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Author Topic: £90bn, or cost free, to renationalise water, energy and rail?  (Read 2252 times)
grahame
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« on: February 10, 2018, 17:29:08 »

From The BBC» (British Broadcasting Corporation - home page)

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Labour's proposal to bring services such as water, energy and rail into public ownership would be "cost free", John McDonnell has said.

The shadow chancellor says he wants to put public services "irreversibly in the hands of workers" so they can "never again be taken away".

In a speech in London, Mr McDonnell said privatisation had failed.

However, the Conservatives said his plan would cost taxpayers billions of pounds and lead to worse services.
Earlier, Mr McDonnell told BBC Radio 4's Today programme taking services into public ownership would not ultimately increase the burden on taxpayers because government bonds could be swapped for shares in a revenue-producing company.

"It would be cost free. You borrow to buy an asset and when that asset is producing profits like the water industry does, that will cover your borrowing cost," he said.

A report earlier this week by the Social Market Foundation, commissioned by a group of water companies, estimated that the up-front costs of renationalisation would be £90bn.
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ChrisB
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« Reply #1 on: February 10, 2018, 17:33:54 »

Hmmm. More national debt that taxpayers will be paying for through higher-than-needed utility bills to repay the borrowing. The current dividends will pay off the borrowing over how many years???

With little or no investment either
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ellendune
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« Reply #2 on: February 10, 2018, 18:19:49 »

Hmmm. More national debt that taxpayers will be paying for through higher-than-needed utility bills to repay the borrowing. The current dividends will pay off the borrowing over how many years???

With little or no investment either

No not more national debt (the nation is more than the government and includes all the people and companies in the nation), since the money will be used to pay off some debt in the private sector there should be absolutely no change in national debt. It will increase Government debt, but correspondingly decrease private sector debt. 

Also it should not mean higher water charges, because at the moment water charges include paying a dividend to those shareholders and interest to the bondholders.  These dividend will be replaced by interest on the government bonds used to buy the companies. However since the government is seen as a better credit risk, the interest payments will almost certainly be less than the interest and dividends paid by the private companies. 

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stuving
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« Reply #3 on: February 10, 2018, 18:39:41 »

No not more national debt (the nation is more than the government and includes all the people and companies in the nation), since the money will be used to pay off some debt in the private sector there should be absolutely no change in national debt. It will increase Government debt, but correspondingly decrease private sector debt. 

That's just not what the phrase means. As any dictionary will attest, "national debt" means (and has always meant) money borrowed by the government and not yet paid back.
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TaplowGreen
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« Reply #4 on: February 11, 2018, 08:56:37 »

From The BBC» (British Broadcasting Corporation - home page)

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Labour's proposal to bring services such as water, energy and rail into public ownership would be "cost free", John McDonnell has said.

The shadow chancellor says he wants to put public services "irreversibly in the hands of workers" so they can "never again be taken away".

In a speech in London, Mr McDonnell said privatisation had failed.

However, the Conservatives said his plan would cost taxpayers billions of pounds and lead to worse services.
Earlier, Mr McDonnell told BBC Radio 4's Today programme taking services into public ownership would not ultimately increase the burden on taxpayers because government bonds could be swapped for shares in a revenue-producing company.

"It would be cost free. You borrow to buy an asset and when that asset is producing profits like the water industry does, that will cover your borrowing cost," he said.

A report earlier this week by the Social Market Foundation, commissioned by a group of water companies, estimated that the up-front costs of renationalisation would be £90bn.

I think McDonnell has borrowed Diane Abbott's abacus again.
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ellendune
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« Reply #5 on: February 11, 2018, 09:03:34 »

No not more national debt (the nation is more than the government and includes all the people and companies in the nation), since the money will be used to pay off some debt in the private sector there should be absolutely no change in national debt. It will increase Government debt, but correspondingly decrease private sector debt. 

That's just not what the phrase means. As any dictionary will attest, "national debt" means (and has always meant) money borrowed by the government and not yet paid back.

I am perfectly aware of how the phrase is normally abused.  I am exposing a particular privatisation myth. Might I suggest that the phrase has been defined that way of putting forward a particular political view. That myth is that money borrowed by a private company to fund a public service that the public have to pay for is any different to the sam money borrowed by the government.

Water privatisation made no difference to me as an individual.  I still had to pay for the service.  That it allowed greater investment was an artificial political constraint not an economic one.  The nation is still indebted. 

If my taxes went down because the NHS was abolished would I be any better off? - No because I would still have to buy health insurance.  This is a false premise. 

The nation is more than the government, particularly when the government decides it does not want to provide services in certain areas. 
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TaplowGreen
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« Reply #6 on: February 11, 2018, 10:09:58 »

No not more national debt (the nation is more than the government and includes all the people and companies in the nation), since the money will be used to pay off some debt in the private sector there should be absolutely no change in national debt. It will increase Government debt, but correspondingly decrease private sector debt. 

That's just not what the phrase means. As any dictionary will attest, "national debt" means (and has always meant) money borrowed by the government and not yet paid back.

I am perfectly aware of how the phrase is normally abused.  I am exposing a particular privatisation myth. Might I suggest that the phrase has been defined that way of putting forward a particular political view. That myth is that money borrowed by a private company to fund a public service that the public have to pay for is any different to the sam money borrowed by the government.

Water privatisation made no difference to me as an individual.  I still had to pay for the service.  That it allowed greater investment was an artificial political constraint not an economic one.  The nation is still indebted. 

If my taxes went down because the NHS was abolished would I be any better off? - No because I would still have to buy health insurance.  This is a false premise. 

The nation is more than the government, particularly when the government decides it does not want to provide services in certain areas. 

Stufvings point re: the definition of national debt is correct.

In the case of the water industry (in which I worked for several years) I can tell you that privatisation facilitated investment decisions enabling massive capital projects to go ahead benefitting millions of people which would simply never have happened were it to have remained a nationalised industry, competing against other Government priorities.

You have to see things in more than one dimension.

McDonnell's grip on economic reality is at best tentative and driven solely by ideology.
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stuving
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« Reply #7 on: February 11, 2018, 10:28:11 »

I am perfectly aware of how the phrase is normally abused.  I am exposing a particular privatisation myth. Might I suggest that the phrase has been defined that way of putting forward a particular political view. That myth is that money borrowed by a private company to fund a public service that the public have to pay for is any different to the sam money borrowed by the government.

I would agree that the usage of the phrase "national debt" is now political, in the sense that it's used almost exclusively by those who think it matters a lot - so not John McDonnell, for a start. But it's hardly a recent invention for the purposes of political spin; more of a historic survival that's become an anachronism.

I had a look for the term and matching numbers in official accounts, and it was barely a footnote 40 years ago and is not now used by NSO at all. Its inherited meaning of central government gross debt (and  not all classes of that) is no longer seen as useful, so the figures you see as a percentage of GDP are for public sector debt. But the numbers that are produced do come is several varieties, since the whole business of counting all those diverse beans is genuinely complicated.

When that term is used, it doubt it's used in its historical sense anyway. So the practical response is to try to work out what was meant in each case - after which you can still agree or disagree with what is being said, of course.
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welshman
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« Reply #8 on: February 11, 2018, 11:02:22 »

The model could be Welsh Water, which is a not for profit company, and is entirely self funding and pays no dividends to anybody.

McDonnell is being slightly evasive.  Yes, the shareholders would have to be bought out and that would cost money.  His theory is that eventually the cost would be repaid because of the profits not paid out.

On the other hand, that's money which the government received when the water industry was privatised.  Privatisation is in itself a scam because it involves people paying twice for assets which they have already paid for through taxation.

It's like banking, which is another scam.  I deposit £10 in my account.  The banks are allowed to lend up to about £8 of that to you.  That works on the premise that all the depositers don't come for their money at once.  If they do, the bank collapses. 

I have never understood how disposing of a publicly owned asset to a private corporation which has to make a profit and pay dividends to its shareholders can be money-saving.  Carillion demonstrates how that goes wrong when the company prefers to benefit its shareholders rather than investing in its operations.



We can see clearly what happens by looking at the railways.  Look at how much of the profit has been exported to Germany/France/the Netherlands/China because of the ownership of the franchiseholders. 
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didcotdean
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« Reply #9 on: February 11, 2018, 11:33:34 »

Some of the water supply industry in England has never been (yet) publicly owned going right back to the Victorian era. Before 1974 water supply was a patchwork of mainly local authority run water supply and sewerage operations, but also 30 or so private companies which were left more or less as they were at the time and many of these still exist separately today.

The so called 'no cost' nationalisation would only be no cost if the loans taken out to buy from the current owners were never repaid and always were able to be refinanced at the same kind of rate to be met from the profit of the operation of the companies and didn't affect the rate at which government borrowing could be financed for all other activities. This would also suggest that there would be no scope for consumer price reductions unless the operation could be made more efficient. McDonnell takes the view that public sector organisations are always more efficient than private sector ones. Others are not so sure on this assertion.
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simonw
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« Reply #10 on: February 11, 2018, 11:53:36 »

If the government chose to change the ownership model of infrastructure companies, the cost to the country would be minimal, provided a nationalisation was not used!

Anyone wanting to go back to the models of the 60s and 70s should be very careful, considering the failure of investment in these industries due to political issues.

Changing ownership to cooperatives, partnerships and local companies that can pay no dividends (like old water companies) would in many cases be easy to do. The compensation to existing owners can be agreed by an ombudsman and be paid by these local institutions over many years in lieu of the dividends and dubious loans to their parent companies they now pay for.
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ellendune
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« Reply #11 on: February 11, 2018, 12:21:33 »

Stufvings point re: the definition of national debt is correct.

In the case of the water industry (in which I worked for several years) I can tell you that privatisation facilitated investment decisions enabling massive capital projects to go ahead benefitting millions of people which would simply never have happened were it to have remained a nationalised industry, competing against other Government priorities.

You have to see things in more than one dimension.

McDonnell's grip on economic reality is at best tentative and driven solely by ideology.

I too have worked in the Water Industry and agree entirely with what you say about water privatisation.  I am not critical of the dividends paid to shareholder per se as they are equivalent to the interest that a government would have had to pay on the debt had it stayed in the public sector.

In other European Countries governments are content to leave nationalised industries to get on with things and not starve them of investment, but there seems to be something about this country that prevents that. 

There have, however, been abuses. For example, according to the bbc, Macquarie Bank saddling Thames Water with £2bn extra debt it used to buy the company, despite assurances to the regulator that it would not.

As for ideology and economics - I think that cuts two ways - monetarism, trickle down economics are all political ideologies as much as they are economic theories.  Keynesian economics was political orthodoxy from the 1930's to the 1970's until the Reagan/Thatcher era made monetarism the political orthodoxy. 

Time moves on.
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« Reply #12 on: February 11, 2018, 15:41:53 »

To add to the theories, there is the one that considers public and private goods and services.  The former are ones which are inherently monopolistic and the latter are ones which are not

Thus, roads, railways, gas, electricity, water, health and so forth are inherently monopolistic and need to be available to all whereas particular goods like cars, TVs, handbags, clothing are a matter of personal choice and the market can logically compete to supply them.

The privatisation of gas and electricity services shows how silly the idea is.  You buy your gas from, say, Scottish Power and I buy my gas from say, EDF.  Is there a widget in the pipe that sends the SP gas to you and the EDF gas to me?  Of course there isn't.    There's just a load of gas in the system and some profiteer notionally contributes a proportion of it.  I apologise, therefore, for using your gas and electricity in my house.

Further, if the market for such supplies as these is so inherently good, why is it necessary to have a regulator to control it?    Because (i) the market for monopolistic services doesn't work in favour of the customer and (ii) the decision to privatise many of these things is ideological rather than rational.

Discuss Fayling Grayling's East Coast latest in this context.



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TonyK
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« Reply #13 on: February 11, 2018, 15:44:02 »

Stuvings point re: the definition of national debt is correct.

Agreed. It includes my Premium Bond.

On balance, I can see a positive benefit from nationalisation, in that I would be able to make money when the utilities are re=privatised.
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