Labour’s Price Trick With Nationalising Electricity And Gas Networks

That the Labour Party wants to renationalise the electricity and gas networks is true. That the Labour Party is insane is true. Even, that the Labour Party is insane to want to renationalise the electricity and gas networks.

Yes, yes, the argument is that only in public ownership can we make sure that they deliver public goods. But that’s not actually the way to gain those things. We actually would rather – in fact we should insist – that the people defining and enforcing the delivery of those public goods aren’t the same people as those making the profit. We’d very much prefer it to be different people trying to pile up the cash and people trying to limit the cash piling for other goodly things that can be done. The regulators shouldn’t be the people who profit.

But anyway, we all know there’s going to be a fiddle here. Because they’re not going to want to pay market value, indeed they’ve said they won’t pay market value. So, what’s the fiddle?

Labour will announce plans on Thursday to seize back control of Britain’s energy network from private shareholders in an effort to fight climate change and end fuel poverty. Jeremy Corbyn and the shadow business secretary, Rebecca Long-Bailey, are expected to say that heat and electricity should be a human right for all and nationalisation of the network is key to decarbonising the economy. Under Labour’s plan, companies that control the UK’s £62bn energy infrastructure – the pipes and cables that supply homes and businesses with gas and electricity – would be taken back into state control soon after a Labour election win. This would include National Grid, and the network arms of Scottish Power and SSE, with the existing investors in those companies to be reimbursed with government bonds at a price determined by parliament.

It’s those last five words that are the fiddle. They’re going to steal private property that is. That trick, theft, is this:

The formal legal structure for bringing assets into public ownership (as used in the
nationalisations that occurred after the Second World War as well as that of Northern
Rock) is an act of parliament with a two-step process: i. The assets to be nationalised are transferred to public ownership through an
Act of Parliament.
ii. Provision is made for compensating the former owners through a bond issuance
by Treasury.

Existing shareholders will be compensated with bonds. This is cost neutral to the
public purse, according to Office for National Statistics and international accounting
standards, because the public sector exchanges a liability (the bond) for a profitable
asset (the energy network companies). The UK legal framework is clear that the level of compensation should be decided by
Parliament. This was confirmed in 2012 by the UK Appeal Court and the European
Court of Human Rights in relation to the nationalisation of Northern Rock. xxv
Parliament may seek to make deductions for compensation on the basis of: pension
fund deficits; asset stripping since privatisation; stranded assets; the state of repair of
assets; and state subsidies given to the energy companies since privatisation.
Existing debts of the companies will be carried over with the companies under public
ownership and honoured in full. They will be refinanced over a period of time so that
the costs of debt are reduced.

We expect public energy companies to get high credit ratings because both Moodys
and Standard & Poors have a standard methodology for rating ‘government-related
entities’. This takes account of the profile of the business itself, including, for
example, de facto monopoly position, and the presence of explicit or implicit
government support.

In detail:

Parliament may seek to make deductions for compensation on the basis of: pension
fund deficits; asset stripping since privatisation; stranded assets; the state of repair of
assets; and state subsidies given to the energy companies since privatisation.

Pension funds deficits – these are already included in market prices. Asset stripping – the assets have been stripped, the current market price includes the fact that they’re gone. Stranded assets are already in the market price – they’re there at the price that the market reckons they’re stranded at. State of repair is in the market price. Current state subsidies are in the market price – past ones aren’t.

So, all of the adjustments which Labor says it will make are already made.

That is, they’re lying, they’re going to steal private property. But then socialists, eh? Pan-time and U-bend for the national economy….

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Rhoda Klapp
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Rhoda Klapp

Chavez started this way and now everybody in Venezuela is well on the way to becoming a billionaire.

Climan
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Climan

Roads and railway lines are not owned privately, so the case against public ownership of electricity wires and gas pipes is unclear to me, as is the case for private ownership when there is no real competition, but Labour’s explanations are laughable. National Grid is already a leading cheerleader for the “Fight Against Climate Change”, maybe slightly connected with the fact that they make very good money out of it.

Leo Savantt
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Leo Savantt

The railways were privately built and owned, the state took them under its wing during WWII. Then after the war with the help of Beeching the state butchered them. Subsequently British Rail was privatised 1994-1997, the UK having been instructed to do so by an EU Directive in 1991. Unless the UK leaves the EU, Corbyn will not be able to nationalise much, including the electrify suppliers and the Royal Mail, which were also privatised under instruction from Brussels. However, the reason not to return the train operators to public ownership, if the UK actually leaves the EU, is that… Read more »

Jonathan Harston
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Jonathan Harston

Yes, just as the road infrastructure is state owned, I have few qualms about the rail infrastructure being state owned, and following that I can see supporting arguments for the energy distribution backbone to be state owned. Most of it was built by the state in the 1930s by that arch-socialist Stanley Baldwin. It’s state-run that rears problems.

Leo Savantt
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Leo Savantt

Ofgen’s figures for domestic energy are:

Wholesale costs 33.52%
Network costs 25.46%
Environmental and social obligation costs 17.45%
Other direct costs 1.26%
Operating costs 17.15%
Supplier pre-tax margin 0.40%
VAT 4.76%

Environmental and social obligation costs are the costs of government programmes to save energy, reduce emissions and encourage take up of renewable energy. Add in the VAT and a whopping 22.21% is tax. If the UK stays in the EU the VAT will be 25%, increasing that figure to 42.45%.

Quentin Vole
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Quentin Vole

And yet we still get enviro-mentalists claiming that there are fossil fule ‘subsidies’.

Jonathan Harston
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Jonathan Harston

They always say “compensate” existing owners. Why the avoidance of just stating facts and saying “buying from” existing owners. The state *bought* the extant slave economy, the state *bought* the extant railway industry, the state *bought* Northern Rock, etc, the state *bought* that bit of land at the corner of my grandma’s house to ease the road junction.

Matt Ryan
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Matt Ryan

That Rebecca Long-Bailey is as thick as mince doesn’t help. No pensions funds will be invested in these energy companies and therefore won’t lose any money when shafted by Labour. Still, it’s not like this will impact the public sector as their pension savings (almost entirely) don’t exist anyway.