Labour plan to nationalise water industry could cost £90bn, says think tank

Posted On: 
5th February 2018

Labour's plan to nationalise the water industry in England could cost as much as £90bn and add 5% to the national debt, according to a cross-party thinktank. 

Labour has vowed to nationalise the water industry.

The Social Market Foundation found that taking over water companies currently owned by shareholders and investors such as pension funds would cost between £87bn and £90bn.

The figure - equivalent to the entire annual education budget - is based on paying a "fair market price" for the firms, the think tank said.

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Shadow Chancellor John McDonnell has previously indicated that it would be up to Parliament to decide the price at which the Government buys back the utilities.

“The value of any industry that is brought into public ownership is determined by parliament itself, and that will be a detailed assessment," he said last year.

“When parliament determines that, what those shareholders will get is a secure bond which is much more secure than what they’ve got at the moment.”

The SMF found that buying the companies at a lower price might cost taxpayers less in the short term, but would have serious knock-on effects in terms of investor confidence in the UK.

It would also mean pension funds which have invested in the water industry taking a serious hit. 

The Government would also need to spend around £100bn on new infrastructure such as piping by 2040, the report concluded.

Scott Corfe, chief economist at the SMF, said: “There is no free lunch on offer here. However it was done, nationalising the water industry would impose significant costs on the state and thus taxpayers.

“Those costs could be paid up-front as the Government paid £90 billion to buy companies at their commercial values. Or they could be felt in the wider economy as the Government forced through a sale at below market prices, which would put off other investors.”

SMF director James Kirkup added: “Taking ownership of water companies would mean taxpayers owned firms that are currently profitable, but maintaining those profits would require significant sums
of public money to be spent on capital investment.

“Would ministers thinking about re-election really choose to spend billions of pounds of scarce public money on water infrastructure, or would they divert the money to other priorities such as the NHS?”