In her speech at Liverpool John Moores University, Carolyn recognised that the Labour Party was asking the right questions about the UK’s infrastructure, utilities and public services. But she said its proposals represent “the biggest departure from economic consensus” in thirty years, which would cost the country over £175bn. And with nearly 8 million pension pots invested in businesses Labour wants to re-nationalise, workers and older generations could end up poorer as a result.
She went on to provide alternative solutions to ensure businesses work at their best, including shareholder dividends only be paid if a company has delivered for its customers and companies demonstrating how they will bolster local business.
Thank you, it’s a real honour to be here with you in Liverpool, and in this magnificent theatre.
I must admit it’s a little daunting to look back at the list of people who have delivered Roscoe Lectures in the past.
Former Presidents. Two Archbishops of Canterbury. The Dalai Lama. And – my favourite, one of the truly great Liverpudlians…the comedian, Ken Dodd.
So everyone at the organisation I represent – the Confederation of British Industry – has been looking forward to this occasion for a long time. If only in the hope that I will be the first person in history to attempt to combine the wisdom of the Dalai Lama with the humour of Ken Dodd.
Well, you’ll be relieved to hear, I am not going to attempt anything like that.
But following in the footsteps of that roster of luminaries, I thought: I’d better at least make it interesting.
So, for once, I think that means not talking about Brexit. Instead I want to talk about a subject of equal significance. One that’s currently sending the world a very similar signal about the kind of country we are.
Yet a subject that – with all the focus on Brexit – has, so far, not really been debated in the same way. And that’s the Labour Party’s proposal to re-nationalise large parts of the industrial base of this country. Our water supply. Our railways. Our postal system. And our energy networks.
Now, given that I represent the CBI, you can probably guess which side of the debate I will come down upon.
But I do hope that some of what I say will surprise you.
- The points at which we agree with Labour.
- Why many of the questions they’re asking are the right ones.
- And some alternative answers I’ll propose to those questions.
Reflections on Liverpool
But first, I want to say how pleased I am to be addressing this question here. In Liverpool.
When I was invited, the organisers apologised that I would be sharing the stage with this backdrop. Which is here for a play that’s running at the moment. But actually, I can’t think of a better backdrop than the skyline of Liverpool. A city that, perhaps more than any has thought about, debated, acted on, and lived-out radical ideas about how an economy should be organised.
From Liverpool’s proud trade union movement. To the history of commerce which in the 19th century made Liverpool the New York of Europe and arguably the world capital of trade.
When the American writer Herman Melville came here in 1839, he wrote that:
“The docks of Liverpool surpass all others in the world. Here are brought together the remotest limits of the earth. Here, under the beneficent sway of the Genius of Commerce, all climes and countries embrace.”
And these buildings, and this waterfront which once carried 10% of the world’s trade, are great reminders that for Liverpool, these questions – about the hand of the market and the power of the state – are not merely matters of politics or ideology. But of historic, lived reality.
There aren’t many cities about which you can say the same. And if I am to leave you with one thought this afternoon, it’s that if you look beneath the surface of those debates at heart is a contest over a single principle.
The principle of accountability.
They’re not debates about how our economy works. But for whom does it work.
So, with that thought in mind and against this backdrop,nlet me set out the business view on the Labour’s plans to renationalise our utilities and railways.
CBI and Labour
And start with what might be my first surprise of this lecture.
That the CBI has an open working relationship the Labour party. Just this month I’ve had meetings with Jeremy Corbyn, John McDonnell and Rebecca Long-Bailey. And on Monday, Keir Starmer visited our offices to discuss Labour’s plans with CBI member businesses.
On some areas, we agree with Labour. On skills. And the need for a long-term industrial strategy.
Of course there’s a lot on which we don’t agree. But we approach our working relationship with mutual respect. And perhaps that’s why – and this is, I hope, my second surprise of this lecture, we believe the Labour Party is asking many of the right questions.
In 2017, Labour put forward the most radical manifesto since Michael Foot. And against the expectations of many, it won mass support.
We can debate why that is. Plenty have.
But it’s not hard to see that it tapped into a widespread feeling of dissatisfaction. That all is not well with our economy and the world of work.
Broader dissatisfaction and unease
In 2007, we had the biggest crash since the 1920s. Since then, too few people have seen living standards rise. The consequence is a sharp-edged sense of unfairness. A feeling that the rewards of our economy have been concentrated at the top.
Yet that’s not the only source of unease in our time. Today, many are excited about the promise of new technology. Machine learning, automation, and artificial intelligence.
But for many others, technology seems to offer not promise, but peril. As they wonder what it might mean for their working lives.
I think understanding this underlying mood provides a key to understanding our wider politics today.
As the disruption of our financial system, alongside the disruption wrought by new technology has bled into the disruption of our politics.
Brexit is one example, so too the revisiting of old ideologies.
It’s not only a UK phenomenon. Whether it’s Trump and his trade wars, the gilet jaunes, or populist movements in Europe and South America. What this new kind of politics has in common is its promise to reassert control over institutions and markets that people feel aren’t working for them.
And it is important we don’t just dismiss that feeling.
It comes back to that word I mentioned just now.
Acknowledgement of problems
But at this point I want to offer a third surprise. To say that the Labour Party’s decision to focus attention on our railways, water, electricity and gas is a considered one.
Because they are industries in which, in recent years, accountability has felt most elusive.
During last year’s crisis on the railways, Northern Rail was forced to cut 170 trains services a day.
Energy bills are likely to increase, despite the government’s price cap.
And though water companies have cut leaks by a third since privatisation, we still lose 3 billion litres of water every 24 hours. Water ultimately paid for by us – through our bills.
So, we agree. These industries are not always working as they could, and should.
Labour's remedy a radical departure
But, of course, Labour doesn’t just identify a problem. But also a radical remedy. And that is where our disagreement begins.
Their response is not to reform our water, energy, post and rail industries. But to take ownership of them.
It’s the biggest departure from economic consensus that politics has seen for 30 years.
Because since the 1970s, the overwhelming trend not just in this country, but in over 100 countries, is for utilities such as gas, electricity and water and transport, such as rail and bus services to move from the public sector, into the private sector.
It’s been a global shift.
And many of the industries in question did not originate in the public sector. They were built by companies, funded by private investors. As this city knows so well.
The rail line from Liverpool to Manchester was the first fully-powered passenger railway in the world. The idea of a Liverpool corn merchant, Joseph Sandars. Who was born in Rodney Street, half a mile from here.
The line itself was paid for by investors. 15 from Manchester. 96 from London. And 170 from Liverpool.
They put their money into a new idea no-one knew would succeed, took a risk that – as so often – the state was not willing to take and found an opportunity that would otherwise have gone unrealised.
Liverpool saw a return on that investment. One that continues to repay this city today.
It was the first railway line. And the most financially successful, too.
The history of economic progress is full of stories like this one. Of people spotting opportunities that politicians and governments are unwilling or unable to see.
We have experience from history
But at various times and for various reasons water, rail, gas and electricity companies were later taken over by the state. And they were run by the state until they began to be privatised again in the 1980s.
And that history gives us a unique advantage. Because in the UK, questions of private versus public control are not theoretical. Unlike many countries, we have experience of moving industry between private and public hands – and back again.
And it’s that experience that allows me to say that Labour’s plan to renationalise our rail, water and energy would do profound harm.
To our economy. To the services on which we rely. And to our country’s finances. With its 176-billion-pound price tag. Enough to build 3 million new homes. Or fund our defence equipment budget for nearly 20 years.
It’s all that, but it’s more than that.
It’s the opportunities that re-nationalisation would destroy. The way it would make millions of people poorer in their old age.
Above all, it’s the regression to a way of doing things we have already tried, at which we have already failed, and at which we would fail again.
This afternoon I want to show why that is.
And I want to begin by looking at the Labour Party’s own case for re-nationalisation.
Labour's three claims
And here let me quote from the Labour Party’s manifesto.
A single, understated sentence that beautifully encapsulates the case Labour wants to make.
“Public ownership will benefit consumers, ensuring that their interests are put first and that there is democratic accountability for the service.”
And that sentence makes three claims.
First, that state ownership will benefit consumers.
Second, that state ownership will ensure consumers’ interests are put first.
And third, there’s that word I introduced at the beginning. State ownership will ensure democratic accountability.
Now, I want to take each of those claims in turn. And I hope to show why each is mistaken.
Claim 1: Renationalisation benefits consumers
Starting with the claim that renationalisation will benefit consumers. And my response is that is a simple recourse to experience.
The American writer Minna Antrim once said that:
“Experience is a great teacher; But she sends in terrific bills”.
And between the 1950s and the 1970s, those bills indeed came in. In the form of ever-worsening outcomes for consumers. There was the three-day week, prompted by failures in our nationalised energy sector.
There was our nationalised water industry. Which lost a third more water through leaks than we do today and handled waste so poorly that by the 1950s the River Thames was so toxic that it was declared biologically dead.
By 1988 – the year before our water industry was privatised, more than a third of our beaches breached legal minimum standards for pollution and the UK was being called the dirty man of Europe.
But for me, most telling of all is our experience of a nationalised rail system.
The truth is that many – though not all – of the problems we suffer today are a legacy of decades of underinvestment during nationalisation.
Between the 1950s and the 1990s, the rail network as we knew it – the rail network that began here, in Liverpool – was run into the ground by politicians who believed the railway age was over and seemed determined to prove it.
In the 1960s, the government’s total control over the railway enabled it to shut vast swathes of it down, accountable to no-one.
So when we took about the consequences of nationalisation on consumers, we don’t need to speculate. We know what happens. We’ve experienced it. And that’s our great advantage.
So it’s worth taking the time to examine what happened after privatisation, too.
Since the 1980s, our energy sector has reduced the number of power cuts by half. At same time as cutting carbon emissions by half. An incredible achievement when compared to the coal-fired industry that – in its worst periods – could only keep industry running three days a week.
Then there’s our private water companies. Who put twice as much money into the system as the government ever did. Have cut leaks by a third. And have helped make our rivers and beaches some of the cleanest in the world.
And then there’s our railways. It’s not popular to say this today. I understand why. I commute to work by train myself. It is certainly not always a joy.
But despite the very real problems, the truth is that the privatisation of our railways has achieved many things. Far beyond what anyone at the time expected.
Twice as many people use our railways now as they ever did under British Rail. The crowding we experience now is because the privatised railways are a victim of their own success.
And despite running the oldest railway in Europe, and the most intensively used, we now have one of the safest railways in Europe too.
In fact, more money is now going into our railways than at any time since Queen Victoria was on the throne.
But it’s that experience, first of nationalised industry, then of privatised industry, and of what each means for consumers, that gives us a better guide than any ideology. However hopefully expressed, however well-intentioned.
Nationalisation was bad for consumers the first time. There’s no reason to think it will be better if we try again.
Claim 2: Consumers' interests first
But there is then Labour’s second claim.
That state ownership will ensure consumers’ interests are put first.
And here there is a deep misconception. The sense that the current system is run not for consumers, but for shadowy investors exploiting ordinary people for personal gain.
But that’s not the true picture. Because those investors are not the unaccountable fat cats of fiction. They are you and me. They’re anyone who pays into a pension. Who donates to one of our big charities. Or who participates in an employee ownership scheme.
Take the water company that supplies Liverpool. It’s 70% owned by pension funds, charities and employees.
Other water companies are the same.
And yet the Labour Party has promised to renationalise these companies. And more – that they would pay compensation for them at a level below their true value.
Making poorer the very consumers the proposals are intended to help.
And it’s not just water. Nearly 8 million pension pots in this country are invested in the businesses Labour wants to re-nationalise.
All of which are at risk if Labour carries out its threat to re-nationalise them at below full market value.
And so to claim – as Labour’s manifesto does – that these proposals would put consumers’ interests first is to forget that consumers are not just users but owners who because of re-nationalisation could end up poorer in old age.
Claim 3: Democratic accountability
And that brings me to the third and final claim made for renationalisation. The idea that it would ensure democratic accountability.
This really is the heart of the matter.
And here, Labour’s sentiment is surely right. Accountability – the means of putting right what has gone wrong, of correcting mistakes, and redress against those who made those mistakes is the basis of all good service provision.
But the mistake of nationalisation is to assume that the way we hold politicians account – the ballot box – is also the best way to hold our railways, water, electricity and gas supplies to account.
Because in practice, that is what a nationalised system does. It makes industry accountable not to its users. But to parliament. And it becomes parliament’s responsibility to ensure those services are well run.
Now, I don’t know if you have been following parliament’s handling of Brexit. I’m afraid I have to. And I think what we’ve learnt in recent months is that the ballot box is a powerful tool. But it is also a blunt tool.
It can give clear answers to straightforward questions on big subjects. Left or Right. Leave or Remain. Yes or No.
A single, powerful vote every 5 or so years.
It is the best tool we have for choosing who governs us.
But it’s not always a good tool for communicating to those in charge what exactly we all want from them. And I think that’s what we’ve seen with the parliamentary chaos over Brexit.
But, on the other hand, that’s exactly what market forces are good at. They are a precision tool for narrower questions. Such as how much we each are willing to pay for electricity. Or what kind of service we want from our gas company.
Free markets can respond brilliantly to those questions. And don’t make us wait 5 years to make a change.
But, again, we don’t need to discuss this in theoretical terms. We know from experience.
From the history of the nationalised railways. And how politicians were able to run them against the interests of the people of this country. How even the lines that weren’t closed were left exposed to the Treasury’s next spending cut.
Or our nationalised energy system. Which became an ideological football kicked between politicians on the left and right. Caught between strikes on the one hand and spending cuts on the other.
That’s my response to Labour’s claim that nationalised industry will be more accountable. It has already proven to be mistaken. And nor would it be more accountable in future.
Because it is the market, not systems designed to elect politicians once every 5 years in which we have the sharpest and most efficient tool for accountability yet discovered.
Ideas for change
Now, of course the privatised system doesn’t get it all right. Far from it.
I was clear about that at the beginning. In some areas, there’s a lack of competition.
But for all the reasons I have given, the answer cannot be renationalisation – to do away with competition altogether. It would be like throwing out the baby and keeping the dirty bath water.
So instead, I would like to bring some concrete proposals for reform. They’re offered in a spirit of recognition. That change is needed. That though private markets are better than the alternative, they are still not working as they should.
And before I do, let me just say why it matters that we get this right.
That Liverpool to Manchester railway came at a special moment in history. At the apex of the industrial revolution. A time of huge technological change and opportunity.
But we, too, are living through a time of change. It’s a time of technological change. Of change in how we behave towards our environment, driven by the real threat of climate change. And of change in how much people expect from products and services.
And those changes mean we need businesses – including those today targeted with re-nationalisation – to be dynamic, forward-thinking, to seize the opportunities of change, to foresee its risks and rewards and innovate to meet them.
In energy, we need a system which allows almost everyone to use an electric car which, when parked outside our homes at night, help power our homes.
In our water sector, to meet climate change we need technology that purifies waste water so it can be used again.
And on our railways, we need smart-ticketed, 5G-connected, hydrogen-powered trains.
These are the opportunities that private companies have already seen and are working to seize. Yet we will only get there if these companies are working at their best. And that’s what the ideas I’ll put forward are intended to ensure.
1. Better for consumers
First, an idea to make things work better for consumers.
It’s that accountability point. And this is an idea that reaches more widely than just those industries targeted with renationalisation.
Because it is a source of resentment against service providers in a number of industries, from broadband to energy to finance, that loyal customers can end up paying more. It happens because people forget to change to a cheaper deal at the end of discounted period. Or they don’t know how.
So what if – instead – suppliers were to do it for them?
What if, instead of letting customers pay more than they need to, they were automatically moved to the deal likely to be best value for them at the end of their contract, based on how they’ve used the service in the past?
Many suppliers already tell customers that a cheaper deal is available. Our idea is that they not only tell customers, but then move them onto that deal too.
Of course, customers could choose to opt-out. Perhaps because they are prepared to pay more for a particular service.
But many would benefit. And it would be a powerful tool for driving efficiency.
But there’s another side to accountability. When things go wrong, putting them right. And private companies have an opportunity here. To sharpen accountability even further.
The rail companies have already started. Smart tickets now allow rail companies to track – in real time –passengers’ journeys. To see when those journeys go smoothly, and when they experience disruption.
Rail companies are already using that information. To pay automatic compensation. A full or partial refund for a journey that went wrong.
And I think our utilities sector has something to learn here. Perhaps to pay automatic compensation for power cuts or water shortages.
It would help put things right. But it would also provide another incentive not to let things go wrong in the first place.
So that’s a couple of ideas for how we can make the system better for consumers.
2. Dividends check
But second, here’s an idea that’s already been tried by one of our members.
We know how important shareholders are to companies. It was Liverpool shareholders who funded that first railway line to Manchester. Back in 1830. And it was right that they got a return for risking their money.
But what isn’t right is when shareholders are paid at the expense of investment that would benefit consumers.
And so Anglian Water’s shareholders had an idea. That rather than receiving 65 million pounds of dividends to which they were entitled, they decided to re-invest that money to make the company’s water supplies more resilient to drought. Something that customers really care about.
And so we thought: why not extend this principle. Not just to companies – such as Anglian Water – who were able to reinvest capital because of strong performance but to companies failing to meet their performance targets.
Whose dividends to shareholders would be paused, and the cash diverted to address the areas where people are being let down. Until things improve.
Again, it would prove a powerful for incentive for putting things right and for not letting things go wrong in the first place.
3. Ensure local benefits
And finally, third.
I always believe that the best business decisions are local decisions. Where a company is providing a service in a region, town or city, it should also draw upon the talents of that town or city.
That’s how that Liverpool to Manchester line was built. And how it succeeded. And we can learn from that.
Perhaps a train company bidding for a franchise should:
- Demonstrate how it will work with small businesses in the places the line serves;
- Contribute to the local environment;
- And provide apprenticeships and other opportunities for local people .
It would be the precise opposite of the centralised, nationalised model. In which the big decisions are taken not in the area where they have their effect but in a distant arm of the state in Whitehall.
Now, I am not suggesting these ideas are a full remedy to the problems I acknowledged at the beginning. They are a contribution to what in Liverpool has been a long, impassioned debate.
But if I could have a concluding thought, it’s this.
It’s not a question of state versus the market. It’s both. State and market. Because one can’t work without the other.
Markets need governments to set the rules. And governments need markets to generate the tax that pays for services.
I’ve said this afternoon why I think the Labour Party’s current proposals get the balance wrong. And will harm the very people they are intended to help.
But even if I have not persuaded you, even if you judge that renationalisation would deliver the benefits Labour claim for it, would it really be the best way to use 176 billion pounds, now?
When there really are people in need in our country. When Labour’s proposals have already prompted investors in our country to reach for their coats. And when the Labour Party’s suggestion that renationalisation would happen at below market rates is already causing irreparable harm to our country’s reputation as a place of fairness and stability.
Just when we need that reputation to be strengthened.
Yet I don’t want the conversation to stop here. I want to hear what people think. And above all, that conversation between business and the Labour Party must continue.
We believe they are asking the right questions. But by working with business – and not against it – we believe they can find much better answers.
 At least 7.67 million UK pension pots from 118 UK pension funds have financial interest in Water, Rail, Energy Networks and PPP. (new figures from the Global Infrastructure Investor Association).