Labour plans to take water industry back under public control

John McDonnell says household bills could be driven down by a quarter

Labour says the existing workforce can be retained in the move (Getty Images)

Labour manifesto will include plans to take the water industry back under public ownership, the party’s shadow chancellor has confirmed.

Water was privatised by the Margaret Thatcher government in 1989, moving from the ten public regional water authorities to a system of private companies.

The pledge comes just over a month after Thames Water was fined £20 million for pumping 1.9 billion litres of raw sewage into the River Thames.

John McDonnell said the party would consult on the best way to proceed with nationalisation, suggesting a bond swap for shares or an outright purchase might be considered.

Mr McDonnell would not be drawn on costings and said a "significant intervention" was needed to tackle sharp rises in water rates and "tax avoidance" in the industry.

He told BBC Radio 4's Today programme: “It's a significant intervention by the government, the Labour government that will be elected in June.

“It's a significant intervention because that's what is needed. That's what's needed in terms of our infrastructure investment - because if we are going to compete in the global economy, we will have to invest in road and rail and new technology.”

Economists expressed exasperation at questioning of the chancellor suggesting that public ownership would impact the deficit.

Shadow Chancellor John McDonnell (Christopher Furlong/Getty Images)

Jonathan Portes, Professor of Economics at King's College London, said the policy would have “no impact on deficit, capital or current”. He however suggested the policy might be “dumb” for other reasons.

Labour says it would create nine new public bodies to run the water system in England and Wales. The existing workforce would be retained.

The party says ending the payment of dividends to shareholders and reducing interest payments on debt would allow bills to be cut by £100 a year per household – around a quarter.

Labour is to unveil its full manifesto today at an event in Bradford. A draft version of the document was leaked to the press last week; the party says it does not comment on leaks.