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McDonnell promises 'cost free' nationalisation from Labour

McDonnell promises 'cost free' nationalisation from Labour

by Gavin Lumsden Feb 12, 2018 at 08:38

Labour shadow chancellor John McDonnell has claimed the party could mount a 'cost free' re-nationalisation of water, energy and rail services if it won the next election.

Speaking to BBC Radio 4's Today programme on Saturday McDonnell said investors in privatised utilities, which include pension funds, could be given government bonds in return for their shares.

The profits from the companies would pay for the extra debt, or gilts, issued by a Labour government, he said.

'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,' he said.

McDonnell's explanation of how a Jeremy Corbyn government would pay for rolling back the Thatcher-era privatisations develop an idea he referred to last October when he vowed to scrap private finance initiatives (PFI) in the NHS and bring them 'in house'.

That speech cast a shadow over the shares of infrastructure funds investing in PFI contracts for the inflation-linked revenues they generate.

Last week a report by the Social Market Foundation, commissioned by a group of water companies, estimated that the up-front costs of renationalisation would be £90 billion.

Conservative party chairman Brandon Lewis attacked the shadow chancellor's comments: 'John McDonnell can’t say how much their energy renationalisation scheme would cost taxpayers.'

He added: 'Labour's plan to put politicians in charge of your electricity would mean nowhere to go when things go wrong. This didn't work last time, it would mean worse services, and ordinary working people will end up paying the price.'

McDonnell and Labour leader Corbyn later launched a joint attack on privatisation in speeches at the party's Alternative Models of Ownership conference.

McDonnell argued utilities could be managed more efficiently under public ownership, because they would no longer have to pay dividends to shareholders.

Citing figures from the National Audit Office, the shadow chancellor said water bills had risen by 40% in real terms since privatisation of the industry in 1989 with £13.5 billion paid in dividends to shareholders since 2010.

This prompted an angry response from Water UK, trade body for the water companies. Its chief executive Michael Roberts: 'It’s wrong for Labour to suggest that our water system is broken. Water companies secure capital provided by lenders and shareholders, who need water companies to make a return in order to finance significant improvements to the industry.

He added: 'Under public ownership, the water sector in England was starved of cash and standards were poor. Private companies have instead invested heavily to reduce leakage, improve drinking water quality, and protect the environment – and they continue to invest £8 billion each year in even better services.

'In real terms, bills are roughly where they were 20 years ago and will be falling over the next few years,' Roberts claimed.

In his speech Corbyn attacked what he called the clear failures of privatisation and outsourcing of public services.

'From Carillion’s collapse and the private sector’s chronic inability to run the East Coast Mainline to the exorbitant costs of PFI and the hopeless inability of G4S even to handle basic security at the London Olympics the same story is repeated again and again; costly, inefficient, secretive.

'Unaccountable corporate featherbedding, lubricated by revolving door appointments between Whitehall, Westminster and private boardrooms as service standards and the pay and conditions of public service workers are driven down. This obsessive drive to outsource and privatise has been tried and tested to destruction,' he said.

Corbyn used research by the Transnational Institute identifying 835 examples of privatisation being reversed around the world to argue that Labour was on the side of a popular revolt in defence of state-run public services.

'There are very good reasons for what’s taking place,' he said. 'The neoliberal ideology that drove the privatisation frenzy forgot a key lesson that’s understood even by conventional neoclassical economics; that where there are natural monopolies, markets fail.'

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Comments  (23)

  • Kernel_Panic: 

    A politician's promise.....

    11:00 on 12 February 2018

  • Andrew Stevenson: 

    I remember very well when politicians wanted to raise more money, electricity prices would be put up when that hadn't been any change in the costs of generating that electricity. It was simply another form of tax, and regressive at that.

    14:04 on 12 February 2018

  • Andrew Stevenson: 

    I remember very well when politicians wanted to raise more money, electricity prices would be put up when that hadn't been any change in the costs of generating that electricity. It was simply another form of tax, and regressive at that.

    14:04 on 12 February 2018

  • Tom Mozy: 

    The problem is that they dont produce profits under government ownership. Commi's never learn.

    14:56 on 12 February 2018

  • DJC1362: 

    The deeper Momentum get a foot hold in Labour the less likley they are of ever winning power so this is just pie in the sky rubbish from the left

    16:22 on 12 February 2018

  • magic beans: 

    Berlin and Paris have both reversed the privatisation of the water supply. Claimed it was the beastly EU that made them do it in the first place but did not stop Germany insisting on the Greeks selling their water though.

    I currently pay £77/mnth to SWW aka Pennon group who just load up SWW with debt and then pay themselves handsomely for it.

    Cant happen soon enough for me.

    16:43 on 12 February 2018

  • martin verlaine: 

    How is this cost free? . Unless you issue zero coupon Gilts to the shareholders there is going to be a cost to the Exchequer in terms of interest ( likely to be at least 5% by the time BOE has raised rates to protect the pound and the economy is in recession etc etc) I do not disagree Water is not a good candidate for private ownership ( also live in the SWW area ) but it is the concept of Red Momentum driven Labour that is all wrong. Gold plated pensions for all Employees of the newly privatized firms will see the deficit balloon massively and self perpetuate the economic doom. Trouble is nobody can see this who is 18 and likes that nice man Corbyn Last one out of the country please turn out the lights

    16:53 on 12 February 2018

  • magic beans: 

    If you read the detail that was uncovered re Germany France Italy Spain et al it was the ten year bond price +2 that guaranteed the profits. The German cities simply nullified the contract on the grounds that the water companies were blatantly profiteering as they claimed the R+2 formula was not generating enough profit. A bit similar to the East Coast rail franchise fiddling that going on here.

    17:06 on 12 February 2018

  • Alan Tonks: 


    Well if Labour do form the next Government with Peter the Painter Corbyn, it will prove one thing at the very least.

    The lunatics will be well and truly running the asylum, after all we have enough loonies running around in this one.

    17:55 on 12 February 2018

  • bill bullick: 

    That which no one owns, no one will care for [Aristotle] . McDonnell and Corbyn are not only economically illiterate, but delusional.

    21:16 on 12 February 2018

  • Anonymous 1: 

    Better to have the utilities run halfway effectively and make money and pay dividends to society. Otherwise they will be run by useless politicians in the most ineffective and inefficient way possible wasting all our money as taxpayers. Natural monopolies need to be regulated - as indeed do all sectors - not state owned and inefficient.

    Anyone who wants testament to the idiocy of politicians should watch the This Week item on the NHS where the politicians seek to defend the indefensible.

    21:45 on 12 February 2018

  • The Old Man: 

    You are all missing the point. Taking the utilities into public ownership will create many new jobs as employees won't have to work too hard and a new multi-layered management structure will be needed. Just what we need with the current levels of employment.

    22:33 on 12 February 2018

  • Roger Savage: 

    McDonnell doesn't seem to understand (or has chosen to ignore) the complex nature of many of the businesses involved in supplying utilities. National Grid, for example, doesn't simply provide UK-focused delivery, it also has interests in the US. So does Centrica which also has interests in oil and gas exploration with Norwegian partners (Spirit Energy).

    It isn't as simple as Company X supplying utilities to Country Y so which parts of the business will they offer Govt Bonds for?

    Let's face it, it's a ill conceived policy by a Labour Party that would say or do anything to get votes. Worse still, the shadow cabinet seem particularly incompetent / unpleasant (and I can't stand any of the mainstream 'alternatives' either, btw). LibLabCon - they're all traitors to the hard working, honest Brit, quite frankly and seem to all too enthusiastically court the votes of the slackers and spongers at every turn by promising them the moon on a stick.

    If public ownership is so great, why are quangoes and local authorities run with a mix of incompetence, profligate waste and contempt for the public?

    The most depressing thing is that people fall for politician's lies over and over again, despite the same parties often pledging to fix problems they caused (or embraced) in the first place / last time around. Doesn't say much for the intelligence of the electorate, frankly.

    22:58 on 12 February 2018

  • magic beans: 

    “The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which.”

    ― George Orwell, Animal Farm

    09:48 on 13 February 2018

  • Robroy: 

    How can you ever trust men like Corbyn and Mc Donell the pair of them are staunch communists ,show me a communist country that far exceeds a capilist one ,Corbyn and his cahoots promise everything and won’t deliver anything apart from returning to the miserable 70 s,the unions would soon flex their power and we would go back to the strike first scenario ,get ready to ditch your investments if they ever get in

    10:37 on 17 February 2018

  • Novgorod: 

    So borrowing loads more money is zero cost - really? Well when the markets see this never ending avalanche of new gilts hitting the market yields will soar and Old Labour's borrowing binge will cost us all a fortune.

    Soon interest payments will consume ever larger amounts of government expenditure and will soon be in a downward loop of borrow more, tax more, borrow more, tax more etc ...

    Why can't they do what modern smarter socialists do - simply regulate these industries to do what they want them to do? It would be so much cheaper for the country.

    Not only is McDonald an economically illiterate Marxist dinosaur, but it turns out Corbyn may very well be traitor.

    But hey the Americans voted in the moron Trump, despite all his faults and misdemeanours being on full display - I suspect we'll vote in a party and leaders clearly unsuited to running any country never mind tackle the huge societal and technology challenges we all face.

    12:04 on 17 February 2018

  • CT: 

    Some really good comments here but Magic Beans would blindly have us become the next Venezuela. It is just Corbyn saying anything to get political gain. £90 billion more debt for our kids to never pay off is just what we need and lets string up Esther McVeigh aswell. Open your eyes Magic Beans. Roger S and Robroy are spot on. Whilst so many are bleating have a look at the waste permitted by our not so wonderful NHS managers.

    10:41 on 19 February 2018

  • magic beans: 

    plus ça change

    10:50 on 19 February 2018

  • CT: 

    Je vais prendre cela comme une acceptation réticente MB

    10:56 on 19 February 2018

  • magic beans: 

    la lutte continue.;-)

    11:03 on 19 February 2018

  • Novgorod: 

    Actually, Corbyn will indirectly end up destroying the NHS and much of the welfare state.

    Why? Because after five years of rule, the country will be dramatically more indebted than now and full of nationalised inefficient industries with high inflation, a collapsed pound and maybe even exchange controls (holiday obsessed Brits will love that one!).

    Once back in power it will be the golden opportunity for the hard right within a future Conservative government to simply cull huge parts of the state on the basis that we can no longer afford it and charge citizens for many NHS services. The priority of that future government will be to demonstrate that Britain is once again an investible proposition for investors and companies to grow the economy and create jobs.

    We're already on that road - but a Corbyn government will merely bring that day forward much more quickly.

    11:15 on 19 February 2018

  • CT: 

    True Novgorod

    but in the meantime..... my wife is a nurse and the abuse to staff in A&E is horrific - if drunks were charged for treatment the numbers would fall dramatically and that would make a huge difference to staff morale and recruitment

    11:25 on 19 February 2018

  • Novgorod: 

    No medical professionals should ever have to face that kind of abuse - in my experience NHS staff are sincere people trying to do a great job.

    And agree - for a lot of self inflicted conditions such as the one you mention and even others such as obesity, maybe such people should be charged for their treatment, (if they have the money). They should also consider taxing excessive sugar and fat across all food groups to help fund the NHS given all the diseases excessive consumption of them causes.

    We need a big push from government to improve diet and raise health awareness, we're sort of seeing that, otherwise the NHS will be crippled.

    The government has done some very successful public campaigns to reduce smoking and drink driving for example, which I'm sure has saved thousands of lives.

    11:35 on 19 February 2018

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