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Labour's nationalisation plans to cost £176bn

    New research published today by the Centre for Policy Studies estimates that the cost of Labour’s renationalisation plans would be at least £176billion. This would represent around 10 per cent 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 its 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.

    Analysis by the CPS estimates the costs of these renationalsiations 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 £176billion 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 be up to £306bn.

    John McDonnell, the Shadow Chancellor, has refused to provide any estimates of how much it would cost - or details of how it would work in practice.

    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. Yet 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.

    ‘The Cost of Nationalisation’ argues that it is a matter of overwhelming public concern that Labour 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 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.

    Commenting on his report, Daniel Mahoney said:

    “Labour refuses to cost its plans for renationalisation, and it’s easy to see why. It would require at least £176bn in borrowing, the equivalent of £6500 for every household. This would be an expensive gamble with a huge opportunity cost.

    “John 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? And this does not account for the fact that these industries will, in all likelihood, become less efficient.

    “It is also deeply concerning that Corbyn and McDonnell appear to be planning to seize assets below their commercial value. If Labour 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.”

    Daniel Mahoney is available for live and pre-recorded interview.


    NOTES TO EDITORS

    1. 'The Cost of Nationalisation' is available to download from the CPS website.
       
    2. Daniel Mahoney is Head of Economic Research at the Centre for Policy Studies. He previously worked in research roles for a number of parliamentarians, including a three-year posting as a senior researcher to Lord Lawson, the former Chancellor of the Exchequer. He is author of Response to the Financial Crisis in the European Union (MacDonald-Laurier Institute, 2017), The Hidden Wiring (CPS, 2017), UK Manufacturing: How to Fuel the Engine (CPS, 2017), Who Will Fix London’s Housing Crisis? (CPS, 2016), and The Great Overtake (CPS, 2016).
       
    3. The Centre for Policy Studies is one of Britain’s leading think tanks. Its aim is to develop and promote policies that provide freedom and encouragement for individuals to pursue the aspirations they have for themselves and their families, within the security and obligations of a stable and law-abiding nation. The views expressed in our publications are, however, the sole responsibility of the authors.


    Date added: Sunday 21st January 2018