Renationalisation is a distraction we can't afford

The Labour leadership’s plans to renationalise utilities, railways and Royal Mail have been met with dismay across industry, with companies concerned about how such a policy would damage the UK’s reputation as a place to invest. While services across these sectors can continue to improve, all the evidence shows that their quality and reliability has been transformed across the board while in private hands:

• In the water sector investment is double that of pre-privatisation levels and leakages have reduced by a third since the 1990s
• In rail, services have increased by nearly a third and the frequency of services on many long-distance routes has doubled since the franchise system began
• In energy, £100bn has been invested since privatisation and the number of powers cuts has halved since 2000
• And the Royal Mail has transformed its loss-making operations to financial sustainability, higher productivity and better pay for its staff.

So there are clear reasons to reject a policy which is seemingly founded on dogma and ideology rather than any compelling evidence that it would lead to better outcomes for service users.

But what about the costs involved?

New CBI analysis puts the up-front cost of bringing Royal Mail and the water, energy and rail industries back into government ownership at almost £200bn.

The £196bn total comes close to this year’s health and social care budget (£141bn) and education budget (£69bn) combined.

Adding this to the public balance sheet would also have a dramatic impact on the UK’s public debt figures, increasing it to 94% of GDP, a level not seen since the 1960s. We estimate that servicing this extra debt would cost an additional £2bn each year, putting further pressure on the public finances.

In addition to the up front costs, the government would also have to pick up the ongoing investment costs associated with maintaining and modernising networks and services. Based on current plans in these industries, the costs are likely to stretch to £14.5bn a year.

And while these assets would generate revenues for the public sector, the profits are dwarfed by the overall costs of renationalisation – it would take a working lifetime to realise any return on the total public investment.

When challenged on the cost of renationalisation previously, the Labour leadership has suggested that it would not be willing to pay full market price to take the services back into government ownership. As well as the legal challenge they could expect in this scenario, there would also be a cost to savers and pensioners who are associated, through their pension fund or savings accounts, with the shareholders in the companies up for renationalisation. Our analysis suggests that the total loss to UK investors could be as much as £9bn, which averages at around £327 per household.

The CBI’s position is consistent and clear

The innovation and investment brought by private companies to the utilities, railways and Royal Mail have brought significant benefits from cleaner water to more frequent train services. As we face the challenges of digitisation, decarbonisation and changing demography these attributes will be needed more than ever as we upgrade our networks to meet the needs of a modern economy and society.

Pushing a policy of renationalisation threatens to set us back on this mission as years are potentially wasted discussing who owns the assets rather than how to improve services for customers.

Our latest analysis shows this is a distraction we simply can’t afford.