instead of insisting private companies have to do everything, we can embrace a mixed economy and 21st century public ownership. Public services should work for all of us, not just for shareholders. The sooner we make it happen, the better.

Photo used under creative commons licensing, thanks to Karen Roe.

pylon

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Comments

Michael Orton replied on

Taxpayers funded everything that Thatcher gave away to unscrupulous,fat cat,rip off merchants.

Payback is long overdue!

Lynn Pavitt replied on

The Tories, labour and liberal parties have always ripped us off. Now it's time to pay the taxpayers what is due to us

Roy Banton replied on

In the '80s I was asked by a someone from Canada 'what did you do with the money from North Sea gas? ' Possible going to war in the Falklands I replied.

But what of your wealth fund?she said. We haven't got one,at that time over 4 million people where unemployed.The we are still paying for the Thatcher years.

Paul Murphy replied on

And then along came Gordon Brown who sold off our wealth fund (gold), when he didn't need to, at below market value.

Pam LAIT replied on

Maybe we won't have as many water Burst's. Other services may be brought back to better to serve

the UK population.

Carol Broom replied on

Too bloody right. The odious Thatcher ripped us off. If she had put revenue from North Sea Oil into a national wealth fund, like Norway did, our economy would be in a vastly better state. She ushered in the belief in the flawed neoliberal economic view, which has become embedded and has since undermined rights and safety nets in order to ensure maximum profits for the powerful and destroy our planet in the process. We urgently need to adopt the Green New Deal to protect our planet and treat everyone fairly.

Charles Miller replied on

Those assets were British before they were sold off to shareholders, often offshore UK, and the sell-off was done without seeking the permission of the British electorate as a whole - those assets should never have been sold and those who put this through should face very long jail sentences and made to contribute towards the buy-back of our countries wrongly-sold assets. British people should set a minimum compensatory level to cover maintenance and any added value, and be at a price that should discourage anyone from ever trying to sell off our people-owned UK state assets ever again. And this action needs to be taken now before the ongoing sell-off of our NHS goes any further.

Yvonne Wilson replied on

The problem with privatisation is that the company’s focus is making sure shareholders get their return on their investments. Everything else comes second. We have seen many failed attempts at privatisation, with companies going bust, poor services, poor wages, the list goes on. It is model that is not working.

Bob Britain replied on

We need a public owned bank.... Ie RBS / NatWest for all public sector finance. Councils schools and Hospitals all have paid billions since 2008. The City boys still owe us for the bailout.

Philip replied on

An alternative method of Nationalisation

State ownership of an enterprise vests control into the hands of the government of the day. Who are then free to do what they like with the assets that should properly belong to the people. As these nationalised industries are owned by the state the people do not have a direct interest in owning them. In order to stop asset stripping by the government and allowing their friends and backers to take control of public assets, I propose an alternative. A company would be set up in which every citizen that has a National Insurance number would be given one share and one share only when that person dies the share would be returned to the company. This company would assume ownership of the assets owned by the state any nationalised industries, the banks currently owned and would be free to buy other companies assets and industries. The profits would be distributed equally to all shareholders in the form of dividends.

Rachelle Corker replied on

There's no such thing as privatisation as the public funds it anyway and has already paid for the infrastructure. The privatisation myth is a scam designed to steal public funds paid through tax payers and siphons off funds into the hands of wealthy shareholders. Time to return the public assets back to the public.

Lynn replied on

I always think it is like a modern-day form of enclosure. The commons - used by everyone - were enclosed for private profit. Same thing with privatising the utilities - they belonged to all of us, and were sold at a knock-down price to a few.

Sara replied on

Funny how ‘taking back control’ applies in some contexts and not in others. We’re being played...

Alan Carn replied on

Our health service is staggering under the burden of PFI repayments. As a result our hospitals are understaffed and under equipped. Lives are being lost in the interest of private greed! Have these parasite organisations no conscience?

Gerald Harniman replied on

When established the NHS was part funded by the profits from the profits of the utility companies, (Gas, Electricity, Water, Coal, Telecommunications, Transport), while taxation on wealth and private corporations also contributed. Then Margaret Thatcher supported by interest groups funded by wealthy Americans put into operation free market/monetarist policies that sold these assets at undervalue prices along with the newly discovered North Sea oil and gas resources, eventually benefiting foreign companies that support the home prices from UK profits. In comparison Norway on the other side of the North Sea set up a National Fund to benefit their citizens, providing for a world leading health and social care systems, education and infrastructure. While also investing in carbon free energy for all. Spot the difference! Andrew Lansley spent seven years before 2010 selling the privatisation of the NHS to private health providers in America, with the Head of the NHS quango Simon Stevens having worked on PFI under Tony Blair and in the US health insurance system before his appointment.

phil badiz replied on

considering how ruthless much of the post-privitisation period has been on public users, it could well be argued that the so-called shareholders have been more than fairly compensated for their abuse of the public trust and disgraceful record of maximising profits for services that are actually worse than ever. The investment value should be reduced by the excessivve compensations that have been pauid at the public's expense.

in my opinion, we owe nothing to abusive shareholders, if anything, they are in debt to us.

malcolm rhodes replied on

The sooner the better we have been ripped off for far too long ,all essential services should be under our control not a load of shareholders and foreign companies who couldn't care less about us the ordinary people.

Richard Kelsall replied on

Great stuff, if only we had a Labour Government perhaps the redistribution of wealth to the rich & powerful could be stopped, if not reversed. Nationalisation is a great start.

Robin Higham replied on

I’M ALL IN FAVOUR OF ENERGY, WATER AND RAIL BEING TAKEN BACK INTO PUBIC OWNERSHIP AS LONG AS WE HAVE COMPETENT PEOPLE RUNNING THEM AND NOT ALLOWING THEM TO BE RUN BY INCOMPETENT MPS WITH NO BUSINESS ACCUMEN AT ALL.

Biba replied on

Hi Robin,

Thank you for your comments. Please have a read of our report - When We Own It: Public ownership in the 21st century. Here we propose what the models of ownership should look like and why there needs to be multiple voices involved in making the best service possible. https://weownit.org.uk/when-we-own-it - please look at page 32-51!

George Jeffreys replied on

Well done to point out that water nationalisation, the most important one, will pay for itself in 8 years. Energy will take seven years but we only need to nationalise the Grid and add storage capacity, adding local or regional co-operative companies using renewables will squeeze out the big six. The post office will pay for itself in seven years, less if it is given full commercial freedom and not held back by competitors. Also, we need to renationalise the railways (Railtrack, Intercity and National freight). Support commuter services through regional companies (a good reason for a federal constitution). Nationalise ports, airports and waterways (build commercial canals) to create a national freight network.

The NHS needs to be renationalised, you didn't realise it is already privatised.

Government should take a stake in strategic industries eg. steel, motor industry, arms & aerospace, gas and telecoms in order to restructure them and make them produce eco-friendly products. Use something like the old Lucas plan. These stakes should eventually be sold to the workers. A national development bank should set up new industries and fund retraining for workers in carbon-intensive industry.

Whilst we are about it, look at the issues at local level eg. selling off libraries. Here in Lincolnshire our library services have been given to a Welsh Revivalist church that uses the space for it's own worship and offers a few books on the side.

George Jeffreys replied on

Well done to point out that water nationalisation, the most important one, will pay for itself in 8 years. Energy will take seven years but we only need to nationalise the Grid and add storage capacity, adding local or regional co-operative companies using renewables will squeeze out the big six. The post office will pay for itself in seven years, less if it is given full commercial freedom and not held back by competitors. Also, we need to renationalise the railways (Railtrack, Intercity and National freight). Support commuter services through regional companies (a good reason for a federal constitution). Nationalise ports, airports and waterways (build commercial canals) to create a national freight network.

The NHS needs to be renationalised, you didn't realise it is already privatised.

Government should take a stake in strategic industries eg. steel, motor industry, arms & aerospace, gas and telecoms in order to restructure them and make them produce eco-friendly products. Use something like the old Lucas plan. These stakes should eventually be sold to the workers. A national development bank should set up new industries and fund retraining for workers in carbon-intensive industry.

Whilst we are about it, look at the issues at local level eg. selling off libraries. Here in Lincolnshire our library services have been given to a Welsh Revivalist church that uses the space for it's own worship and offers a few books on the side.

Rowland Stanford replied on

No compensation should be paid the money paid to so called shareholders already has been stolen from us when our industry was forcibly taken we did not get paid compensation and not paying compensation would stop these greedy thieves from trying to privatise anything again

Darren Kiggins replied on

We want our assets back inorder to bring social wellbeing back on the political agenda.

John Frost replied on

Don't buy it just take it - they belong to us , the people

John replied on

Older commenters will recall that all the publicly-owned utilities were originally sold off at knock-down prices in order to ensure that the privatisations were "successful". In the case of Royal Mail, British Rail and many other utilities, they have been asset-stripped already by selling off huge amounts of land for commercial and residential development. The shareholders will be doing well if they just get back the money they originally paid for their shares. After all, ever since they have been in receipt of dividends year after year. Still an excellent return on their "give-away" so-called investments. The new utilities created should be owned and operated co-operatively by workers and consumers, with local government also having an input on policy and future development through elected representatives.

Dave J. replied on

Aha, actually I did know that but had forgotten. That perhaps puts a different tilt on my other comment here about pushing the market toward a realistic evaluation based on the REAL obligations faced by a public utility service. Yeah, they did get given the family silver, I'd forgotten that - some careful analysis should be done to ascertain the percentage advantage that was squandered and the same percentage must be applied to whatever the bottom line figure becomees.

Dave J. replied on

Surely the easiest way to ascertain the 'true' market value of an honestly represented (for example) Water Board would be to take steps prior to the buyback which push the share price toward one based upon an honest evaluation? IOW, pass some laws that will enforce fair pricing, consistent responsible maintenance and forward planning with regulatory demands upon the state of equipment alongside representative fines for pollution caused by poor sewerage treatment and deviations in the quality of supply.

If investors were able to see that the businesses were all going to HAVE to be run as public services SHOULD be run from here on in then I think the share price would tend, quite rapidly, toward a much more realistic level...

After the realities have all sunk in and the 'market' <spit> has 'adjusted' itself, then that's the point at which to begin buying it all back. Hopefully withno need to pass any laws that can later be said to follow any other rules than the ones the backstabbing communities already follow, automatically and as part of their 'game'.

Elaine Troutt replied on

I firmly believe that Public Services should remain in the hands of the Public and nobody has any right at all to make money on ybr back of Public Services. I'm appalled at the amount of my test is going into the coffers of private individuals!

Elaine Troutt replied on

I firmly believe that Public Services should remain in the hands of the Public and nobody has any right at all to make money on ybr back of Public Services. I'm appalled at the amount of my test is going into the coffers of private individuals!

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