Labour nationalisation plans ‘could disrupt other policy goals’

Written by Richard Johnstone on 4 December 2019 in News
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Key question is whether services would be better managed in the public sector, IFS says

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Labour's plans to nationalise rail, mail, water, energy and broadband services could undermine other policy goals such as decarbonisation, according to the Institute for Fiscal Studies.

The think tank said the move to bring these companies into public ownership would increase government assets by more than £200bn and add 310,000 employees to the state workforce.

"It would also bring at least £150bn of debt onto the public balance sheet on top of the sum paid out to the current owners of these assets in compensation," according to the analysis. “The cost of appropriately paying for these companies is uncertain as many of them are privately owned, though it would certainly come, at the very least, to many tens of billions of pounds."


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Researchers Sam Crossman, Carl Emmerson and Lucy Kraftman said the move to take these firms into public ownership would have a wide-ranging impact on the economy, and could hinder other government aims.

“These are important industries for the operation of the UK economy. They are economically big in themselves, but that understates their importance to the operation of the UK economy more broadly. Reorganising the ownership and structure of these industries, while simultaneously achieving the ambitious targets that have been set (for instance the rapid decarbonisation of the electricity and gas grids), risks years of disruption.”

Although they note that “a certain amount of state control in these industries is not uncommon in the rest of Europe”, and that “having a privately managed and owned water industry makes England and Wales outliers relative to elsewhere in Western European”, the scale of nationalisations proposed by Labour has "been almost unheard of in the last half century” in comparable countries.

The think tank proposed that an alternative approach to exercise greater control over these areas of infrastructure could be to beef up the regulatory framework for the sectors.

“These are, after all, all industries subject to significant regulatory control and it is unclear which of Labour’s stated objectives could not be achieved via changes to the current system of regulation,” the report said.

Kraftman said: "The industries that Labour plan to nationalise are vital to the UK economy. The key question is whether they would be better managed in the public sector, and what nationalisation can achieve that changing the current regulatory frameworks cannot.

“At least in the short run, Labour’s current plan would lead to significant disruption which could easily, for example, lead to a hiatus in progress towards decarbonisation in the energy sector. One should have very clear evidence for the long term benefits before embarking on such a complex and costly set of changes."

But shadow chancellor John McDonnell accused the IFS of pursuing a "nakedly ideological" agenda.

"Labour’s proposals for nationalisation will enable us to speed up the transition to a sustainable economy and enable us to meet our decarbonisation targets all the sooner," he said.

"Arguing for sticking to a regulation approach, after years of its failure, is a nakedly ideological stance and one at odds with all the evidence."

Additional reporting by Kevin Schofield

About the author

Richard Johnstone is CSW's deputy and online editor and tweets as @CSW_DepEd.

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