John McDonnell promised today, in a speech to a Labour conference, that his nationalisation plans would cost the public "absolutely nothing". It follows a claim on the Today programme that nationalisation would be "cost-free". Jeremy Corbyn also claimed today that nationalisation of the energy sector is necessary in order to fight climate change.
In fact, as a recent report from the Centre for Policy Studies made clear, there would be a very significant price indeed. The Cost of Nationalisation, by CPS head of economic research Daniel Mahoney, calculated that the minimum upfront cost would be at least £176 billion - £86.25bn for the water industry, £55.4bn for the energy transmission and distribution networks, £4.5bn for Royal Mail, and £30bn for PFI nationalisation (although this estimate is particularly uncertain).
This figure represented an increase of the national debt by approximately 10%, or £6,500 per household. If Labour were to attempt to nationalise more of the energy sector - as Corbyn has suggested - the figure could exceed £300 billion.
McDonnell claims that the costs of the extra borrowing involved will be more than matched by the profits from the assets acquired. But without specifying the cost of the assets acquired, or explaining how they will be run under public ownership, this is impossible to verify.
His repeated insistence that Parliament will determine the price of the assets also suggests that Labour will expropriate assets at less than market price, which is likely to inflict severe economic harm by deterring foreign investment and damaging business confidence.
In any event, there will at the very least be an opportunity cost to Labour's plans, in terms of what the same capital could have accomplished elsewhere - for example, by being used to help build more houses.
In his comments today, McDonnell insisted that nationalisation was an 'economic necessity'. Yet he failed to make his own case. For example, the rise in water bills under privatisation that he cited was, as the CPS report shows, due to a backlog of under-investment while the service was in state ownership.
In Corbyn's own speech, he claimed that nationalisation of the energy sector was necessary in order to promote small-scale renewable energy. But this suggests that Labour will have to borrow billions more to pay for the necessary infrastructure, or else pass the cost on to consumers via their fuel bills.
Robert Colvile, Director of the CPS, said today:
"John McDonnell needs to stop dodging the question and be straight with the public.
"The Shadow Chancellor claims that nationalisation would be cost-free because the state would be acquiring an asset - repeatedly using the analogy of taking out a mortgage on a house. Yet who would buy a house without knowing its price?
"McDonnell dismissed our £86bn estimate of the cost of nationalising the water industry as 'laughable' - even when the Social Market Foundation came out with a near-identical estimate. Yet neither he nor any Labour figure has disputed the detail of a single one of our estimates.
"Labour insists that it does not have to spell out to the British public how many hundreds of billions it will borrow, and what they will get in return. That truly is laughable.
"There is also a potential irony to Labour's promise to place these assets in the hands of the workers. At the moment, UK pension funds are significant shareholders in the utility industry. If Labour's plans include giving a role to the trade unions, which figures within the party have suggested, the result could be an expropriation of pensioners' savings in order to hand control of assets worth billions to Labour's union paymasters."