Why ‘We Own It’ are wrong about nationalisation – with the facts to prove it
We noticed that a blog by pro-nationalisation campaigners We Own It tries to claim the CBI is wrong about Labour’s nationalisation plans.
But there’s a problem with We Own It’s claims. They’re wrong. That’s not just our opinion – there are facts to prove that they’re wrong.
Let’s have a look at what We Own It say, and what the facts say.
CLAIM – “Public ownership is popular”
FACT – Only 27% of the public support water nationalisation, according to a ComRes poll in September 2019. Almost twice as many, 53%, are against it. That’s not what you’d normally describe as ‘popular’.
CLAIM – “Public ownership….works”
FACT – Not in the English water industry it didn’t. Underfunded, inefficient, with poor service and a disastrous environmental record which left rivers and beaches badly polluted. It’s why the country was known as ‘the dirty man of Europe’ before privatisation. After privatisation, investment doubled. One of the problems with nationalising the water industry in England is that it would put the responsibility for funding it back onto the government and taxpayers – and governments aren’t always willing or able to provide the money necessary when they have competing spending priorities. This caused huge problems in the past, and it’s a real issue in the UK right now - one of our publicly-owned members, Northern Ireland Water, doesn’t have the money it asked for and says “underfunding has already resulted in curbs to economic development”.
CLAIM – “there is no inherent difference in efficiency between public and private sector organisations”
FACT – There’s a big difference. Reports by Frontier Economics and First Economics show that, over a twenty-year period, productivity gains in the privatised water sector outpaced those in comparable sectors in the economy and gave the industry a productivity lead of more than 60% over government-run public services.
CLAIM – “Public ownership would pay for itself”
FACT – No it wouldn’t. Any government would need to pay around £90 billion to buy the water industry in England, not the cut-price figure assumed by We Own It, to avoid hitting the savings and pensions of millions of hard-working people. The savings assumed by We Own It from nationalisation have been significantly overstated and when the risk of lower future efficiencies are factored in, nationalisation looks more and more like a bad deal.
CLAIM – “we’ll be able to stop wasting money and reinvest our savings in lower bills and fares and more investment”
FACT – In real terms, bills in recent years have been falling and will have reduced by at least 10% between 2015 and 2025. There has been around £160 billion of investment since water privatisation – including double the amount of investment in the first ten years of privatisation than the government had put in during the last ten years of nationalisation. As well as being starved of funding from government, nationalised water bills rose by 30% more than inflation in the 15 years leading up to privatisation. There’s absolutely no evidence to show how We Own It’s claims could be achieved through nationalisation – just saying it doesn’t make it true.
CLAIM – “Parliament will decide on compensation levels for buying back our services, based on the public interest”
FACT – There have been about 15 major UK nationalisations in the last 70 years, and each has seen shareholders receiving some form of market value compensation. That is very much in the public interest in terms of preserving the UK’s attraction as a place to invest. Failure to acknowledge that fact and to commit now to a credible figure in line with the principle is simply misleading politicians and the public alike.
CLAIM – “investors cannot assume they’ll get full market value”
FACT – They can, because that would be the fair and legal thing to do. And one of the consequences of not paying full market value would hit the pensions of nearly 6 million people in the UK – including more than 4 million public sector workers – who have money invested in the water industry.
CLAIM – “they used the Regulatory Asset Base (RAB)/Regulatory Capital Value (RCV) of the companies involved [to calculate the cost of nationalisation]. But this isn’t the real market value, it’s just a notional figure used by the regulators”
FACT – The approach can’t simply be dismissed as ‘notional’ – it’s an effective and accepted way of representing the value of companies’ capital base.
CLAIM – “bringing assets into public ownership isn’t a takeover”
FACT – It is, though. A forced takeover of viable and solvent private companies by a government. It’s difficult to see how it could be called anything else.
CLAIM – “existing market value is not a fair price for buying back our assets”
FACT – As pointed out above, each of the major UK nationalisations in the past 70 years has seen shareholders receiving “market value” compensation. In fact, there’s no case in modern times of an OECD government nationalising a solvent business (such as water companies) and intentionally providing investors with less than market value compensation.
CLAIM – “Arguably, it would be much fairer to pay shareholders no more than the actual money they invested in the service - the book value”
FACT – Arguably fairer? That’s like saying the government is going to forcibly buy your home from you, but only give you the money you paid for it decades ago regardless of what it’s worth now and how much you’ve improved it. But it also misunderstands what the ‘book value’ is, and that other than for accountancy reasons it is not used as a measure for how much a business is worth.
CLAIM – “If we just pay shareholders exactly what they’ve put in, public ownership is a great deal for the public purse”
FACT – Not such a great deal for the pensioners and savers with hard-earned money invested in the water industry, and not such a great deal for the economy and people’s jobs when investors at home and abroad when they see that a government is prepared to forcibly take over a viable business for much less than it’s worth.
CLAIM – “Buying back the water companies in England would pay for itself in 8 years”
FACT – No it wouldn’t. See the earlier point about this.
CLAIM – “in the case of water, our bills have gone up by 40%”
FACT – Bills went up by 30% more than inflation in the 15 years before privatisation, while investment fell. By contrast, in the immediate years after privatisation bill increases helped pay for much-needed improvements to the water and sewerage service after years of under-investment by successive governments. But bills are now pretty much where they were 20 years ago in real terms and have reduced by 5% in real terms over the last five years. The average bill is still around £1 a day.
CLAIM – “[Water company] debt would be honoured by our new publicly owned water companies and so in effect, privatisation has left us with a huge burden”
FACT – It would only be a ‘huge burden’ if the industry is taken over by the government unnecessarily, which doesn’t seem like a strong argument for nationalisation. At present, the risk of dealing with debt rests with the private companies and their investors, not the taxpayers who’d have to take on the risk and the burden under nationalisation.
CLAIM – “Bringing these assets into public ownership would not only pay for itself, it would have huge benefits for the environment, society and economy. Benefits like transparency, democratic accountability, lower bills and fares, more investment, more care and better services”
FACT – We Own It haven't put any facts forward to substantiate these bold claims. But there is plenty of evidence to show that the opposite is more likely. Private water companies in England have committed in detail to deliver for customers and the environment – investment increasing over the next 5 years, leakage being cut, nearly doubling the number of people receiving help with their bills, improving 5000 miles of rivers, and cutting pollution. The ‘democratic accountability’ We Own It refer to is not seen by the public as a benefit – only 34% the public are confident in the ability of a combination of local councils and trade unions to run the water industry, which is the plan set out by the Labour Party.
We’re happy to have a debate about water nationalisation in England. But let’s do it on the basis of facts. Even if they get in the way of a good scare story.