The Prospective Case Of Nationalization Of United Kingdom’s Utilities

  • Dec 04, 2019 GMT
  • Team Kalkine
The Prospective Case Of Nationalization Of United Kingdom’s Utilities

Ever since the pro-privatization policy adopted by the United Kingdom in the mid-seventies, the benefits of the same to the British economy and the British public at large have been under debate. Though there has been considerable rise in wealth of the country during that period, there has also been increasing concerns over the falling quality and efficiency of many of the essential services or utilities during the period, since many of them were privatized. There is now a call from several quarters of the British society as well as political circles to renationalize many of them not only to bring back their efficiencies but also to make them cheap, with many suspecting that these are bearing unnecessary costs and putting the burden on British consumers.

The labor party has for some time been advocating the idea of renationalization of some of the utilities like water, electricity, gas, railways as well as the internet. While initially the idea was not finding any support, however over a period of time, over the past three years it has been gaining momentum. The falling efficiency levels in many of these utilities and increasing costs, exacerbated by the Brexit situation has made the British citizen question the benefits, if at all, that were received from the more than four decades of privatization of British industries. In this regard five utility sectors that are getting increasing attention and are the most likely candidates for nationalization are railways, electricity, water, gas and the internet.

Railways – British railways were privatized in the year 1994 with a promise that greater efficiency will  come into this public utility service if its management is in private hands along with large private investments, which will not necessitate any further government subsidy being given to this sector or requiring any incremental capital expenditure meted out of public exchequer. However, during the next two and half decades, it is hardly that any one of these objectives has been achieved. British trains continue to skip their schedules, safety and quality of services haven’t improved much and instead of bringing in incremental private investment, many of the smaller railway companies failed, requiring the government to infuse fresh funds into them. Moreover, the British exchequer still continues to subsidize rail travel even after so many years of privatization.

Electricity, gas and water sector in UK – All these three sectors now are in the hands of private entities, which, though have expended in their scope of business overseas, have only increased in costs with little or no commensurate benefits. The expansion and consolidation exercise in the industry, since privatization, is perceived by many to have delivered little or none to the British consumers.

Internet – This time around there is also a demand from several quarters that internet services must also be nationalized given its increasing importance in business and commerce. There have been a few MP’s who believe that services should be regulated to ensure cost effective and wider availability across the country.

Voices against Nationalization – There are also many within the country who are against the idea of re-nationalization stating that it will be throwback to the socialism era and all the good work that has been done in the United Kingdom since privatization of these utility services will be undone. The most worrisome group of people opposing this move are the investors in these utility companies, who believe that should the re-nationalization plan go through they will lose significantly on the value of their shareholdings. This is because nationalization will be done at a discount to the prices prevailing for the shares of these utility companies on the London Stock Exchange. Second, the increased amount of regulation that usually comes with re-nationalization could have a bearing on the profitability of these companies which will detract investors from investing in them. Third, and most importantly re-nationalization will discourage any new innovation or technological advancements in these sectors as low investments and low margins will mean low value creation potential in these sectors.

The purpose of nationalization as advocated by the Labor party is to bring about rationalization in services and pricing of these services while making them easily available to all citizens of the country. Corporatization only had created profit mongering and the benefits, if any, are not commensurate to the costs been born by the average British consumer. While this view is being endorsed my some in political circles, in industry circles it is being vehemently opposed. Legal experts warn that there will be a deluge of legal hurdles to implement such a move, as the British government will have to compensate the investors for any difference between the market value of the shares of the potential candidates of nationalization and the price at which the government will nationalize them. The labor party, however, believes that compensating the investors is an acceptable option in the larger interests of the British people and site the various inefficiencies that have crept into the operations of these utility corporations since privatization and the resultant hardship the British people have suffered since.

The Labor party believes that given the economic situation, a coordinated approach is required to rebuild the country’s economy with key sectors being regulated and providing a strong foundation to other downstream sectors and industries. This was the approach taken by Britain and a number of countries in the post-world war period to swiftly consolidate are rebuild their economies. The major advantage of this move will be in increased economy of scale in operations of key industries that will filter down into other industries, making the whole country less expensive; second, there will less number failing businesses especially in key sectors, which will make the economy less risky. However, re-nationalization has its own perils, like that has been witnessed during several years of nationalized utilities in United Kingdom and other countries, mainly leading to inefficiencies and corruption that crop up after several years of operations.

The Labor party’s re-nationalization proposal seems more to be a knee-jerk reaction to the economic headwinds of Brexit that the country has been reeling under for quite some time. It is but prudent to believe that the period will come to pass, and the situation will be normal again. The privatization process which seems to be inefficient now due to the negative headwinds, will improve with developing conditions. There is much more to be achieved from the British industry in the long run, a re-nationalization process might curtail much of it.

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