The cost of nationalising the water industry in England

Our main focus in this report has been to identify the initial acquisition costs of nationalisation. This is the Social Market Foundation’s assessment of the likely costs associated with nationalising the water and sewerage industry in England. Nationalising the water industry in England would imply a significant addition to government debt levels. We found that if the water industry were to be nationalised at present, and the government were to pay a conventional acquisition value to do so, this would constitute a 5% increase in government debt. In addition, it has been suggested that a nationalising government may pay below the market rate to acquire the assets of England’s water industry. While such a move may, at face value, reduce nationalisation costs for the government, there is potential for it to reduce tax revenues for the government. For example, such a move would imply lower capital gains tax receipts compared with purchasing assets at the market rate, and the risk of such a move being seen as expropriation could curtail investment in UK industry “ with associated implications for economic activity and tax receipts. Our analysis of company ownership of England’s water companies identifies significant UK-based interests, among employees and other UK savers. These individuals stand to lose out financially in the event of the UK government purchasing assets at below the market rate.

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