Labour plans to nationalise industries will cause ‘profound harm’ to UK economy, says CBI chief

Labour party plans to renationalise key industries such as rail would cause "profound harm to the economy", the UK's largest business group has said.

Carolyn Fairbairn, the head of the Confederation of British Industry (CBI), said the party's plans to bring rail, utilities and public services would "hurt the very people they are intended to help and would cost the country more than £175bn to deliver.

Rather than bring the whole rail industry into public ownership, as Labour has pledged to do, Fairbairn said consumer anger at poor performance could be addressed by the train companies halting dividends to shareholders if it fell short in delivering for customers.

She said one way to quell consumer anger would be to stop companies paying dividends to shareholders if it failed to meet its commitments to customers, with the cash then being injected into the areas that were underperforming.

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“Perhaps a train company bidding for a franchise should have to demonstrate how they will work with small businesses in the places the line serves; contribute to the local environment; and provide apprenticeships and other opportunities for local people," she added.

Giving a speech at Liverpool John Moores University, the CBI boss said Labour's plans could particularly harm pensioners, who had nearly £8m invested in the businesses in question.

“The Labour party’s decision to focus attention on our railways, water, electricity and gas is a considered one," she said. "Because they are industries in which, in recent years, accountability has felt most elusive.

“Their response is not to reform our water, energy, post and rail industries, but to take ownership of them. It’s the biggest departure from economic consensus that politics has seen for 30 years."

She continued: “Unlike many countries, we have experience of moving industry between private and public hands – and back again. And it’s that experience that allows me to say that Labour’s plans to renationalise our rail, water and energy would do profound harm to our economy, to the services on which we rely, and to our country’s finances."

Peter Dowd MP, Labour’s shadow chief secretary to the Treasury said the CBI's estimate that nationalisation would cost £175bn was based on figures provided by Ofgem, the regulator, that was "hugely inflated" because it took into account private debt.

He dismissed the CBI's intervention as a "last-ditch attempt to protect the interests of a narrow group of wealthy shareholders instead of creating genuine reform".

“Business people rely on affordable energy, reliable transport and safe water and have been let down by privatisation just as much as the rest of us. So it’s a shame the CBI is choosing to scaremonger with fantasy figures conjured up by a discredited Tory think tank, instead of engaging constructively with Labour’s plans to bring key utilities into public ownership.”

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The debate over rail nationalisation comes as the future of Arriva Rail's assets in the UK hang in the balance. Yesterday its parent company, Deutsche Bahn, confirmed it was mulling offloading its British unit Arriva to lower its debt pile. 

The rail union said the UK franchises Northern Cross Country and Chiltern should be taken into public ownership.