In my latest video I argue that nationalisation does not cost the taxpayers of a country anything if it is done properly. Labour knew that in 1945, but apparently, they do not do so now. Why have they forgotten all that they once knew?
The audit version of this video is here:
The transcript is:
Nationalisation does not ever involve what is commonly called taxpayer's money.
This might come as a bit of a shock to the Labour Party, but they knew it in 1945. Keir Starmer keeps on saying, “We can't nationalise the utility companies, we can't nationalise water, we can't fulfil the nationalisation of railways when we wish to, because taxpayers would have to foot the bill.”
No they don't. Taxpayers have got nothing to do with footing the bill.
When the rail industry, the coal mines, the steel industry, the road transport industry, and other industries were all nationalised post the Second World War because the economy required their output and they were left in a dire state, by the consequences of that war, the owners were paid for the value of their businesses.
And they were paid with government bonds. Government bonds are simply a statement of a loan with the government. The government said “We owe you the money that this bond represents and we'll settle it with you in 30 year's time” - that was the normal figure used at the time by the way – “and we'll pay interest on it in the meantime of say 3%.” That was the normal figure used at the time.
And the consequence was that they paid market value because the businesses in question could generate a surplus sufficient to cover that interest cost.
And the bonds themselves were not paid for out of taxpayers' money. Let's be clear that even if there is such a thing as taxpayers' money, and I doubt it, what happened to those bonds when they came to be due for payment in the 1970s was that the value was extended. In other words, the original bonds were replaced with new bonds for another 30 years. And what happened when we got to 2005 and those bonds ran out? They were replaced with new bonds which ran for another 30 plus years.
We've never paid to buy the railways.
We've never paid to buy the canals.
We've never paid to buy the steel industry as it was at the time, or whatever else we nationalised.
The point was, we simply issued bonds to pay for it. A promise to pay, which the government issued, which carried interest, and which never involved a single payment of taxpayers' funds, because if the businesses had carried on making surpluses, which they could have done if they'd been run in the same worn out, desultory fashion that was being pursued by the then owners, they would have generated enough money to cover the costs of the interest on those bonds in perpetuity.
So, what would happen now if we were to, for example, nationalise the water companies?
We would pay the water company shareholders the market value of their shares.
How much are shares in Thames Water worth? Well, frankly, not a lot.
How much are the loans made by commercial organisations to Thames Water worth? Well, a bit more than the shares are worth. There is some value in them. But are they worth £1 for every £1 that was originally loaned to Thames Water?
No.
How do I know that? Because they're trading at a value much lower than that on stock markets.
So we would replace the loans which already exist to a company like Thames Water with new government bonds issued to the existing bondholders at the current fair market value. Say, one pound of new government bonds for every four pounds of bonds that they had previously owned, because that is what they could get for them if they sold them to anybody else.
That was the principle that was established in 1945.
Use bonds to pay for nationalisation.
Cover the interest costs out of the revenue surpluses that were made by the activities in question.
Well, that was the theory. Sometimes those activities did not make revenue surpluses but that was because of the choice that government subsequently made to improve the quality of the services to meet the needs of the people of this country. And that's an entirely separate issue.
But is this something, therefore, that creates a burden on taxpayers?
No, never.
Labour knew that in 1945. They knew that they could transform the UK economy by knowing that in 1945.
So why don't we know that now when they once knew it then?
I really don't know the answer to that question. But I wish they read their own materials and justifications for nationalisation issued at that time. Because at that point in history they knew that nationalisation was the best thing to do for the people of this country with regard to the natural monopolies that we all depend on for the supply of our basic services.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
I suspect that the main parties do know that nationalisation costs the taxpayer nothing.
The motive for misleading? Simply follow the money.
These businesses generate millions of pounds of profit, and some people want that going to private business (the well-off), rather than the public (the ones being gaslit)
Why has Government become so much less professional in the last eighty years?
Simple, short and to the point. You’ve taught me something I’d have never have learned on the msm. I love the short videos. Very informative. I asked Corbyn and Abbot to use social media to put across their message in a simple way but they didn’t respond.
Keep up the good work.
Thanks
After WW2 was working for The Midland Bank in Liverpool and he described having to convert theit=r customers holdings in Railway Stocks to British Transport Commission Stock.
It was a bit of a nightmare as there were so many different stocks, which in turn were in effect reissues of pre Groupimg stock issues by the constituent companies of the Big Four
I read the detail a couple of years ago
There was a price for every stock
We must protect our children from the worst of climate breakdown – so we must cut the production of CO2.
Nationalised utilities can allow low prices of water, gas and electricity for basic needs but cut consumption by applying increasingly punitive prices for more extravagant use.
Private ownership prevents that – and we all want our children to have a decent chance.
Agree with the points made ref funding nationalisation. In terms of WHAT is nationalised – I’ll focus on power networks.
The operation and control of the networks and the ownership & maintenance of the assets are two entirely different functions. I gave evidence to a HoC energy committee in Jan 2024. I said that the op & control side should be pulled into gov ownership. This would cost little (£30 – 40 million per DNO – max) but would place the most important part of the networks where it needed to belong. The asset owners are them much easier to regulate & the op & control side has all the info needed to make investment decisions. Could probably pull the whole distribution network operation/control into public ownership for much less than £500m – trivial. But I rather doubt it will happen, the politicos don’t know enough and the focus is still on less gov/more private – which for monopolies has been shown not to work for 34 years.
Thanks
The FT recently published the net debt of the 10 major water & sewage companies, over 1991 – 2021.
There is a net debt of £53B, someone has that wealth. I wonder what it constitutes, and what percentage is out of reach e.g abroad?
BTW capital expenditure p.a. decreased slightly over this 30 year period.
Remember the privatisation promises ‘to fix the water leaks and have clean beaches’. BBC and other media broadcast those messages of benefit day-after-day-after-day.
That sums up the purpose of Tory privatisation. As you say wealth transfer, but we keep falling for it.
See my report ‘Cut the Crap’. Just search it and my name.
“Government bonds are simply a statement of a loan with the government.”
For that matter so is money (deposits mainly these days). What Stephanie calls green as opposed to yellow (bond) dollars. The difference being that the holders of green dollars – or pounds – can convert them into anything they like instantly, whereas the holders of yellow dollars have to wait several years – maybe 30 – unless they sell them, possibly at a loss, for green ones. A pound note is really a – er – note of the governement’s debt to the owner; in other words a bond between the government and the holder.
I have just been listening to BBC Radio Scotland News, where some Scottish Labour candidate was waffling haplessly about GB Energy, an investment fund; which he is promising is going to produce 60,000 jobs. This is plucked out of the air, but is not the real failure here. the real failure is that GB Energy does not fix the fundamental problem; the fact that domestic energy is a fake market which forces the population to buy its energy at world market prices; when substantial amounts of renewable energy in the UK is produced at much lower cost. Our major advanced international comparators – US, China do not make this criminal mistake. Labour intend to do nothing about it. They have produced in GB Energy, just another neoliberal opportunity for private investors to join in new opportunities to rip-off the public.
The stupidity of British politics, trapped in the crackpot idiocies of the redundant standard tropes of British Parliamentary politics. We already know that nobody believes that guff anymore. Even they don’t believe it, but they are essentially clueless gophers who never had a mind of their own. But that, as I keep saying is the nature of Political Parties – they attract biddable gophers, because biddability is what they want. Biddable MPs, and a biddable electorate. It no longer washes. they have been found out.
The problem is the electorate cannot fins a way out, because the Westminster Party Cartel has designed the electoral system to be a Parliament that is the Cretan Labyrinth, and at it’s heart the modern Minotaur; The The Single Transferable Party. However you vote, whatever you want, in the end you will receive the same policies presented as. “change” and “reform” by the Single Transferable Party.
I suspect if the Single Transferable Party comes with an elected Farage at the heart of policy; the Scottish people are going to have to reconsider where they stand.
“Why don’t Labour know it now?”
Because now unlike the 1940/50’s politics is analogous to a beauty contest with each political party attempting to be more alluring to the public at large instead of behaving like statesmen and telling the truth.
Unlike the 1940/50’s there is no vision or plan for the long term future of the country just an attempt at the satiation of individuals greed.
Until the political parties explain the issues; poverty, low productivity, lack of investment and the like, and more importantly the plans and reasons for those plans to combat these problems, the country will continue is slide into further decline and eventual annexation by one of the superpowers.
Richard wrote “They knew that they could transform the UK economy by knowing that in 1945. So why don’t we know that now when they once knew it then?”
Because in 1945 they had John Maynard Keynes advising them and he understood economics and how money is created fat better than any of the charlatans voicing opinions on behalf of the Tories, Labour and BoE today.
John S Warren wrote: “I suspect if the Single Transferable Party comes with an elected Farage at the heart of policy; the Scottish people are going to have to reconsider where they stand”.
My view too, John. I suggested in another blog recently that quickest way to get the Scottish people out on the streets and get an independence campaign rolling would be Farage becoming PM. There would be a small minority (largely sectarian and racist) in favour of Farage as PM, but I’d guess about 80% would be enraged by the prospect and that’s a big enough majority to get the independence wheels turning at last.
Bonds aren’t trading on stock markets, which suggests that you don’t really understand debt,
And the more debt the government issues, the more interest it pays (and the higher interest costs it suffers).
And the potential impact on inflation etc.
So when you call out others for not being honest it might be a good idea for you to be truthful yourself?
Bonds are quoted on stock exchanges
And as I pointed out – if market price is paid for assets they cannot impose an interest cost, so you are wrong
And there is no impact on inflation
Such a shame you did not got your facts right
I agree with you, Richard.
Richard, your key line – Nationalization of natural monopolies for basic services – is even echoed by mentors of Milton Friedman, including the great center right free market economist Henry Simons who wrote in 1934:
“This proposal contemplates deliberate avoidance of the regulation expedient — or, if you please, adherence to the kind of regulation which works only through the preservation of competitive controls. It implies that every industry should be either effectively competitive or socialized and that governments should plan definitely on socialization of the railroads and utilities and of every other industry where competitive conditions cannot be preserved. On the other hand, it should be a main objective of policy to prevent the development, in the case of other industries, of conditions which would necessitate political control of prices, or socialization.”
https://archive.org/details/1934-simons-a-positive-program-for-laissez-faire-some-proposals-for-a-liberal-economic-policy/page/n53/mode/2up?q=%22+that+governments+should+plan+definitely+on+socialization+of+the+railroads++and+utilities+and+of+every+other+industry+where+competitive%22
Thanks
If ownership of some asset were a net cost, no private entity would have bought it, and we wouldn’t even be talking about (re)nationalisation.
Richard – This Canadian columnist from a conservative newspaper inadvertently reminds us that the progressive fiscal policies of Keynes which you have endorsed in this column miraculously doubled the economy six years.
https://www.theglobeandmail.com/gift/4ad915e82bd094195ce6be02e109653eddd9480895d8069cf933cc82997731e8/CYYA7I3SZNEY7I4V2FXGIJGPK4/