Carolyn Fairbairn, director-general of the CBI, chose a good day to pick a fight with Labour over renationalisation. Amid the Brexit pantomime, investors were studying the odds on an imminent general election and the chances of a Labour administration enacting its plans to take the energy networks, water companies, Royal Mail and the rail operators into national ownership. Shares in United Utilities, water supplier in Liverpool, where Fairbairn spoke, slipped 2%.
Fans of nationalisation will dismiss Fairbairn’s plea for Labour to “work with business, and not against it” as laughably limp. “A last-ditch attempt to protect the interests of a narrow group of wealthy shareholders,” said Peter Dowd, shadow chief secretary to the Treasury, giving fair warning that a meeting of minds is not on the cards.
Let’s swerve around that ideological chasm and instead ask the financial questions. How much would Labour pay for the assets? How would it deal with the inevitable legal challenges if the price is less than market value? Answers so far have been vague.
On water, the shadow chancellor, John McDonnell, has said parliament will decide the level of compensation and has cited the nationalisation of Northern Rock as a precedent, an argument that heroically ignores the fact the bank was bust whereas the water companies are not.
Labour has also said parliament could make deductions for post-privatisation “asset-stripping” and “state subsidies”. Details please. If the subsidies include Treasury-backed tax breaks that were designed to encourage investment in infrastructure, expect a legal challenge or two.
Fairbairn argued investors are “not the unaccountable fat cats of fiction” but are “you and me”, meaning pension funds. It’s a reasonable point in many cases, and Labour’s response was odd.
It pointed out – correctly – that ownership of UK electricity networks is stuffed with Wall Street banks and “multinational conglomerates from Hong Kong to the United States and sovereign wealth funds from China to Qatar”, but skipped over potential implications for foreign investment in the UK. But, on the main point, Labour appears to be saying UK pensioners are equally undeserving of fair value for the assets.
Don’t worry, the impact on pension funds from plans for water and energy would be “less than 1%”, it says. OK, but these percentages add up. At last year’s party conference, McDonnell also wanted workers to be handed 10% ownership of all large companies via the creation of “ownership fund”. That’s a lot of dilution for other investors.
Meanwhile, Labour says “no employees will be worse off as the result of nationalisation, including employee shareholders”. So would employees get a better price for their shares than individuals who invest via a pension fund? How could that be justified?
Labour seemed chiefly annoyed by Fairbairn’s claim that nationalisation would cost £176bn – a “fantasy figure conjured up by a discredited Tory thinktank”, it said. There’s a simple remedy: publish detailed figures that set out who would get what, and on what basis. Whether you’re fan of the policy or not, it is reasonable to expect some detailed numbers.
Philip Green pleads poverty
Some of Britain’s biggest commercial landlords have a treat, of a sort, in prospect: a visit from billionaire Sir Philip Green to plead poverty. The Arcadia boss wants to shut dozens of stores – 67 are on one list, says the FT – and he’d be obliged if the landlords would do him a favour and cut rents to encourage a new tenant into the premises.
Nobody doubts the Arcadia empire should get smaller. Once upon a time, having a sprawling collection of brands – Topshop, Burton, Dorothy Perkins, Miss Selfridge and Wallis – was seen as an asset. These days, Arcadia is being hit on all fronts by the rise of internet sites Asos and Boohoo, the continuing success of Zara and competitors’ discounting. Green’s frequent appearances on front pages of newspapers and websites won’t be helping either. The buzz of the Kate Moss years at Topshop feels a very long time ago.
The landlords, though, will remember it well. Back in 2005, Arcadia paid a £1.2bn dividend to Tina Green, his Monaco-based wife, and some of that cash, if had been reinvested in the brands, might have eased the current commercial pressures on the business.
And perhaps it’s not too late for Greens to dig deep. Landlords such as British Land and Intu have their own dividend-hungry shareholders to feed and surely can’t capitulate in the face of a request to adjust leases that were signed freely. Their advice to Green ought to be straightforward: if you’re struggling to find the rent, try selling one of your yachts.
