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IFS warns Labour renationalisation may delay low-carbon economy

Larry Elliott
Photograph: John Giles/PA

Labour’s plan to renationalise large chunks of the economy risks years of disruption that could delay Britain’s transition to a low-carbon economy, a thinktank has said.

The Institute for Fiscal Studies warned that taking water, energy companies, the Royal Mail and railways under state control would be costly, complex and risky and said Labour might do better to tighten regulation instead.

Lucy Kraftman, an IFS research economist, said: “The industries that Labour plan to nationalise are vital to the UK economy. The key question is whether they would be better managed in the public sector, and what nationalisation can achieve that changing the current regulatory frameworks cannot.

“At least in the short run Labour’s current plan would lead to significant disruption which could easily, for example, lead to a hiatus in progress towards decarbonisation in the energy sector. One should have very clear evidence for the long term benefits before embarking on such a complex and costly set of changes.”

The shadow chancellor John McDonnell flatly rejected the IFS argument.

“Labour’s proposals for nationalisation will enable us to speed up the transition to a sustainable economy and enable us to meet our decarbonisation targets all the sooner,” he said.

“Arguing for sticking to a regulation approach, after years of its failure, is a nakedly ideological stance and one at odds with all the evidence.”

Labour has outlined four key reasons for its renationalisation plan: lower prices, higher investment, better services to customers and higher pay.

The IFS said the change of ownership would bring around £200bn of assets and £150bn of debt onto the public sector balance sheet. In addition, Labour would have to provide compensation to the current owners at an appropriate market price, likely to be “many tens of billions of pounds, at the least”.

In a background briefing, the thinktank said: “To pay more would represent bad value for money for the taxpayer. To pay less would amount to an expropriation of private property, which would leave current owners (including pension funds) out of pocket. Many of the privately held companies are foreign-owned. Paying less than their full market value would risk harming the UK’s reputation and standing with other countries.”

The IFS said the industries on Labour’s renationalisation list were important for the operation of the UK economy.

“Given their importance, and the enormous cost, complexity and risk involved in bringing them into public ownership, the key question must be what is it that can be so much more readily achieved through a transfer of ownership that cannot be achieved through altering the current regulatory framework,” it said.

The energy industry supported the IFS argument that renationalisation could delay decarbonisaton.

The Energy Networks Association (ENA) said Britain’s privately owned network operators are well positioned to help cut emissions to “net zero” by 2050, but state ownership proposals would “likely to lead to delays to decarbonisation, reduced public accountability, disruption to innovation and higher costs to billpayers”.

Renewable UK, which represents the companies developing Britain’s biggest clean energy projects, echoed the ENA’s warning. It said reorganising the UK’s energy networks “risks being a costly and complex option at a time when we need to speed up the decarbonisation of our economy”.

“Time to reach net zero is running out,” the ENA added. “Let’s not waste it by needlessly scrapping a system that works.”