Water renationalisation could cost as little as £14.5 billion

The bill for Labour’s plans to renationalise water companies in England could cost the government as little as £14.5 billion, according to new figures.

Calculations, carried out for the Financial Times by rating agency Moody’s, estimate the book value of the English water companies’ shareholder equity is £14.5 billion.

The Social Market Foundation published a report last year which estimated that shareholders would require £44 billion worth of compensation based on the companies’ market value.

The SMF estimate factors in a 20-30 per cent acquisition premium which it described as standard practice in takeover scenarios.

And the thinktank’s paper said that taking into account water companies’ debt, which it estimated was worth £46 billion in late 2017 when the research was being carried out, would increase the government’s costs to £90 billion.

The report calculates that its £90 billion estimate would push up total government borrowing by 5 per cent, with potential knock on consequences on financing costs.

In its study, the SMF objected to using book value as the basis for nationalisation costs on the grounds that if offers scope for the government to acquire assets at “substantially below their intrinsic value”, which could in turn curtail inward investment into the UK.

And Labour has said that it would not pay any form of top up premium.

The SMF report acknowledges that “arguably”, the government does not need to buy out the water companies debt.

Labour has said that it would swap shares in energy and water companies for government bonds, which could be serviced by the profits made by water companies on their operations.

Thames Water recently added a new clause to some of its financial bonds to ensure investors are paid back immediately if the utility company is nationalised.

John McDonnell, the shadow chancellor of the exchequer, lined up water as the first industry Labour will bring back into public ownership when he gave his keynote speech at the Labour party conference last year.