How does Labour plan to pay for its energy nationalisation policy?


The Labour Party has announced plans to take back control of Britain’s energy network from private shareholders, as part of a sweeping nationalisation policy. We look at how a Labour government plans to pay for the multibillion pound programme.

What is Labour proposing to nationalise?
Labour plans to nationalise large parts of Britain’s privately run infrastructure, including the water and rail industries. The first detailed policy covers the electricity and gas supply industry, which is structured in two layers – a National Grid, which is a single entity that is publicly listed on the London Stock Exchange, and 14 distribution network operators, or DNOs, which are owned by six large business groups, most of them foreign-owned.

How will it pay for taking the energy network companies public?
Soon after taking office, Labour will pass an act of parliament nationalising the entire energy network industry. Ideas for mutual or cooperative ownership have been rejected in favour of the Treasury stumping up the cash, which could run into the tens of billions of pounds.

How will it value the companies?
Labour plans to minimise the cost by taking into account “pension fund deficits; asset stripping since privatisation; stranded assets; the state of repair of assets; and state subsidies given to the energy companies since privatisation”. In other words, it will say that the lack of investment in the networks, previous subsidies, excessive profit taking and the holes in existing final salary pensions schemes should be deducted from the bill. Critics dismiss Labour’s argument that its plan mimics Gordon Brown’s nationalisation of Northern Rock in 2008. They say it was a bust company and effectively worthless. Railtrack is a better example. Even though Tony Blair agreed to pay £2.50 a share for the rail network operator, the government spent years fighting shareholders who wanted £9.15 a share. The same lengthy court battles await a Corbyn-led administration.

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How will shareholders and pension funds be compensated?
Once it arrives at a value, Labour plans to compensate the owners of the energy network company by replacing shareholdings with government-backed bonds. In this way, shareholders will become lenders to the electricity industry and instead of receiving a dividend each year, will receive interest on the loan (bonds typically make an annual interest payment to their holders). Labour says it will be able to cope with honouring these debts because it will pay a lower interest rate, because government debt is considered less risk by credit rating agencies, than that paid by a private company owner.

Will it add to the national debt?
Whether the final bill for the energy network is closer to the sums Labour expects to pay or the more generous figures likely to be demanded by the industry, it will be added to the national debt of £1.8tn. Labour says that this extra liability will be more than offset on the Treasury’s balance sheet by the purchase of a profitable asset such as National Grid.

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What will happen to the profits generated by the companies?
Surpluses with be used to “kickstart a green industrial revolution” based on a new network of community-based bodies overseen by a national energy agency. However, those surpluses will have to cover a lot of cost. Upgrading the UK’s ageing infrastructure in order to make it ready to distribute power generated by renewables will soak up billions of pounds. In addition, the government will also need to fund extra capital investment in renewable energy such as wind and solar farms. There will also be huge costs setting up an extensive support network Labour envisages for areas as small as a single street to take control of their energy supply.

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Will nationalisation lead to lower bills and a greener economy?
Critics of the current arrangements argue that National Grid and the DNOs have moved too slowly in embracing renewable technology. According to Labour, nationalisation would allow the UK to move much faster in cutting CO2 emissions. But sceptics says it is difficult to see how customer bills will go down, or rise at a slower pace than in previous years, when investment must increase to meet green targets, service levels are expected to improve and workers’ pay and pensions must be be safeguarded.



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