Corbyn's Power Grab: Prospects for Public Ownership of the UK Energy Sector
The Labour Party’s plans for the nationalisation of the UK energy sector are becoming clearer. The suspicions that coercive climate policy is a precursor to nationalisation are confirmed.
Proposals leaked to the national press suggest that compensation to shareholders will be discounted not only on the basis of the expenditure required to rectify supposed underinvestment in maintenance, but because of the scale of public subsidies paid to the sector in recent decades. Suspicions that economically coercive climate policy is a precursor to nationalisation are confirmed.
Parallel articles in the Times and Telegraph discuss Labour’s “leaked” plans for nationalisation of the energy networks for both gas and electricity in the United Kingdom, networks the market value of which would be somewhere in the region of £62 billion:
The Telegraph, which appears to be the primary source of this material,reports that powers created by legislation enacted in response to the banking crisis will be used to take possession, and to justify below market value compensation to shareholders on two grounds: a) that the networks have been neglected and need repair; and b) that much of the shareholder value is the result of subsidies. Payments would be made not in cash but in the form of government bonds.
These reports are somewhat confusing and perhaps confused. The energy transmission and distribution networks have not been in receipt of major consumer or taxpayer subsidy though of course there are very generous subsidies to the electricity generation sector. Without sight of the “blueprint” that the Telegraph has examined it is difficult to be certain precisely what the Labour party actually intends, but it seems likely that the plans actually propose a much broader nationalisation program, covering both network and generation assets, in which case the remarks about subsidy make some sort of sense.
In other words, the Labour Party intends more or less comprehensive public ownership of the gas and electricity sectors, making compensation to shareholders in the form of government bonds, and at values that are reduced on the pretext of, variously, either public subsidies and or poor maintenance.
The Telegraph suggests that the City is surprised by this news. They certainly shouldn’t be, and one suspects that this is an attempt by the journalists concerned to dramatise their story. It is hard to believe that City analysts have been unaware of either the Labour manifesto statement on this matter in 2017, or the confirmation of those intentions in Mr Corbyn’s widely publicised closing conference speech in February 2018 (the implications and character of the speech were discussed on this blog at the time: “Labour’s Energy Nationalisation Plans”). The general drift of Labour policy has been clear for some time: nationalisation was on the cards.
Even the suggestion that shareholders will be forced to accept discounted compensation is not that surprising. It has been clear for some time that the way in which the energy sector was enthusiastically co-operating in delivering climate policy was making it vulnerable, both to public anger at rising prices and ultimately to nationalisation. I have myself said so explicitly in this blog, writing in December 2018 that:
A very large part of the public perception that energy companies are greedy and ruthless results from the industry’s short-sighted decision to allow itself to be used as the cat’s-paw of climate policy.
The hazards of this situation must have been obvious to the main board directors concerned, but the temptation to collude was certainly extreme. The express-service renewables target timetable required subsidies so large that the increased turnover and de-risked profit made the danger of bad public relations seem tolerable.
The industry may well come to regret this lack of caution. A market sector debauched by subsidies, and already held in contempt by the public, will be in a very weak position to resist nationalisation by a radical socialist government.
No one will step forward to protect a persecuted tax farmer, and the expropriators could be expropriated without any resistance, with the only public outcry being one of approval.
In the current circumstances, the public will almost certainly welcome the Labour plans, and it is probable that the employees of the energy sector would also be content with the move because of the increased security that it seems to offer.
The only resistance is likely to come from shareholders fearing low compensation, and government’s answer will be that they have done very nicely out non-market consumer levies and have nothing to grumble about. This will be hard to argue against.
The scale of the discounting on the basis of subsidy disbursed can be estimated by reflecting on the cumulative payments so far. The Renewables Obligation, introduced in 2002 by the then Labour government, has to date transferred over £30 billion of subsidy derived from consumer bills to renewable energy generators, and this is only one of the subsidy mechanisms. In view of this government might buy out shareholders in renewables at rather low prices.
The Telegraph and Times stories, then, although ostensibly about network assets only, are more significant in many respects for shareholders in generating companies and funds, pension funds amongst them, with large renewable holdings. The Conservative Party, on the other hand, should be asking itself how the 'greenest governments ever' of Mr Cameron and Mrs May can have been so negligent as to thoughtlessly adopt Labour's illiberal climate policies, which were obvious precursors to nationalisation.
The markets will make up their own minds how serious this threat of Labour nationalisation really is, but it is obvious that shareholders will be asking their management teams to review contingency plans in the light of the emerging danger.
However, we need not feel too sorry for threatened shareholders. Firstly, they have only themselves to blame, and, secondly, being bought out of long-term ownership of what may in any case be dubious assets, could be quite attractive, even at discounted prices.
Ironically, the interest that is most threatened by energy sector nationalisation is that which is most likely to believe that government is offering salvation, namely the consumer. Having been required to pay through the nose for intrinsically and increasingly expensive climate policies over the last sixteen years, the consumer could now be faced with the prospect of those climate goals becoming still more expensive as the result of direct state administration and all the inevitable costs and inefficiencies that this implies.
The upside to all this, a single ray of sunshine but real, is that government would no longer be able to blame private enterprise for the costs of its extravagant climate policies. It's almost enough to make public ownership of energy attractive.