In Focus Consumer Credit


The potential cost to the economy of renationalisation


As the political arguments continue, one policy may have a significant impact on future performance of the wider economy


Daniel Mahoney Deputy director and head of economic research, the Centre for Policy Studies


Our research estimates that the cost of Labour’s renationalisation plans would be at least £176bn. This would represent around 10% of the national debt, or nearly £6,500 for every household. It would be enough to pay for central


government’s contribution to the cost of 2.9 million new homes in social housing. Labour’s 2017 manifesto, and subsequent


policy announcements, have committed the party to the renationalisation of some or all of the energy, water, rail, and mail sectors, as well as an unknown number of PFI deals.


Total costs Our analysis estimates the costs of these renationalisations as: over £55.4bn for energy, £86.25bn for the water sector, £4.5bn for Royal Mail, and £30bn for PFI nationalisation – although this estimate is particularly uncertain. This £176bn calculation assumes that


Labour restricted its renationalisation of the energy sector merely to the transmission and distribution networks. In the event of a wider renationalisation


of the energy sector, as urged by Jeremy Corbyn, the final total could reach up to £306bn. John McDonnell, the shadow chancellor,


has refused to provide any estimates for how much it would cost – or details of how it would work in practice.


No cost Labour has tried to argue that there would in fact be no cost to renationalisation, because the profits from the firms acquired would cover the borrowing.


22 However, it has also promised to use the


same profits to cut household bills by £220 per household – and to run many of these industries in a fashion that is likely to increase their costs. It is a matter of overwhelming public


concern that Labour must set out clearly how it intends to proceed with renationalisation – not least because, so long as Labour refuses to put a cost on renationalisation, it is impossible to know how much the debt- interest payments would be. Labour has also indicated that it would


save money by refusing to pay the full market price for these industries, with Mr McDonnell saying that it is “for parliament to decide”. This could in fact end up being even more


damaging to the UK economy, via a slump in business investment, higher borrowing costs, and other factors. In summary, while there are substantial


costs and risks to renationalisation, there is little evidence to suggest that consumers have much to gain – and there would be an enormous opportunity cost in tying up so much capital in the nationalisation programme. Labour refuses to cost its plans for any


renationalisation, and it is easy to see why. This would be an expensive gamble with a huge opportunity cost.


Falling bills Mr McDonnell’s claim that bills will fall by £220 after nationalisation does not stand up to scrutiny. By his own admission, any profits from the industries would end up going to pay debt interest, so how can they be used to lower the cost of bills?


www.CCRMagazine.com March 2018 And this does not account for the fact


that these industries will, in all likelihood, become less efficient. It is also deeply concerning that Mr


Corbyn and Mr McDonnell appear to be planning to seize assets below their commercial value. If Labour actually pursued this, business


confidence would slump, confidence in the government would plummet, and pension funds – which are big investors in the utilities sector – would end up particularly badly off. CCR


It is also deeply concerning that Mr Corbyn and Mr McDonnell appear to be planning to seize assets below their commercial value


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