Labour warned against using short cuts to nationalise utilities

Labour has been warned against trying to use using legislative short cuts to carry out its plans to nationalise the utilities.

The opposition has committed to renationalise the water companies, the railways, the Royal Mail and the gas and electricity networks. Dan Neidle, a partner at Clifford Chance, told Westminster Forum’s water industry conference yesterday (18 July) that the opposition is contemplating a “one-size-fits-all” bill that would give it powers to renationalise more than one industry.

He said: “Some close to John McDonnell’s team think Labour can pass a very short nationalisation bill which enables ministers to identify particular assets and particular sectors for nationalisation.”

But he said that a future Labour government would be much more open to the risk of paying compensation to disgruntled shareholders if it went down this route, which he dubbed “the-John-McDonnell-nationalise-what-he-likes bill”.

Using an over-arching piece of legislation for more than one industry would mark a departure from previous nationalisations carried out by Labour government since the Second World War, Neidle said. It would also mean that the nationalisations of individual industries could be treated as executive acts of the government and hence open to challenge on compensation grounds, he said: “You are no longer challenging an act of Parliament, but the executive.”

By contrast, Neidle said that a bespoke act of Parliament is constitutionally supreme, blocking off the ability of the courts to award compensation “It would be very ill advised of Labour to try for a short cut.”

He said that any legislation to nationalise would have to detail how company assets IT and human resources systems would be transferred into public ownership. It would also have to deal with the treatment of liabilities like debt, derivatives, leases and pensions.

Neidle also warned that Labour’s hopes that it may will be able to avoid paying market value for the privatised utilities are likely to be dashed.

Labour, drawing on research carried out by the University of Greenwich, has claimed that it will be able to sidestep paying the market value for renationalised assets by taking into account factors like pension debts and debts written off when their industries were nationalised. “In every single previous nationalisation was some form of market value compensation paid,” he said, adding that overseas investors in renationalised companies would be entitled to the market value of their assets under international treaties. But Neidle said that it would be “politically unrealistic” for a Labour to pay one level of compensation to foreign investors and another to UK owners, which would include pension funds.