28 March 2019

  |  CBI Press Team

News

Labour's renationalisation plans will profoundly harm UK

Labour’s plans to renationalise parts of the UK’s infrastructure, utilities and public services will cause profound harm to the country’s economy and hurt the very people they are intended to help, the CBI’s Director-General says.

Labour's renationalisation plans will profoundly harm UK

Delivering one of the 2019 Roscoe Lectures at Liverpool John Moores University, Carolyn Fairbairn recognised that the Labour Party was asking the right questions about the UK’s infrastructure, utilities and public services but said it proposes a solution that would be “the biggest departure from economic consensus” in thirty years and cost the country over £175 billion.

Arguing that the UK’s experience in transferring utilities between the public and private sectors demonstrates the dangers of renationalisation, the head of Britain’s largest business group highlighted how the Labour Party’s plans could particularly affect pensioners. With nearly 8 million pension pots invested in businesses the Party wants to re-nationalise, workers and older generations could end up poorer as a result.

To solve these problems, the CBI proposes, among other things, shareholder dividends only be paid if a company has delivered for its customers and companies demonstrating how they will bolster local business.

Acknowledging problems with the UK’s infrastructure, utilities and public services, Carolyn Fairbairn, CBI Director-General, said:

“The Labour Party’s decision to focus attention on our railways, water, electricity and gas is a considered one. Because they are industries in which, in recent years, accountability has felt most elusive.

“During last year’s crisis on the railways, Northern Rail was forced to cut 170 trains services a day. Energy bills are likely to increase, despite the government’s price cap. And though water companies have cut leaks by a third since privatisation, we still lose 3 billion litres a day. Water ultimately paid for by us, through our bills.

“So, we agree. These industries are not always working as they could and should.”

On the Labour Party’s proposals for renationalisation, Carolyn said:

“But, of course, Labour doesn’t just identify a problem - it also presents a radical remedy. And that is where our disagreement begins.

“Their response is not to reform our water, energy, post and rail industries, but to take ownership of them. It’s the biggest departure from economic consensus that politics has seen for 30 years.

“Unlike many countries, we have experience of moving industry between private and public hands – and back again. And it’s that experience that allows me to say that Labour’s plans to renationalise our rail, water and energy would do profound harm to our economy, to the services on which we rely, and to our country’s finances.

“With its £176 billion price tag1 - enough to build 3 million new homes or fund our defence equipment budget for nearly 20 years. It’s all that, but it’s more than that. It’s the opportunities that renationalisation would destroy and the way it would make millions of people poorer in their old age. Above all, it’s the regression to a way of doing things we have already tried, at which we have already failed and at which we would fail again.”

On the claim renationalisation puts consumers interests first, Carolyn said:

“The sense that the current system is run not for consumers, but for shadowy investors exploiting ordinary people for personal gain, is not the true picture.

“Those investors are not the unaccountable fat cats of fiction. They are you and me. They’re anyone who pays into a pension, donates to one of our big charities or participates in an employee ownership scheme.

“Take the water company that supplies Liverpool. It’s 70% owned by pension funds, charities and employees. Other water companies are the same, and yet the Labour Party has promised to renationalise these companies and pay compensation for them at a level below their true value, making poorer the very consumers the proposals are intended to help.

“Nearly 8 million pension pots in this country are invested in the businesses Labour wants to renationalise2. All of which are at risk if Labour carries out its threat to re-nationalise them at below full market value. To claim - as Labour’s manifesto does - that these proposals would put consumers’ interests first is to forget that consumers are not just users but owners, who, because of renationalisation could end up poorer in old age.”

On the claim renationalisation will ensure democratic accountability, Carolyn said:

“The idea that renationalisation would ensure democratic accountability really is the heart of the matter. And here, Labour’s sentiment is surely right.

“But the mistake of nationalisation is to assume that the way we hold politicians to account - the ballot box - is also the best way to hold our railways, water, electricity and gas supplies to account.

“Because in practice, that is what a nationalised system does. It makes industry accountable not to its users, but to parliament. And it becomes parliament’s responsibility to ensure those services are well run.

“Because it is the market, not systems designed to elect politicians once every 5 years, in which we have the sharpest and most efficient tool for accountability yet discovered.”

On the CBI’s proposals to fix problems in the UK’s infrastructure, utilities and public services, Carolyn said:

“Of course, the privatised system doesn’t get it all right - far from it. But for all the reasons I have given, the answer cannot be renationalisation - to do away with competition altogether. It would be like throwing out the baby and keeping the dirty bath water. So instead, I would like to bring some concrete proposals for reform.

“First, an idea to make things work better for consumers. What if, instead of letting customers pay more than they need to, they were automatically moved to the deal likely to be best value for them at the end of their contract, based on how they’ve used the service in the past? Many would benefit, and it would be a powerful tool for driving efficiency.

“Rail companies pay automatic compensation - a full or partial refund for a journey that went wrong. Perhaps our utilities sector can pay automatic compensation for power cuts or water shortages? It would help put things right. But it would also provide another incentive not to let things go wrong in the first place.

“Second, it isn’t right when shareholders are paid at the expense of investment that would benefit consumers. Dividends to shareholders should be stopped when a

company fails to meet its commitments to customers or anyone else, and the cash should instead be diverted to address the areas where customers are being let down, until things improve.

“Third, I always believe that the best business decisions are local decisions. Where a company is providing a service in a region, town or city it should also draw upon the talents of that town or city.

“Perhaps a train company bidding for a franchise should have to demonstrate how they will work with small businesses in the places the line serves; contribute to the local environment; and provide apprenticeships and other opportunities for local people.

“It would be the precise opposite of the centralised, nationalised model in which the big decisions are taken not in the area where they have their effect but in a distant arm of the state in Whitehall.

“But even if you judge that renationalisation would deliver the benefits Labour claim, would it really be the best way to use £176 billion? When there really are people in need in our country; when Labour’s proposals have already prompted investors in our country to reach for their coats; and when their suggestion that renationalisation would happen at below market rates is already causing irreparable harm to our country’s reputation as a place of fairness and stability, just when we need that reputation to be strengthened.

“The Labour Party’s current proposals get the balance wrong. And will harm the very people they are intended to help. The conversation between business and the Labour Party must continue. We believe they are asking the right questions. But by working with business - and not against it - we believe they can find much better answers.”

1The Cost of Nationalisation (The Centre for Policy Studies, Daniel Mahoney, January 2018)

2At least 7.67 million UK pension pots from 118 UK pension funds have financial interest in water, rail, energy Networks and PPP. This is a new figure from the Global Infrastructure Investor Association.