The cost of renationalisation

The Confederation of British Industry (CBI) has admitted exaggerating the “eye-watering” £196bn price tag that it put on Labour’s nationalisation plans.

After publicly denouncing the party’s plans as a “waste of time, energy and public money”, the business lobby group acknowledged in private communications that its analysis did not reflect the party’s policies.

In an email exchange seen by The Guardian, the CBI’s principal economist told Labour officials that they recognised some of their costings did not relate to “official Labour policy”.

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Referring to the incorrect conjecture that Labour would buy the rail industry’s rolling stock, the economist said: “We have assumed the rolling stock would be bought into public ownership as the trains are currently owned by the private sector and therefore full-scale nationalisation of rail would require this.

“However, we recognise that this isn’t official Labour policy on nationalising the rail industry.”

The CBI, which represents around 190,000 UK businesses, had said that the cost of taking public services into state control would be equivalent of all income tax paid by UK citizens in a year, said the BBC. And national debt would stand to rise by 10.7% as a result, the group claimed.

However, while now acknowledging the error over the railway rolling stock, the CBI is refusing to detail the exact costs that make up its calculations.

“Unfortunately, we are unable to provide a breakdown of the £196bn figure as our members do not feel comfortable doing this,” said the economist in the leaked email exchange.

Labour’s shadow transport secretary, Andy McDonald, told The Guardian that the CBI had based its costings on “fabricated false information” and the group didn’t “have the guts to publish their figures”.

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What does Labour want to renationalise?

Labour wants to take water and energy utilities, train firms and the Royal Mail into public ownership.

The CBI based their calculations on renationalising Royal Mail, the national grid, and 16 water companies, nine of which also deal with sewerage.

They also assumed that railway vehicles would be brought into public ownership, but Labour says this is not part of its plan.

Responding to the criticism over its projections, the group said: “The CBI stands behind its analysis of Labour’s plans for large-scale renationalisation.

“The cost of purchasing rolling stock is a fraction of the £196bn and was included as that is what full-scale renationalisation of the rail industry would likely involve. If a Labour government chose not to purchase the rolling stock, they would still need to pay the cost of leasing them.”

So how much would the buybacks cost?

The CBI puts the cost of renationalising these major utilities at a minimum of £196bn - which would take the UK national debt to levels not seen since the 1960s, at 94% of GDP.

The group points out that this upfront cost is almost as high as the combined £141bn health budget and £61bn spent on education.

“The price tag for Labour’s renationalisation plans is beyond eye-watering,” said the CBI’s chief economist, Rain Newton-Smith.

She continued: “There are so many other genuine priorities for public spending right now, from investing in our young people to the transition to low carbon economy and connecting our cities and communities.

“These issues are what keep businesses up at night and what they want to see the government get on with addressing. Nationalisation would waste time, energy and public money.”

However, the Institute for Fiscal Studies last week said that focusing on the upfront cost of taking utilities into public ownership was the wrong approach. “Economically what matters is whether these assets would be better managed by the public or the private sector,” the independent research organisation argues.

What has Labour said?

Labour has accused the CBI of making a series of arbitrary, exaggerated and misguided assumptions, says The Guardian.

The lobby group applied a 30% premium to the asset values of private firms, but Labour has dismissed the resulting figures as unrealistic.

Shadow chancellor John McDonnell has previously said that Parliament would decide what the state paid to renationalise assets. He also said that such a move would ultimately cost the public nothing, because ownership of assets would save money.

Responding to the CBI report, Labour pointed to the popularity of the proposed measures among British people.

A party spokesperson said: “It is disappointing that the CBI seems incapable of having a grown-up conversation about public ownership - which is hugely popular, and common across Europe.

“It sadly reveals that they are more interested in protecting shareholders than in creating a fair economy.”

Following the revelation that the CBI exaggerated the £196bn figure, shadow transport secretary Mcdonald added: “The CBI’s shoddy research and shabby conduct does a great disservice to our political debate during the hugely challenging times through which we now live.

“At the very least, I would expect an apology from [CBI director-general] Carolyn Fairbairn over the distorted misrepresentations her organisation has sought to peddle.”