Labour’s plans to nationalise the water industry could cost taxpayers up to £90billion, a think-tank has said.
The Social Market Foundation (SMF) said the huge sum would have to be paid to acquire the privatised water firms from shareholders and investors.
Funding such purchases with borrowed money would add 5 per cent to the national debt, it warned in a report.
Shadow chancellor John McDonnell, who pledged to nationalise water in Labour’s election manifesto, claimed the policy would not cost a penny.
Shadow chancellor John McDonnell, who pledged to nationalise water in Labour’s election manifesto, claimed the policy would not cost a penny
Last night Mr McDonnell sought to dismiss the report by branding the SMF a ‘right-wing’ think tank.
The study was commissioned by water companies including United Utilities, Anglian Water, Severn Trent and South West Water. But the SMF said the calculation has been published independently.
The report found that a government which chose to buy the English water industry at fair market prices would pay between £87 and £90billion to acquire firms currently owned by shareholders and investors, including pension funds.
The SMF said its calculation is a takeover price based on an assessment of company accounts, and follows valuation methods used by investment banks and fund managers.
The report found that a government which chose to buy the English water industry at fair market prices would pay between £87 and £90billion
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 in the UK.
Scott Corfe, chief economist at the SMF, said the research shows ‘there is no free lunch on offer’ and that nationalising the water industry would ‘impose significant costs’ on the state and taxpayers, however it was done.
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.
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?
The SMF said its calculation is a takeover price based on an assessment of company accounts, and follows valuation methods used by investment banks and fund managers
‘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.’
Conservative MP Chris Philp said: ‘Labour’s renationalisation plans would mean higher water bills and billions more added to our debts – meaning more wasted on debt interest and less spent on our public services.
‘Families would have nowhere to turn when things go wrong. Putting politicians in charge didn’t work last time and won’t work this time.
‘Once again, it’s working people who would pay the price of Labour’s reckless plans.’
But Mr McDonnell said: ‘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.