Nationalisation is a £176bn bill we can’t afford

WE KNOW from Labour’s 2017 manifesto that Jeremy Corbyn and John McDonnell are seeking to implement a mass programme of nationalisation. The energy, water, rail and mail sectors, as well as some PFI deals, will be first on the list of areas that Labour would seek to bring back into government ownership.

British taxpayers should be worrying. Labour has so far refused to cost their plans, and it is easy to see why. Based on commercial values, the upfront costs associated with these pledges are enormous.

As the Centre for Policy Studies (CPS) has calculated in the publication

it would cost Labour at least £176bn to enact their manifesto commitments on nationalisation.

Worryingly, Mr McDonnell, the Shadow Chancellor, argued on last Sunday that “it is for Parliament to decide the price”, suggesting Labour is not intending to pay full market price for these industries. The consequences of this could be dramatic.

Seizure of assets below their commercial value would dampen business confidence, potentially leading to huge job losses. Investors could become fearful of further non-voluntary purchases of private businesses or the introduction of rules that would damage the competitiveness of UK industry.

But, of course, in the case of the rail industry, there is unlikely to be an upfront cost to Labour’s plans for nationalisation. If they renationalise the franchises as they expire on a one-by-one basis, it would not involve any immediate costs. Do not be fooled, however. This is by no means a cost-free option.

Costs associated with purchasing rolling stock would become the responsibility of the government, efficiency levels of train operators could end up falling and Labour’s plans to increase staffing would increase costs yet further (either for taxpayers or fare-payers).

Much of the public’s frustration with the railways is wholly understandable.

Services on some routes are nothing short of appalling, with a recent survey by suggesting that just 28 per cent of customers are satisfied with the Southern franchise, for example.

But the overall context is important. Services on many of the franchises are good and, since privatisation, there have been significant improvements on the network.

The UK is now among the safest countries in Europe for rail travel, passenger numbers have doubled since the late 1990s and overall satisfaction with the UK’s railways is the secondhighest in Europe.

Moreover, problems associated with the railways are not always the fault of the trainoperating companies. Two thirds of delays are actually caused by the nationalised Network Rail. Despite this, it is often the trainoperating companies that end up being blamed for problems on the network.

Of course, train fares are high by European standards. This is often the focal point of complaints about Britain’s railways. However, this is not due to the private train-operating companies, whose profits only amount to just over two per cent. It is, in fact, because the UK Government offers lower per-capita taxpayer subsidy than many of their European counterparts. And quite right, too. Increasing subsidy levels helps the wealthy at the expense of the poor. The top fifth of households do four times as many rail journeys than the bottom fifth.

A move towards a fully nationalised rail system with bigger government handouts would be the worst of both worlds. The UK’s comparatively high satisfaction levels with the railways would be at risk, given that all competition would be removed from the system. And greater taxpayer support for rail fares would be a costly and regressive step, privileging wealthy South-Eastern commuters over other taxpayers.

Of course, it isn’t simply good enough to say all is fine with the railways. It clearly isn’t. On most routes, competition effectively ceases after contracts have been awarded – and this is something that needs to be rectified. Back in 2013, the CPS’s report

showed that where open access operates on the railways – so called “on-track competition” – customers end up benefiting.

Grand Central, an openaccess operator, scored top of all train operating companies for customer satisfaction in a recent

survey. And evidence suggests that higher satisfaction rates and lower fares arise from on-track competition.

So, rather than just criticising Labour’s plans for nationalisation, it’s time for the Government to advocate for more competition.

On-track competition across more parts of the network will result in better services and lower fares, and could very well reduce the popularity of nationalising the railways.