Labour’s energy sector nationalisation plans: implications for the industry and investors

In May 2019, ‘Bringing energy home: Labour’s proposal for publicly owned energy networks’ the Labour Party added more detail to their 2017 Manifesto plan to nationalise the network companies, which own the pipelines and cables that deliver gas and electricity to homes and businesses in Great Britain (GB).

In September 2019, it published the ‘People’s Power Plan’ which comprised proposals to expand the current pipeline of offshore wind farms and bring them into majority (51%) public ownership.

With the launch of the 2019 Labour Party Manifesto, energy sector nationalisation plans were further extended to also include the customer facing energy supply businesses of the Big Six. Together, these proposals amount to a fundamental and complex restructuring of the UK energy industry which risks years of uncertainty for market participants and delay for decarbonisation.

Labour has stated that the level of compensation owed to private investors is to be determined by Parliament and, most controversially, that Parliament may make deductions for compensation on the basis of a range of factors which may go below fair current market value. There has also been speculation that their starting point for compensation from which these deductions would be made would be the regulatory capital value rather than the (higher) fair market value.

This forms part of an ambitious nationalisation programme in relation to rail franchises, the water companies, Royal Mail and part of BT (the latter in order to facilitate their plans for universally free state controlled and owned broadband internet access by 2030).

In addition, Labour plans to require businesses with over 250 staff to transfer, over ten years, 10% of their value into “inclusive ownership funds” (IOFs) which would distribute 10% of any dividends to employees each year up to a £500 per employee cap. The remaining dividends would then be used to top up a new Climate Apprenticeship Fund (although the £500 cap would rise to ensure that no more than 25% of dividends raised by IOFs are redistributed in this way). These plans raise analogous concerns in relation to possible expropriation without appropriate compensation.

The updated version of our May 2019 note which looks at Labour’s plans (as now augmented) and at some of the protections that may be available to private investors is now available here.