Utility Week

UTILITY WEEK | 9TH - 15TH NOVEMBER 2018 | 13 Policy & Regulation UTILITY WEEK | 9TH - 15TH NOVEMBER 2018 | 13 Policy & Regulation India; neither the US nor western EU coun- tries are party to BITs with the UK. Under BITs, compensation for expropriated assets must be "prompt, adequate and effective", which is a higher hurdle than that set by the European Convention on Human Rights. Hence, it could mean that shareholders in the Hong Kong-owned Wales and West Utili- ties, a gas distribution company with 22,000 miles of pipelines covering one-sixth of the UK's area, are better protected than conven- tional UK pension fund-holders. In the case of Hong Kong, which is part of Communist- ruled China, this seems particularly ironic given the Communist doctrine on private property ownership. Going down the utility renationalisation route would certainly be a tortuous path for an incoming Labour government, which would need a decent parliamentary majority to deliver such a policy. Nonetheless, back in 1997, a near £5 bil- lion windfall tax was imposed shortly aer Labour began its last period in office. The cost Quantifying the potential cost of the Labour Party's utility renationalisation policy is very complex. Under various questionable assumptions, the Centre for Policy Studies has calculated a total of £176 billion. But before such a policy could be imple- mented, utility share prices would inevitably have fallen very sharply. By way of example, the water sector has a current RAV of £72 billion. Severn Trent accounts for £8.7 billion of that total, and its shares are presently trading at a 12 per cent premium to its RAV. If an incoming Labour government were to pay compensation amounting to, say, 80 per cent of RAV, this would cost £57.6 billion, with the Severn Trent element amounting to £6.9 billion. If just 50 per cent of RAV were paid, the figures would be £36 billion and £4.3 billion respectively. Nor should it be forgotten in all this that the Labour Party has expensive proposals for the railways and may also need funds to tackle the UK's low penetration levels of fibre-optic connections as well as scrapping the notoriously poor value private finance initiative (PFI). As the legendary fictional detective Sherlock Homes said, "these are very deep waters, Watson," although in the case of the Labour Party, it is the leader, Jeremy Corbyn, and the shadow chancellor who are prom- ulgating the utility renationalisation policy rather than the deputy leader, Tom Watson. Nigel Hawkins, director, Nigel Hawkins Associates Which of the following things should be in the hands of the public or private sector? 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Public Private Source: Populus, August 2017 Fo i d d o stri u b i t n o e r & t n i l i a g s n i a r T e n i l r i A s s t n e g a l e v a r T r e t a W y t i c i r t c e l E a G s e n o h p e l i b o M s k r o w t e n r a C g n i r u t c a f u n a m g n i d l i u b p i h S e c a p o r e a & e c n e f e D s k n a B Public support for nationalisation BY NUMBERS Food distribution and retail Trains Airlines Travel agents Water Electricity Gas Mobile phone networks Car manufacturing Shipbuilding Defence and aerospace Banks WHO SHOULD OWN WHAT? WHAT THE PUBLIC THINK Source: Populus, August 2017 n Private sector n Public sector £176 BILLION The potential cost of the Labour Party's renationalisation proposals, according to the calculations of the Centre for Policy Studies. £72 BILLION The current regulatory asset value (which may be used as the basis for any compensation scheme) of the water sector. £5 BILLION The proceeds from the 1997 windfall tax, levied on what were claimed to be the "excess profits" of the privatised utilities. 262.5 PENCE The price per share the government paid to nationalise Railtrack. The shares stood at 280p when trading was suspended, having been issued for 380p when the company had been formed in 1994, and reaching a maximum of 1,768p in 1998. £0 Amount the courts awarded in compensation to the former shareholders of Northern Rock, who had challenged the price per share paid by the government to nationalise the building society.

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