The Labour Party's shadow Chancellor of the Exchequer John McDonnell speaks to party leader Jeremy Corbyn at the party's conference in Liverpool, Britain, September 24, 2018. REUTERS/Phil Noble - RC17CDB30800
Wealth managers report concerns over the policies of a future Labour government, led by Jeremy Corbyn and John McDonnell © Reuters

Public ownership used to be easy. The public authority would just acquire shares in a private corporation. And a private concern would then become a public asset, a private monopoly transformed into a public service.

Many socialists still think nationalisation can be simple, mere questions of political will and a parliamentary majority. The government needs only to want to do it. The UK’s opposition Labour party is currently led by such socialists. They genuinely are seeking to take firmly back into the government’s hands various privatised services, especially “key utilities” — rail, energy, water and the Royal Mail. And a prospect of a Labour government in the UK is a serious one.

But how easy will this be, even if the political will and parliamentary majority are there? Can what was done in the 1940s, and to a lesser extent the 1970s, be done again?

Looking at the current utilities landscape, there is one glaring difference from the postwar era: regulation. Each of the utility sectors is now regulated by statutory body, and usually in accordance with EU law (which the UK would continue to follow during any Brexit transition period). Given this regulation, there is the issue of whether it matters if the providers are in public or private hands — the regulatory model would (or should) mean the outcomes would be the same.

Indeed, the frequently asserted objections to private ownership can or could be cured by regulation rather than nationalisation, and at far lesser expense. “Rip-off prices” and “excessive dividends” are capable of quicker and more immediate remedies than wholesale public acquisitions.

Then there is the issue of European law. This is not the EU laws of state aid and public procurement. In practice (as with the bank Northern Rock), the EU laws that many socialists consider antipathetical to nationalisation are easily side-stepped. Other EU countries have a range of entities in public ownership with no problems from EU law — such as France produces passports in house while Britain sends theirs to tender. EU competition law (of which state aid and public procurement are elements) apply to unfair competition and uncommercial preferences, not to the matter of ownership.

No, the European law which bites is not EU law but the European Convention on Human Rights. The ECHR contains a “right to property” that expressly extends to legal persons, such as corporations, as well as natural persons. The right can be rarely relied on absolutely, but it provides the basis for obtaining fair compensation when property is acquired by the state. This goes for compulsory purchase orders (for, say, properties on a proposed railway line) as for the renationalisation of a private company. Even if a UK government uses primary legislation, compensation is due; there cannot be confiscations. And no Labour government is likely to propose the UK ceases to be bound by the ECHR.

There is also the issue of the legal form of such re-nationalisations. Presumably a mere acquisition of 51 per cent of the shares would not be enough. Such a company would still have to serve its shareholders more than the wider public interest, where there is a difference. Public ownership suggests something more than majority shareholdings and, for a fundamental shift in the business away from shareholder returns, a radical shift in legal form would also be needed.

In practice, a Labour government would be likely to start slowly in a renationalisation process. Rail companies would be brought into public ownership at the end of their franchises, licence conditions would be changed to make public ownership easier and so on. An almost “Fabian” approach. Those with stakes in current private utilities are already seeking to “Corbyn-proof” their investments by taking advice on how to structure and value listed and unlisted securities.

Nationalisations will be political decisions, based on a sense of the public interest and a belief that things would be different if ownership changed. But the law sets the parameters of such political action.

Although EU law will not prohibit such policies, the regulatory regimes for utility sectors will limit what practical differences can be made. And the requirement that there be compensation will mean a considerable transfer of wealth from the taxpayer to investors, which is ironic given the motivating socialist ideology.

The writer is a contributing editor of the Financial Times

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