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McDonnell promises 'cost free' nationalisation from Labour

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McDonnell promises 'cost free' nationalisation from Labour

Labour shadow chancellor John McDonnell has claimed the party could mount a 'cost free' re-nationalisation of water, energy and rail services if it won the next election.

Speaking to BBC Radio 4's Today programme on Saturday McDonnell said investors in privatised utilities, which include pension funds, could be given government bonds in return for their shares.

The profits from the companies would pay for the extra debt, or gilts, issued by a Labour government, he said.

'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.

McDonnell's explanation of how a Jeremy Corbyn government would pay for rolling back the Thatcher-era privatisations develop an idea he referred to last October when he vowed to scrap private finance initiatives (PFI) in the NHS and bring them 'in house'.

That speech cast a shadow over the shares of infrastructure funds investing in PFI contracts for the inflation-linked revenues they generate.

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

Conservative party chairman Brandon Lewis attacked the shadow chancellor's comments: 'John McDonnell can’t say how much their energy renationalisation scheme would cost taxpayers.'

He added: 'Labour's plan to put politicians in charge of your electricity would mean nowhere to go when things go wrong. This didn't work last time, it would mean worse services, and ordinary working people will end up paying the price.'

McDonnell and Labour leader Corbyn later launched a joint attack on privatisation in speeches at the party's Alternative Models of Ownership conference.

McDonnell argued utilities could be managed more efficiently under public ownership, because they would no longer have to pay dividends to shareholders.

Citing figures from the National Audit Office, the shadow chancellor said water bills had risen by 40% in real terms since privatisation of the industry in 1989 with £13.5 billion paid in dividends to shareholders since 2010.

This prompted an angry response from Water UK, trade body for the water companies. Its chief executive Michael Roberts: 'It’s wrong for Labour to suggest that our water system is broken. Water companies secure capital provided by lenders and shareholders, who need water companies to make a return in order to finance significant improvements to the industry.

He added: 'Under public ownership, the water sector in England was starved of cash and standards were poor. Private companies have instead invested heavily to reduce leakage, improve drinking water quality, and protect the environment – and they continue to invest £8 billion each year in even better services.

'In real terms, bills are roughly where they were 20 years ago and will be falling over the next few years,' Roberts claimed.

In his speech Corbyn attacked what he called the clear failures of privatisation and outsourcing of public services.

'From Carillion’s collapse and the private sector’s chronic inability to run the East Coast Mainline to the exorbitant costs of PFI and the hopeless inability of G4S even to handle basic security at the London Olympics the same story is repeated again and again; costly, inefficient, secretive.

'Unaccountable corporate featherbedding, lubricated by revolving door appointments between Whitehall, Westminster and private boardrooms as service standards and the pay and conditions of public service workers are driven down. This obsessive drive to outsource and privatise has been tried and tested to destruction,' he said.

Corbyn used research by the Transnational Institute identifying 835 examples of privatisation being reversed around the world to argue that Labour was on the side of a popular revolt in defence of state-run public services.

'There are very good reasons for what’s taking place,' he said. 'The neoliberal ideology that drove the privatisation frenzy forgot a key lesson that’s understood even by conventional neoclassical economics; that where there are natural monopolies, markets fail.'

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