How Would Renationalisation Affect The Economy?

How Would Renationalisation Affect The Economy?

Ever since his election as the Labour Party leader in 2015, Jeremy Corbyn has been closely associated with policies of renationalisation. There is a general sense that such policies are the ultimate signifiers of Corbyn’s socialist credentials, and so they have remained hot topics ever since he assumed his position as Labour leader.

However, while the idea has garnered a lot of public support, there is continued debate around whether or not this would really be the best thing for the country. Industry experts have pointed out that publicising rail and water industries would put an even greater pressure on an already strained public budget. It would place them in competition with other public sectors, and experts fear it could leave them less efficient than they are now.

One leading think tank estimated cost of renationalising the water industry alone at £90 billion. This would amount to one tenth of the annual government budget, the same expenditure as the current education budget. Labour’s shadow chancellor John McDonnell has responded to claims by arguing that renationalization would ‘not be a burden on taxpayers’ because the profitable nature of the industries ‘will cover the cost of any borrowing’.

Equally, it is important to note that three-quarters of the railway industry is currently under public control (the track, signalling and big stations), with only the 25 rail franchises in the public sector. Moreover, the industry continues to be a drain on public resources: last year the government put £3.3 billion into it, mostly as a direct grant to Network Rail. This is part of the anger expressed by commuters when networks have continual delays and problems. It is felt that there should not be such a public investment in an industry which seems incapable of running smoothly; rather, the industry should be reclaimed by the public sector.  

Similarly, the water industry has faced criticism for a variety of factors. Thames Water is one of the largest businesses in this sector in the UK. As such, it is at the forefront of debate around which companies should be renationalised. Over the past ten years the company has paid little corporation tax, and has had subsidiaries in a tax haven. Meanwhile, they were fined £20 million in 2017 for releasing raw sewage into the Thames. This feeds into a continued criticism over problems with controlling leaks. As with the railway industry, these kind of problems have contributed to a growing hostility towards the privatised water industry.

Of course, the debate around renationalisation will stay somewhat on the backburner so long as the Labour Party remains in the shadow cabinet. However, should they come to power in the foreseeable future, we could see this become a more pressing issue. With clear pros and cons to renationalization, the correct path forward is uncertain at the moment.

By Rachael Dillon

image: [newstatesman.com]