Labour in La-la land (cont)
÷State would seize £60bn of PFI deals ÷Rail, water and fuel bought back on cheap ÷McDonnell silent on how to pay for it
LABOUR threatened to drag Britain back to the 1970s yesterday with mass nationalisation that would cost taxpayers hundreds of billions of pounds.
Shadow Chancellor John McDonnell said a Labour government would take control of £59.4billion worth of PFI contracts and nationalise a swathe of industry, including water, rail, energy and the Royal Mail.
He claimed a future Labour government, rather than the market, would set the level of compensation – raising the prospect that shareholders, including many pension funds – could be ripped off.
The scale of Labour’s plans sparked alarm, with the CBI saying the policies would have investors ‘running for the hills’.
Paul Johnson, of the independent Institute for Fiscal Studies, said: ‘This is not about just getting rid of austerity or moving back to where the last Labour government was... We are looking at a state much, much bigger than anything we have experienced for a generation or two.’ He also said Labour’s spending ambitions could not be funded by simply closing tax loopholes used by the rich – the only tax-raising measure mentioned in Mr McDonnell’s speech to Labour’s conference yesterday.
The Scottish Government spends more than £1billion a year on PFI payments and both men vying to be Scottish Labour leader backed Mr McDonnell’s proposals.
Richard Leonard said it was ‘time to end PFI waste’, adding: ‘The Scottish Government could and should set up a debt disposal department dedicated to raising funds to buy out the total outstanding £28.8billion PFI and NPD [non-profit distributing] debt on operational contracts.’
Anas Sarwar said that as First Minister he would ‘review all projects delivered by private finance models’.
The SNP accused Labour of ‘staggering hypocrisy’, adding: ‘The toxic legacy of PFI deals which they signed has left Scotland’s taxpayers with an extortionate bill.’
Labour was unable to say exactly how it would fund its plans – or even how much they would cost.
A party source said it would use a similar model to the 1974 nationalisation of the shipbuilding industry, when shareholders were compensated with government bonds.
Mr McDonnell’s deputy Peter Dowd claimed much of the scheme would be ‘self-financing’.
The CBI’s Carolyn Fairbairn said Mr McDonnell’s vision was ‘the wrong plan at the wrong time’. She added: ‘This would threaten the living standards of the very people that need help. Forced nationalisation of large parts of British industry will send investors running for the hills, and puts misplaced nostalgia ahead of progressive vision.’
Sam Bowman of the Adam Smith Institute said: ‘To pay for all this, we’re going to face big tax rises.’
He added: ‘Nationalising big swathes of the economy will likely mean higher prices, worse service or higher taxes, or some combination of the three.’
PFI – ‘private finance initiative’ – began life under the Tories in the 1990s as a way of using private sector cash to fund investment in public services. Deals were signed to build and operate everything from schools to prisons. Badly drawn contracts have left taxpayers on the hook for billions.
The scheme was popularised by Tony Blair and Gordon Brown. Former Labour health secretary Alan Milburn described Labour’s plans in 1997 as ‘PFI or bust’.
About 85 per cent of Britain’s 700 PFI contracts, with a total value of £59.4billion, were signed by the last Labour government. The Shadow Chancellor said the PFI ‘scandal’ had resulted in ‘huge long-term costs for taxpayers while providing enormous profits for some companies’.
Private companies behind PFI projects are due around £220billion in the coming decades.
Mr McDonnell said a Labour government would ‘bring these contracts and staff back in-house’.
Parliament would ‘determine the market value’ of assets to be nationalised. Labour sources suggested pension funds could get more for their shares than offshore hedge funds. But there was no guarantee any shareholders would get full market value.
Economist John Appleby, of the Nuffield Trust, said the NHS was repaying about £2billion a year for PFI and the cost of interest for completed projects was likely to total £56billion by 2048. He added: ‘Taking them back into public ownership does not come free.’
Chief Secretary to the Treasury Elizabeth Truss said: ‘These unaffordable Labour promises wouldn’t improve public services.’
Meanwhile, acting Scottish Labour leader Alex Rowley told conference Jeremy Corbyn can help defeat the move for Scottish independence by proving ‘change is possible within the UK’.
He said the SNP had ‘divided our country’ – and pledged his party’s first job in government would be to ‘bring our nation together again’.
‘Investors running for the hills’