Labour’s plans for nationalising rail, energy, water and Royal Mail are regularly criticised by detractors for ‘taking the country back to the 1970s’. While the models currently under discussion differ significantly from the ways these industries worked pre-privatisation, it’s instructive to look back at the last time a Labour Government passed a major nationalisation act, and its implications for current policy.
The Aircraft and Shipbuilding Industries Act 1977 enabled the Wilson/Callaghan Government to nationalise large sections of both industries. The Act established two new state-owned companies, British Aerospace and British Shipbuilders, and transferred ownership to these companies of four aerospace firms, eighteen shipbuilders and four marine diesel manufacturers. The drive to nationalise these sectors was influenced by 1960s/70s economic thinking that lower levels of productivity in manufacturing in the UK compared with European counterparts could be attributed to inefficient private sector operations, and that amalgamation of these firms into powerful state-run “national champions” would drive economic growth.
Under Section 35 of the Act, compensation was paid to the original owners in the form of government bonds, against a valuation of the shares over a relevant period of six months up to the election of the Labour Government in February 1974. However, section 39 of the Act included a provision to make deductions if a company had dissipated its assets in anticipation of nationalisation.
Key arguments from the government at the time included:
One of the major areas of relevance for the current debate was that this legislation nationalised more than one industry at the same time. While aircraft manufacturing and shipbuilding had different challenges and circumstances, the government at the time argued that a “similar prescription” of nationalisation worked for both. With constrained parliamentary time and a wafer-thin majority of three seats, Labour took the decision to nationalise both sectors in the same Act.
The current Labour plan is to pass one Renationalisation Act, granting the government powers to nationalise energy, rail, water and Royal Mail all at once, and the 1977 Act provides precedent for this. As a recent Clifford Chance paper outlines, this approach holds significant risks for a future Labour Government, as nationalisation legislation will need to be highly prescriptive and detailed to minimise the risk of legal challenge, making it impractical to nationalise multiple industries in one Act.
Another area of relevance is the role of the House of Lords. During the passage of the Act, the Lords rejected it three times, although they passed it before the powers of the Parliament Act 1911 were invoked. Conservative Peers referred to the legislation as a “wholly unprecedented mish-mash” and criticised its lack of coherence in bringing together parts of different industries in the same Bill, unlike previous legislation to nationalise coal, gas, iron and steel. Labour’s planned nationalisation legislation will need to make it through both Houses, and the party at present has only 178 Peers of a total of 776.
Finally, a major area of contrast between the 1970s and now is around proposals for compensation. The 1977 Act provided for nationalisation at market value where listed, or at a hypothetical market value agreed between the Secretary of State and the shareholder representative. Labour’s current proposals are to nationalise at a ‘fair’ compensation rate set by Parliament, rather than necessarily at full market value. However, Labour’s strong and regular calls for nationalisation could have a significant impact on market values of companies in affected sectors post-election, enabling the party to pay driven-down market rates and making it more difficult for companies to challenge legally.
If you would like to discuss further what a future Labour Government could mean for your business, get in touch with our cross-party team.
