Nationalising water, energy and Royal Mail would pay for itself within seven years, research says

Shareholders would not be paid ‘market value’ for assets under £50bn nationalisation

The nationalisation of water, energy grids and the Royal Mail would save UK households £7.8bn a year and pay for itself within seven years, according to new academic research.

A report by Greenwich University’s Public Service International Research Unit put the total cost of compensation to private sector owners at just £49.7bn – around a quarter of the widely quoted £196bn price tag calculated by the CBI last month, which also covered rail.

Labour’s manifesto for the 12 December general election is expected to include commitments to take the rail network, National Grid, water and mail delivery back into public hands.

PSIRU director David Hall said his estimates were based on compensating shareholders for the amount they have invested in utilities being taken into public hands, rather than paying out a “market value” price as the CBI suggested.

Savings are calculated by comparing the current cost of dividends and interest paid by private companies to the cost of refinancing with debt raised by issuing government bonds.

Prof Hall found this would save the UK £2.5bn a year on water, £3.7bn on gas and electricity and a further £1.4bn if existing private finance initiative projects were nationalised.

Professor Hall calculates that the average household would be £142 better off a year as a result of nationalising energy grids, and £113 better off if English water companies were publicly owned.

“Based on intensive empirical research, this paper shows that public ownership of utilities would result in annual savings of just under £8bn – so nationalisation would pay for itself in less than seven years,” said Prof Hall.

“Nationalisation would cost less than £50bn if shareholders are compensated for the amount they have actually invested, rather than costing the country nearly £200bn as claimed by the CBI last month.

“UK law does not require that they be paid the ‘market value’, and it is up to parliament to decide on a case-by-case basis the appropriate amount of compensation.”

Cat Hobbs, director of the pro-nationalisation pressure group We Own It, said public ownership would allow the companies to pursue improvements seen in state-owned enterprises such as the French postal system, which offers food deliveries, home care for people with chronic illnesses and a key concierge service as well as delivering letters.

“It’s absolutely clear that privatisation is bad deal for the public purse, and for our public services,” said Ms Hobbs.

“We’re wasting billions on shareholder dividends and the higher cost of investment in the private sector. By bringing our services into public ownership, we could use that money to deliver better services for all of us.

“Other countries are showing us what this would look like in practice. From Paris cutting bills, cutting leaks and delivering still and sparkling water fountains all across the city to Denmark leading a renewable energy revolution through its publicly owned wind turbines, public ownership is flourishing.”

But Water UK director of corporate affairs Rae Stewart said that the PSIRU figures did not represent the market value of the companies facing possible nationalisation under Labour.

"I am not aware of any case in modern times of an OECD government nationalising a solvent business - such as a water company - and intentionally providing investors with less than market value compensation," said Mr Stewart.

"There have been about 15 major UK nationalisations in the last 70 years, and each has seen shareholders receiving some form of market value compensation. That is very much in the public interest in terms of preserving the UK’s attraction as a place to invest, as well as being fair on the multiple investors in water companies – including pensioners and workers who are part of share-ownership schemes.

"The idea of somehow paying the ‘book value’ rather than a fair market value is the equivalent of the government saying that it’s going to forcibly buy your home from you, but only give you the money you paid for it decades ago regardless of what it’s worth now and how much you’ve improved it."