general-election-2019-what-are-nationalisation-and-privatisation

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The political parties are setting out their ideas for the country.

Labour likes to talk about the risk of privatising the NHS, accusing the Conservatives of wanting to do a deal with Donald Trump.

Meanwhile, the Conservatives have criticised Labour’s plans to nationalise part of BT, to provide free broadband

But what do nationalisation and privatisation actually mean?

What is nationalisation?

Nationalisation is when a government takes control or ownership of private property, like a company.

It is complex, but there are different ways this can be done.

For example, a government could buy up 50.1% (ie the majority) of the shares in a company.

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The coal industry was nationalised in 1947

Private owners don’t have to agree to transfer ownership to the government – it makes that decision for them.

Full nationalisation involves a government taking on an industry’s entire assets and operations.

When the coal industry was nationalised after World War Two, for example, it involved the transfer of ownership and control of 1,200 pits owned by 800 companies who employed 700,000 workers.

Tens of millions of pounds was paid in compensation to the previous owners for their assets – the mines, colliery plants and all the equipment.

The government can also buy individual companies outright, although this is fairly unusual.

What is privatisation?

Privatisation is the opposite of nationalisation.

It typically refers to the ownership of property, a business, or an industry being transferred from a government to an individual, or another private company.

Under Prime Minister Margaret Thatcher, at least 22 big privatisations took place. They included companies like BT and British Airways, as well as more complex ones like the rail industry.

Among them, water and sewerage services were privatised in England and Wales in 1989.

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Thames Water’s Hampton Water treatment works

They are now run by private companies, although there is a national regulator of the regional water companies called Ofwat. It can set caps on how much water companies charge customers.

The privatisation of Royal Mail took place in 2013. The government sold a 13% stake in the business, while 1% was awarded to employees.

What is a bailout?

A bailout is usually when a government rescues a failing private company by giving it money or loans, or buys shares in it.

It is a form of nationalisation, and can be a temporary measure. It has been used to save banks that were in trouble.

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RBS is still 62% owned by the British taxpayer, down from 70% in 2008

The Royal Bank of Scotland (RBS) received a £45bn bailout from the taxpayer during the financial crisis, for example.

In the last decade, it has had to cut 130,000 jobs and shut up or sell operations in 41 countries.

The government still owns a 62% share in the bank. In the 2018 Budget, it said it was planning to sell all of its remaining shares in the company by 2023-24.

What are the pros and cons?

Nationalisation can stir up a lot of debate.

Some people think that it makes sense for the government to be in charge of industries where a natural monopoly exists. That means where a single firm supplies everyone with a particular product or service.

The state getting involved should mean theoretically that consumers pay the best prices available, and are not exploited.

But, issues can still arise.

Questions could be raised over a government’s actions and their impact on other investors in a partly-nationalised company.

For example, some shareholders in a nationalised energy company might lose money if a government decided to reduce energy bills. Such a decision could break company law, because those smaller investors could suffer if share prices went down. This means they are being “unfairly prejudiced”.

Bulk buying for railways

The Labour Party has proposed bringing private rail companies back into public ownership, as train operators’ contracts to run parts of the rail network expire. The policy gained support from some commuters annoyed by fare increases and overcrowded trains.

It is argued that national ownership could also lead to cost savings. For example, a nationalised rail service could bulk buy the materials, track and the rolling stock needed across a rail network, reducing costs.

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Britain’s railways still rely heavily on state support

Labour has also previously proposed bringing water companies back into public ownership.

Unions often favour nationalisation. That’s because they feel they might be treated better by a government, rather than big businesses.

However, the Conservatives have said Labour’s nationalisation plans would result in “a collapse in business investment and a crash in the value of the pound”.

Competition

Other people argue that private companies are more efficient.

That’s because they’re in competition with each other and may have to cut costs and use better production methods to make more profit.

There’s also a fear that governments interfere in how state-owned companies are run, making changes that suit their political agenda, or that suit them ahead of an election.

Nationalised companies or industries might also struggle for cash long-term.

If they are competing with other government departments like education, health and defence, there could be a risk that state-owned industries are underfunded.