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17 May 2018updated 09 Jun 2021 10:47am

How public ownership was raised from the grave

Market failure and voter discontent is forcing the state to reassert itself. 

By George Eaton

For decades, nationalisation was a taboo subject in British politics. New Labour accepted all of Margaret Thatcher’s privatisations and even extended the market into new realms (such as air traffic control and Royal Mail). Few expected public ownership to return in any significant capacity.

But the state has since risen from its slumber. Chris Grayling, the Transport Secretary, yesterday announced that the East Coast Mainline rail franchise would be renationalised (for the third time in 12 years) after its private operators defaulted on payments. Labour, which has called for the whole network to be restored to public ownership, can boast of changing policy from opposition. Further franchises, rail experts say (Northern Rail, South Western, Transpennine Express and Greater Anglia), may also be renationalised out of necessity.

Grayling emphasised that the East Coast move was a “temporary” and purely pragmatic one; the Conservatives usually deride nationalisation as retrogressive, redolent of the grim 1970s. But the voters back Labour’s interventionism. A poll published last year by the Legatum Institute and Populus found that they favour public ownership of the UK’s water (83 per cent), electricity (77 per cent), gas (77 per cent) and railway (76 per cent). Voters are weary of the substandard service and excessive prices that characterise many private companies. (And saw the commanding heights of the British banking system renationalised following the financial crisis.) 

In his speech to last year’s Labour conference, John McDonnell declared: “Rail, water, energy, Royal Mail – we’re taking them back.” McDonnell further pledged to take Private Finance Initiative contracts, which were dramatically expanded under the last Labour government, “back in-house” (though aides later suggested he would act on a case-by-case basis).

Jeremy Corbyn’s party can argue that is motivated by evidence, rather than merely ideology. A 2017 study by the University of Greenwich, for instance, estimated that consumers in England were paying £2.3bn a year more for their water and sewerage bills than if the utility companies (many of them owned by private equity funds or overseas investors) had remained in public ownership. Of the £18.8bn profit made by nine firms in the decade to 2016, £18.1bn was paid out in dividends, with infrastructure investment funded by more expensive commercial borrowing.

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A recent assessment of the PFI scheme by the National Audit Office found that overall spending on the deals was higher than publicly financed alternatives: a group of schools cost 40 per cent more to build – and a hospital 70 per cent more – than if funded by government investment.

Opponents of nationalisation contend that it would be “unaffordable”. McDonnell, however, has suggested that Labour would acquire public assets by swapping shares for government bonds (with the state gaining new revenue streams). In the case of rail, it would progressively renationalise the service as franchises expire.

A 2017 report to the shadow chancellor, Alternative Models of Ownershipstated: “National ownership of certain industries promotes long-term planning of the economy, helps to provide modernising infrastructure, quality health and social care, and to combat climate change.”

Alive to the charge that the state is an inefficient manager, it continued:  “Examples around the world point to the positive contribution of national ownership, but in the UK national state ownership has historically tended to be too centralised, with power in the hands of a private and corporate elite. To improve national ownership in the UK requires taking measures to increase the democratic accountability of state ownership.”

“Many of the problems typically ascribed to state owned entities, for example, that they are complex organisations that can be overly bureaucratic and are subject to capture by vested interests (such as managers and workers), are equally true of large private corporations,” it said. “Indeed, it has been argued that state owned enterprises that have effective corporate governance structures to represent diverse interests, may be less susceptible to so-called ‘principal agent capture’ than private corporations with dispersed shareholders.”

Public ownership is not an invariable panacea. The state, as well as the market, can become a vested interest. Few are nostalgic for the era of British Rail. Yet a dogmatic preference for the private sector has not served the public interest. Across Europe, most notably in Germany and France, the state plays an indispensable role in ownership and strategy. In Britain, where Conservative grandees once denounced Margaret Thatcher’s privatisations as “selling off the family silver”, Leviathan is finally beng be roused from the depths.