Renationalisation may be easier than people think

The stock response to Labour's ongoing left turn is to cite "a return to the failed policies of the 1970s" and to calculate the enormous costs of acquiring the equity of the companies targeted. This kind of commentary then goes on to suggest that renationalisation will be impossibly difficult and costly, and therefore unlikely to happen. This is to misread Labour's willingness to act, and the recent history of state takeovers. What takeovers? I hear you ask. Surely this all ended in the 1970s.

Tony Blair may have presented himself to voters and Labour members as a reassuring centrist, and be perceived as a crypto Thatcherite traitor by Corbynite true believers, but the track record of the 1997-2010 government was far more interventionist than this image suggests. Moderate Labour never felt comfortable with the Thatcher era sales of utility companies, but their electrical caution restricted their willingness to openly advocate for a general return to state control. Nonetheless, Blair was an active, if inconsistent, nationaliser.

It is the recent track record of state takeovers, and not the 1940s or 1970s, that will likely inform the detailed policies of a future Corbyn government. What did Labour nationalise, and how did they do it?

Welsh Water was the first to fall. Privatised in 1989, and hobbled by an unsuccessful venture into diverse businesses, the company was an affront to Welsh Labour, especially given that Scottish Water had remained in public hands. The company was presented with an uncompromising regulatory situation, and was guided towards a form of collective ownership - a "company limited by guarantee" in 2001. This was a live Blairite idea, which seemed to offer a half-way house between Attlee style state ownership and the supposed evils of shareholder capitalism.

The CLG "not for profit" [really not for dividend] model reappeared when the government turned its attention to Railtrack. This was one of the most recent and most controversial of the Tory flotations, and after 1997 was faced with not one but two sets of newly politicised and hostile regulators in the form of Tom Winsor's Office of the Rail Regulator and an openly Blairite Strategic Rail Authority under Richard Bowker. Large scale cost overruns, and the political and financial consequences of a series of fatal accidents quickly sealed Railtrack's fate.

Railtrack was steered towards another CLG, becoming Network Rail, although in this case the fiction that NR was not a state entity has proved harder to sustain: the Company is now unambiguously on the government balance sheet and is once more considered an Attlee era "nationalised industry", shorn of its powerless "members" and the pretence of independence.

Whilst Welsh Water survives, CLGs seem to have disappeared from Labour's policy thinking. They are probably too Blairite, and nobody is more demonised in modern Labour than Tony Blair. Secondly they have failed in their financial function of acting as a form of social ownership that somehow stands outside the government's balance sheet. Ultimately, no one believed that Network Rail was independent of HM Treasury, and it is unlikely that politically-managed water companies or airports would be considered as independent either. Their debts will be part of the aggregate national debt, and added to the public sector borrowing requirement.

TfL pursued similar tactics to regain control of the tube infracos (Metronet and Tubelines), and parts of the DLR and Tramlink infrastructure that had been transferred to concession companies. In each case, active enforcement of TfL's contractual rights was enough to push bruised shareholders towards a settlement.

This emergence of intensified regulations under a Corbyn/McDonnell administration, combined with overt political hostility, would be difficult for energy, water and even airport owners to contend with, not least as share prices will fall as public market investors dial in the scale of political risk. But what about the TOCs?

Connex South Eastern provides a clear precedent for what may await them. This operation was no doubt guilty of various contractual sins, but it was hard to single it out as a unique disaster amongst the cohort of first wave franchises. The SRA thought differently, and it was abruptly stripped of its franchise in 2006, citing financial mismanagement. A long period of direct Management by the SRA followed.

TOC franchises have since become even more prescriptive and complex. This will aid a future government's ability to squeeze them through unrelenting enforcement measures. Every contractual irregularity will be magnified and exploited.

If the current weakness in UK Rail revenues is revealed as a systemic trend, other franchises will fail for purely financial reasons, as evidenced by Stagecoach Virgin's decision to exit the east coast contract.

So Corbynites, take cheer and Thatcherites pay heed. Nationalisation did not end with the state takeovers of the 1970s, and so far as the utilities are concerned, a clear pathway back to government control emerged under Blair- squeeze them, until the pips squeak - as Labour Chancellor Dennis Healey famously promised the undeserving rich.

David Leeder is managing partner of specialist consultancy Transport Investment Limited TIL