Labour’s plans to renationalise water, energy and rail companies have widespread support and with good reason: these industries are failing to meet the legitimate expectations of the public.
The question mark that hangs over these proposals is whether expectations are now being ramped up to such an extent that taking these industries back into public ownership will almost certainly be considered a failure.
Labour is saying it can cut customer bills, improve services and increase investment, but it’s clear a nationalised industry will struggle to achieve even one, or possibly two, of these aims. In its most detailed prospectus so far, the party last week outlined how it proposes to buy and run the electricity and gas supply industries.
The arguments put forward by Labour for tougher action to end blatant profiteering are well-aimed. As a group, the 14 regional electricity supply companies – known as distribution network operators (DNOs) – have been identified as among the worst profiteers of modern times.
The DNOs are owned by six conglomerates and, according to one review, posted an average profit margin of 30.4% between 2010 and 2015. Around half of this figure was paid to shareholders as dividends.
Citizens Advice has calculated that DNO customers will overpay by £7.5bn between 2015 and 2023, although this figure includes gas transmission and distribution as well as power.
Labour also makes a strong point about monopoly industries manipulating regulators and, too often, winning. It is a cat-and-mouse game that leaves customers chewing the carpet with frustration as corporations plead for greater freedom, then use it to siphon even more cash out of the utilities they own. National Grid and the DNOs have also been laggards in the race to bring renewable energy, especially solar, on stream.
So what is the practical answer? As initially advanced by Labour, nationalisation will introduce the most complex and intricately balanced electricity supply network in the world.
It offers a beautiful dreamscape of environment-friendly renewable energy being created and consumed locally, supplemented by a supply of energy from a national grid directed and redirected at a moment’s notice to make up for local shortfalls. Whether the dream can become reality is another matter. And if it can, what will it cost?
The bureaucracy appears to swell in a nationalised system. For instance, thousands of licences and safety certificates will be issued to generators ranging from offshore wind farms to local solar generators no bigger than Jeremy Corbyn’s allotment, creating work for the four new layers of regulators – national, regional, municipal and local.
To meet the challenge of finding the funds needed to support investment, Labour has raised expectations that it will be able to buy the industry on the cheap. Civil servants will calculate the cost of “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”. This information will be used to bring down the value of the industry and reduce the amount of cash needed to buy all the shares.
This is probably the most exaggerated fantasy in the prospectus. The English courts will consider past subsidies as legitimate aid for the industry at the time. Asset stripping is a judgment call that can be easily challenged. So not paying the going rate is, in short, a recipe for years of legal wrangling and further delays to vital investment.
There are many advantages to be gained from public ownership of natural monopolies. Labour does its supporters a disservice when it exaggerates the benefits.
Lloyds union sees red over pay
Critics of excessive boardroom pay were understandably ruffled by the Lloyds Banking Group shareholder meeting last week. Chairman Lord Blackwell was happy to justify chief executive António Horta-Osório’s £6.3m pay packet as a fair wage for honest work that had pulled Lloyds out of the financial crisis doldrums. No one, he said, would “do the arduous hours and arduous tasks that our executives have taken on, for free”.
The suggestion that executives should reap more of a reward for the bank’s turnaround than lowlier employees was not lost on the Lloyds staff union Affinity, which represents about a third of its 75,000 workers. “To say they deserved their multimillion-pound packages because of their arduous working hours is a kick in the teeth for ordinary members of staff who work just as hard for a fraction of the pay,” it said.
But rather than cutting the chief executive’s pay down to size, Blackwell said the bank would be raising the salaries of the bank’s lowest-paid workers. So we now know that chief executive Horta-Osório takes home 169 times what the average staff member earns, according to Affinity’s calculations. That sky-high ratio is the “real crime which shareholders ignored”, the union said.
Lloyds also stood its ground on the hot-button issue of the 2019 AGM season: executive pension payments, which critics say are little more than backdoor pay rises. The Lloyds boss pockets 33% of his basic salary, or £419,000, as a cash payment in lieu of pension, while non-exec staff receive just 13%.
But it may prove a temporary pass, with the revamped corporate governance code and the influential Investment Association calling for executive pension pay to align with the rest of staff. Affinity, too, has warned Lloyds it won’t back down.
Bookies win the online war
They relied for the most part on a since-discredited KPMG report, which claimed that up to 21,000 jobs could go if FOBT stakes were cut to £2. The report was commissioned by the industry, which also set its parameters. Indeed, KPMG itself warned that its work should not be used for anything other than internal industry purposes.
Incredibly, as exposed by the Guardian, the Treasury appeared to rely on the report when it initially sought to delay the stake cut, in an effort to soften the blow to gambling companies and protect its tax take.
There can be no doubt that the loss of a product that provided half of bookies’ high-street revenues will result in closures of unprofitable shops and, as a result, job losses. That should never be taken lightly, but so far the impact seems rather less apocalyptic than the industry was predicting.
Between them, the largest bookmakers have predicted job losses at about half the level warned of in the KPMG report. Ladbrokes Coral’s owner, GVC, quietly admitted last week that it probably overestimated the impact on profits over the next two years by £40m. Could it be that it suited gambling firms to present the Treasury with a doomsday scenario rather than a realistic one?
Either way, perhaps the better-than-expected results are down to the industry’s ability to innovate. Ladbrokes has a dystopian way of doing that: if staff are to go, it figured, why not pit them against one other in a Hunger Games-style competition to boost revenues? Employees were told in February that those who signed lots of customers up to online accounts might just avoid the sack.
Bookies may have tasted defeat in the FOBT battle but, ultimately, the house always wins.