The Institute for Fiscal Studies is asking the right question about Labour’s nationalisation plans. The key issue is how well the assets would be run under public ownership. What is the party hoping to achieve that could not be done via smarter regulation?
This part of the debate has been obscured by endless quarrels over how much it would cost to nationalise rail, mail, water, energy and BT Openreach. On the cost score, the IFS report merely offered a factual two-part answer, one of which was necessarily imprecise.
First, companies’ current liabilities would be brought onto the public balance sheet and honoured, which adds up to at least £150bn; that’s Labour’s policy. Second, compensation for shareholders would run “to many tens of billions of pounds”, which is all one can assume from a proposal to let parliament decide prices.
Fine, about £200bn of assets would also arrive, but what happens next? What are the risks of radical change? The thinktank’s conclusion is that “at least in the short-run Labour’s current plan would lead to significant disruption which could easily, for example, lead to a hiatus in progress towards decarbonisation in the energy sector”.
That worry sounds legitimate. In energy, a Labour government would simultaneously be trying to cut prices for consumers while boosting investment and changing the make-up of the electricity and gas grid. Those goals don’t all pull in the same direction. To dismiss the IFS stance as “nakedly ideological”, as the shadow chancellor John McDonnell did, is unfair. The thinktank’s point is pragmatic – it’s about the most effective way to achieve an outcome.
The risk of confusion via complexity is surely real. Even in the world of FTSE 100 takeovers, there are countless examples of managements baffling themselves because they didn’t understand what they were taking on. Labour’s plans involve changing control of 5% of total UK assets currently held by private companies, according to the IFS numbers. The programme is enormous – and it’s supposed to happen within a single parliamentary term.
It would also be generous to describe the planning as detailed. We don’t know the batting order, as it were, and Openreach and the big six energy supply companies were 11th-hour entries in the manifesto.
It would be easier to support a nationalisation programme that was confined to rail and water. In rail, the track is already under public ownership and even the current government’s adviser says the franchise system is unfit for purpose; the argument for a state-backed shake-up is excellent. In water, dividend-extraction at the English companies has been obscene in many cases.
Elsewhere, though, the IFS’s challenge matters: “It is unclear which of Labour’s stated objectives could not be achieved via changes to the current system of regulation.” Quite. The UK’s regulatory system is loose by international standards, and the great advantage of simply tightening the rules is that you can do so easily. Shareholders would squeal but they would be have to fall into line because regulations are never set in stone.
By contrast, nationalising five entire industries, more or less, in rapid succession is to take a risk with an important chunk of the economy. Forget the ideology; on a pure risk/reward analysis, it’s hard to see the case for being so ambitious. A smaller nationalisation proposal would have been more credible.
Shameful blocking bid falls flat on Inmarsat
The sport for the lawyers was terrific, but the attempt to delay the £2.6bn takeover of Inmarsat, the satellite communications provider, was abandoned on the steps of the high court on Tuesday. A crew of rebellious hedge funds, led by Oaktree Capital, dropped their attempt to get a higher price from the bidders.
In one sense, that’s a shame. Inmarsat is a rare example of a large UK tech firm and the takeover price looks too mean.
On the other hand, the hedgies weren’t trying to save the company for the nation. They just wantedmoney for shareholders, such as themselves, on the grounds that Inmarsat’s value could soon be boosted if the US Federal Trade Commission allows the company’s spectrum assets to be used for 5G services.
Sorry, but that’s a weak argument for blocking a deal that was backed by 80% of Inmarsat’s shareholders in May. Investors knew what Inmarsat owns, even if they weren’t focused on the spectrum possibilities.
The hedgies folded after the bidders, private equity firms Warburg Pincus and Apax, said on Monday that they would cancel their offer if asked to pay more. It’s the right outcome. It’s a shame to see Inmarsat go, but the takeover code would be a nonsense if bids were replayed regularly in court.