27 November 2019

The illusion at the heart of Labour’s nationalisation plans


The Labour Party has recently unveiled plans to bring large swathes of the British economy into what they term ‘public ownership’. Even before their bumper manifesto, they had already promised to nationalise the Royal Mail, the railways, energy suppliers, and water and sewage companies. Estimates vary for exactly how much that might costs, but the Centre for Policy Studies puts the extra borrowing required at a pretty eye-watering £176bn.

Since then, Labour has decided to go one better by pledging to nationalise BT and to provide everyone in the UK with ‘free’ broadband. BT chief executive, Philip Jansen, said that this policy alone would cost an additional £100bn – equivalent to about 4.5% of our annual national output.

Who would have thought ‘free’ stuff could be so expensive?

But even these enormous costs are an underestimate as they do not include future liabilities. For example, if the government were to issue bonds to buy the Royal Mail at its current market value of around £2.1bn, this would not only add an additional £2.1bn to the national debt, but the government would also need to find money each and every year to service the interest on that debt, as well as fund future infrastructure investment in the business. Ultimately, taxpayers would be left to foot the bill for ongoing investment costs, as well as left to pick up the tab for any potential losses.

And history shows that nationalised companies almost never remain profitable. We shouldn’t be surprised by this. Politicians struggle even to make the House of Commons function properly. Why on earth should anybody think they would make good postmasters or railway operators?

Labour also argues that its ‘public ownership’ plans are about dispersing power and democratising the economy. But the fact is that nationalisation does the exact opposite. It generates not public, but state ownership. It concentrates power at the top of government and gives ministers the power to decide how much money state-owned firms should have to invest in their workforce and infrastructure. It becomes the government, not the people, who decide where our money is spent.

True public ownership can be found in the system we already have. In a capitalist system, it is people themselves, not their political masters, who decide how and on what their money is spent. Moreover, in 2012, it became law for all company employees to be auto-enrolled into a workplace pension. Since this date, almost all of us (often unknowingly) have come to own shares in publicly listed companies. Now more than ever, when private companies make profits, not only does this generate higher tax revenue which helps to fund our public services, but we all benefit too by seeing the size of our pension pots increase. By having a productive and profitable private sector, we can all look forward to a more comfortable and secure retirement.

It has been the failure of successive governments and business leaders to point out facts such as this that has resulted in tired socialist dogmas being dragged up from the 1970s and given another airing. It is therefore imperative that those of us who believe in economic and social freedom start making the case for private enterprise more forcefully. We must demonstrate to people that they have a real stake in the capitalist system.

One policy idea which could support this endeavour would be to encourage pension and investment funds to keep investors regularly updated about their investment decisions so people can fully understand exactly where their money is being held. Some funds are already doing this. For example, Hargreaves Lansdown ‘HL Select’ funds provide transparency by explaining to investors which company stocks are being held and why in regular e-mail updates and blog posts.

But there is no reason why this transparency couldn’t be extended further. If pension and investment funds were to provide people with an estimate of how many shares in each company they own through the fund each year, it could be possible for people to vote on corporate actions and attend company AGMs.

This would not only demonstrate to people that financial markets are not some abstract amorphous that they play no part in, but could also usher in a new era of shareholder activism and engagement. If someone doesn’t like the CEO of a company being paid a £5m bonus, instead of taking to Twitter or complaining to their MP, they could actually vote against it.

If we are to rebut outdated socialist ideas which should have been abandoned decades ago, we must develop tangible policies which fundamentally devolved power and responsibility downwards and expose the myth that capitalism only works for those at the top. The fact is, we all have skin in the game.

Click here to subscribe to our daily briefing – the best pieces from CapX and across the web.

CapX depends on the generosity of its readers. If you value what we do, please consider making a donation.

George Maggs is a political economy researcher at the University of the West of England