Labour’s plan to re-nationalise the water industry would cost taxpayers £90billion, a think tank claimed today.
The Social Market Foundation said buying out water firms in England using borrowed money would increase the national debt by 5 per cent.
The researchers warned there was ‘no free lunch’ on offer and the private firms would have be properly bought out by the taxpayer at market rates.
Labour dismissed the report from a ‘right wing think tank’ and said Parliament would set the cost of any payments to taxpayers under its plan.
The Social Market Foundation said buying out water firms in England (such as Thames Water, which works in London, file image) using borrowed money would increase the national debt by 5 per cent
Nationalising the water industry was one part of a sweeping plan to re-impose state control over national infrastructure in Labour’s manifesto last year.
A separate study last year suggested the network of private water companies in England cost consumers an extra £2.3billion a year.
In its new report, the SMF said a government which chose to buy the English water industry at fair market prices would pay between £87 and £90 billion to acquire water firms currently owned by shareholders and investors, including pension funds.
It said their calculation is a takeover price based on an assessment of company accounts, and follows valuation methods used by investment banks and fund managers.
Considering options for nationalisation where a government forced through a sale for lower prices, the think tank said this would reduce upfront costs to taxpayers.
But the SMF said it would cost the UK economy money in the longer term as investors in other sectors either deserted Britain or demanded a risk premium to invest here.
The chief economist at the SMF, Scott Corfe, said their research shows ‘there is no free lunch on offer’ and that however it was done, nationalising the water industry would ‘impose significant costs’ on the state and taxpayers.
The researchers warned there was ‘no free lunch’ on offer and the private firms – which are responsible for infrstructure such as the treatment works at Barnhurst (pictured) – would have be properly bought out by the taxpayer at market rates
A separate study last year suggested the network of private water companies in England cost consumers an extra £2.3billion a year
The report also found that buying water companies below their takeover price would leave current owners out of pocket – including UK pension funds, which are significant investors in the water industry and water industry workers.
In taking ownership of the water industry, a government would acquire currently profitable companies, with future profits weighed against the immediate purchase price, the SMF said.
But the think tank said these future profits would depend on investment in water piping and other infrastructure – costs that would then fall to the government.
Calculating how meeting the industry’s current plans would involve spending more than £100 billion by 2040, the SMF said this would mean the Government would spend more than 13 per cent of its entire capital budget on water infrastructure.
The report also noted how political pressure to spend more in areas such as healthcare, education and transport – as well as ongoing strains on the public finances – would mean there is a potential risk the nationalised water industry would not receive the capital spending it required to stay profitable.
Shadow chancellor John McDonnell (file image) put nationalising water at the heart of Labour’s manifesto last year
SMF director James Kirkup said: ‘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?
‘This study makes no comment whether the policy of water nationalisation is a good or bad idea, but simply sets out the likely costs of that policy.
‘Equipped with this information, it is up to voters and politicians to decide whether those costs are a price worth paying.’
A Labour Party spokesperson said: ‘We do not recognise these assumptions. This is a report by a right wing think tank, led by the former Political Editor of the Telegraph, and commissioned on behalf of the water industry.
‘Labour has been clear that as established by legal precedent it will be Parliament that decides the price to compensate shareholders.
‘With returns significantly higher than bond yields the taxpayer will be better off following the return of water to public ownership.’