Nationalised water sector? That’ll be £86bn please

The water sector would be the most expensive utility to renationalise, with a price tag of around £86bn, according to the Centre for Policy Studies (CPS).

The think tank has calculated the cost of the Labour Party’s utility renationalisation policy – a subject it says is of “overwhelming public concern” but which the party has refused to cost on the grounds “that the profitable nature of assets will cover the cost of borrowing”.

CPS said its conservative (and somewhat uncertain) estimate of the upfront cost of the entire renationalisation policy is £176bn – around 10 per cent of the UK’s national debt or £6,471 for every household. This comprises £86.25bn for water (RCV of £69bn plus an estimated 25% premium), £55.4bn for energy (transmission and distribution networks only – nationalisation of the whole energy industry would come in at around £185bn, pushing the overall total to £306bn); £4.5bn for Royal Mail; and c£30bn for PFI projects.

The think tank noted Labour has indicated that it would save money by refusing to pay the full market price. But commented: “This could end up being even more damaging to the UK economy, via a slump in business investment and collapsing confidence in the government.”

The CPS report, The cost of nationalisation, rejected the arguments put forward for renationalising water, citing the billions of pounds of investment that have been made since privatisation, improved service, and reasonable bills which look set to fall at PR19. It also pointed out nationalised water authorities would have to compete for capital with all other newly nationalised industries and other public sector priorities on an ongoing basis. “The need to inject capital into nationalised industries that had long been starved of it was one of the major justifications for the privatisation programme in the first place – and the example of the water industry shows its success,” CPS pointed out.

However it criticised the sector for lacking “innovation and entrepreneurial dynamism”; and some companies for use of offshore tax havens and for paying out high dividends, while increasing borrowing.

The CPS report concluded: “The solution to these problems is not to re- nationalise the water companies. This would simply cost large amounts of money, create an uncertain business environment and produce the conditions for no competition. Instead, the government should pursue measures that increase transparency as well as competitive pressures on the water companies.”