Is it time to nationalise the energy companies, railways and water suppliers?
With bumper profits, exorbitant prices and shoddy service, privatised services are facing the heat. So is it time we nationalised the lot?
by: Greg Barradale, Sarah WIlson, Evie Breese and Alastair Reid
22 Aug 2022
In the run up to the 2019 general election, Labour’s Angela Rayner was asked if her party would “nationalise sausages”. Now, with the cost of living crisis highlighting the urgent need for solutions, two thirds of Tory voters are in favour of nationalising energy companies if they can’t lower bills, according to a new poll.
Overall, just 13 per cent of the public are opposed to bringing energy companies back into public ownership, polling from YouGov has revealed.
There’s certainly a clamour for nationalisation and it goes beyond the electricity firms raking in massive profits while families struggle to make ends meet. But would it solve problems in the here and now, bringing down energy bills, making trains run on time, and cleaning up our rivers? And would it be a long-term solution to some of the other challenges faced by our country?
We’ve looked at the case for and against nationalisation in three key industries – energy, water and rail – to find out.
Should the UK nationalise energy companies?
With energy bills soaring to frankly unaffordable amounts, the conversation has inevitably shifted to nationalising energy companies.
Former Prime Minister Gordon Brown has proposed temporary public control as a last resort if companies cannot lower prices.
The TUC, meanwhile, estimates that nationalising energy suppliers would cost £2.85bn, around the same amount the government has spent bailing out energy companies in the past year. It says doing so would bring bills down and encourage companies to make homes more energy efficient.
But current Labour leader Keir Starmer has moved away from a nationalisation pledge, instead unveiling a £29bn plan to freeze bills at their current level with money given to energy firms to make up the difference.
“If you go down the nationalisation route, then money has to be spent on compensating shareholders,” he said.
And over in the Spectator, there’s speculation that energising energy companies would mean rationing energy.
So what, really, is going on?
The crucial distinction in the conversation is between suppliers such as British Gas or Octopus, who pump energy into your house and are subject to the energy price cap, and the producers, such as BP or Shell, who extract oil and gas, set prices and make larger profits.
Nationalising energy suppliers “wouldn’t materially alter the fact that the lack of gas supply, effectively, is what’s driving up prices,” says Calvin Jones, professor of economics at Cardiff Business School. Taking the energy suppliers into public ownership may have a very small effect on household bills, but not much.
“Unless nationalisation was also accompanied by some sort of subsidy, it wouldn’t make a great deal of difference,” he says.
That view is echoed by Ed Birkett, head of energy and climate at centre-right think tank Onward, who says suppliers already make small – or no – profits, thanks to the energy price cap.
“There is little to suggest that nationalisation of energy suppliers would reduce energy bills, even in the short term. In the long term, we need energy suppliers to innovate to help us cut bills and reduce emissions,” Birkett tells the Big Issue.
Starmer’s plan, then, represents a reasonable compromise to Jones, but simply kicks the can down the road.
“What he does is move money from where the profits are being made — windfall profits on the oil and gas companies, get some money from them — and move that into subsidising the household supply,” Jones said.
“In the long term we still have this overriding problem that you have to somehow sort our huge dependence on very expensive fossil fuels.”
So would nationalising the producers be a long-term solution? This would be expensive, and tricky.
“If you nationalise those, you’re in a position where the government is generating millions of tonnes of carbon emissions by drilling in the North Sea, for example. It’s very difficult to imagine how any ‘progressive’ government could nationalise the oil and gas companies without immediately seeking to wind them down, effectively,” said Jones.
“If you were thinking about being serious about climate change, the only reason you would nationalise oil and gas companies is to shut down, for example, North Sea [drilling], which needs to be shut down if we’re to stay within two degrees C of warming.”
According to Johnbosco Nwogbo, lead campaigner at We Own It, the privatised water companies have failed to invest enough money in upgrading their infrastructure. And it is this lack of investment which has led to the sewage discharges, water leakage and lack of preparedness for drought conditions that we’re seeing today, he says.
“[The companies] have the money to invest in infrastructure, but they aren’t doing it. They’ve been paying dividends worth about £2bn a year to shareholders instead of actually investing it back into the system,” Nwogbo says.
Unison national secretary for business, community and environment, Donna Rowe-Merriman, says that renationalisation is “the only effective way to run [the water industry] for the benefit of consumers”.
“Transferring water back into state ownership would ensure appropriate levels of investment, long-term planning, concern for environmental impacts, spending priorities, regulation and oversight,” she adds.
Nwogbo also argues that privatisation has failed to deliver on its promise of lowering bills for consumers.
“We know for a fact that water bills have gone up by more than 40 per cent above inflation. When water was first privatised it was said that the process would cut down bills,” he said.
Full Fact has pointed out that most of this increase happened between 1989 and 1995, when water was first privatised. The increase between 1995 and 2014, the year Labour produced the 40 per cent stat, was lower than inflation and actually prices actually fell in real terms between 2009/10 and 2014/15.
Robert Colville, director at the Centre for Policy Studies, puts this — and more — down to privatisation.
“Customers are five times less likely to suffer supply interruption and 100 times less likely to encounter low pressure than 30 years ago,” he wrote in a recent article on the subject, “and that bills have not risen in real terms for the last two decades.”
The leaks and sewage spills are largely in line with targets set by regulators, Colville argues, so would be the same under nationalised organisations unless Ofwat changed its targets. And the two companies who have committed the biggest breaches in how they pump sewage into rivers have been given record-breaking fines.
“The water companies are essentially contractors. They are running the water network on behalf of the state, in a fashion agreed with the state, to targets laid down by the state,” he says.
Those in favour of a privatised system often argue that renationalising the system would be too costly and leave them competing with other parts of the national infrastructure for funds.
This is the “single greatest justification” for privatisation and against nationalisation, Colville says: “competition for capital”.
With very large amounts of money needed to upgrade water infrastructure, putting the service in the hands of the state would leave it competing with other services like schools for money to borrow.
“During the nationalised era [water] always, always lost out to schools and hospitals – and was always going to,” he says.
The catch-22, as Nwogbo points out, is that the private companies aren’t upgrading the infrastructure either, at least not at the rate needed to address the issues.
So is the short-term cost worth the long-term gain?
A 2019 estimate by ratings agency Moody’s in 2019 put the cost to the public purse for nationalising water companies at £14.5bn. An industry-funded estimate from think tank the Social Market Foundation put the number at £44bn, rising to £90bn if debt was included.
Green Party co-leader Carla Denyer says, however, that “we can’t afford not to” renationalise.
“It’s too expensive not to. On average, over the past ten years, water and sewerage companies have paid over £1.8bn per year in dividends, which equates to about £75 per household per year,” she says.
“Cleaning up the mess created by the private water companies is going to be costly, but at least we know that the money raised through bills in a publicly-owned water supply will be used to plug leaks, prevent sewage discharges and ultimately reduce bills.”
Should the UK nationalise rail companies?
It’s no secret that UK rail fares can be borderline extortionate. It’s often cheaper and quicker to fly from one end of the country to the other than to get the train. Anger at the rail companies for high prices and poor service is part of the British way of life.
“Rail fares have gone up by twice the rate of inflation since privatisation” says We Own It’s Nwogbo. With train tickets between Manchester and London running into the hundreds of pounds, such prices are simply “encouraging people to go back to using their cars” rather than investing in green alternatives to fight the climate emergency.
The argument goes that, under state ownership, rail fares could be more tightly controlled and average fares lowered to make rail travel an affordable, climate-friendly alternative to car travel.
But although we talk about the railways being privatised, really they’re a state of “pretend capitalism” says Christian Wolmar, author of British Rail: A New History.
The picture is further complicated by the different levels of ownership for the different parts of the rail system.
There are the companies that own the trains themselves, other companies that lease those trains and are in charge of running them on the tracks, with the actual 20,000 miles of track, 30,000 bridges and other infrastructure owned by Network Rail.
By linking up all these different parts under an integrated rail system, “you would be able to offer a more efficient, cheaper and better service,” says Wolmar.
“Nationalisation would enable the state to create an integrated railway,” Wolmar argues, “where one manager would be responsible for all aspects of running the service.”
That is what Transport Secretary Grant Shapps has proposed to do with the new, publicly-owned Great British Railways to oversee infrastructure, ticket prices and timetables.
But, he insists, this does not mean nationalisation, and there is a misplaced nostalgia for the nationalised British Rail.
“Let’s not forget, passenger numbers plummeted year on year on year. They closed down thousands of miles of track,” he told the FT in 2021. “Stations closed and communities got cut off and they served diabolically bad sandwiches. That was actually what happened.”
Passenger journeys are up and so is freight, according to privatisations proponents, but it’s hard to deduce what successes privatisation of the railways directly achieved and what can be put down to population growth.
You “can’t say it’s all coincidence” that passenger numbers have shot up since privatisation, independent rail planning consultant William Barter tells The Big Issue.
But “the operators have paid much more attention to standards of service and introduced online sales and suchlike,” he says, all of which have benefited travellers. “We should not lose that potential for innovation.”
And anyway, it’s important to ask what we even mean when we talk about renationalising.
“I think ‘renationalising’ is a completely sterile argument,” claims Barter, “as the railways are already for all practical purposes nationalised.”
“Network Rail, the infrastructure owner, is a public sector company. The operating contracts to run train services are let by the Department for Transport [or Transport for London, or devolved governments], and very tightly controlled as to levels of service and fares.”
And this is before Great British Railways comes in next year.
“Great British Railways, if the government ever gets round to legislating for it, would be reform of the system in that it would be a single body with responsibility for all functions – infrastructure, fares, timetables etc – but could and probably would still contract out operation of the services that it specifies,” Barter says.
This is not too dissimilar to other so-called nationalised industries. Even the NHS works on the basis of contracting delivery out to private companies. So it seems that nationalisation and privatisation are not as black and white as it may seem. There is a sliding scale.
For Barter, then, “the key issue to consider is the extent to which the current companies involved take risk and keep profit.”
In other words, it’s a balancing act. Tip too far one way and private companies will fill the bank accounts of their shareholders and directors to the detriment of the taxpayer and their customers, safe in the knowledge that utilities and rail are natural monopolies overseen by toothless regulators. Go too far the other way and nationalised industries can be an inefficient, uncompetitive millstone around the neck of government, loading the country with debt without delivering the improvements the population sorely needs.
For the voting public of Great Britain, one thing seems clear. They’ve had enough of throwing their hard-earned cash into the pockets of the corporate elite. Whether the next prime minister gives them what they want may be the grounds on which the 2024 election is fought.