Document:Antidote to Privatisation is Public Ownership

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"The report recommends progressive taxation and democratisation of corporations, so that they serve the interests of communities and people rather than just shareholders and executives. It recommends that essential industries, such as energy, be brought into public ownership. It shows that there is very little cost associated with bringing energy, and other essential industries, into public ownership."

Disclaimer (#3)Document.png Report  by Lord Sikka dated 19 September 2022
Subjects: Privatisation, Public ownership, Quantitative easing, Neoliberalism, Ofgem, Rescue Britain, Renewable energy
Source: Anonymous Upload (Link)

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Antidote to Privatisation is Public Ownership


On 19 September 2022, under the aegis of the Rescue Britain campaign, Lord Sikka published a 46-page report entitled "Energy Price and Cost of Living Crisis: A Crisis of Poverty, Inequality, Democracy and Failed Economic Policies".[1]

The report's Executive Summary reads as follows:

"British people are facing an existential threat to their lives and living standards. The crisis is given visibility by escalating energy prices, but has been incubating since the late 1970s. It has been nurtured by neoliberalism and the state-corporations nexus, which has systematically sought to increase capital’s share of gross domestic product (GDP).

"The masses have been systematically impoverished as successive governments have sought to weaken trade unions, employment and welfare rights and pushed zero-hour contracts, fire and rehire policies to reduce workers’ share of gross domestic product. Poverty and inequalities have deepened, creating a class excluded from social consumption, queuing at food banks and forced to decide between heating and eating. The biggest beneficiaries from this have been footloose corporations. Their profits have rocketed. Unsurprisingly, millions of Brits are unable to pay energy, food and other bills.

"The power of corporations has been further enhanced by state-sponsored privatisation of publicly-owned assets and industries, often at knockdown prices. The energy sector is an example of the state-sponsored private monopolies. In this sector there can be no competition as competing infrastructure consisting of alternative pipelines, electric grids and cables is economically infeasible.

"Households and businesses have to buy energy. With captive customers, the energy sector has been able to make huge profits. Large parts of these are exported via dividends and other forms of returns, which are not even taxed in the UK.

"The regulator, the Office of Gas and Electricity Markets (Ofgem), has been more concerned about pseudo-competition and guaranteeing corporate profits and has failed to protect the interests of consumers. It is inherently conflicted as it simultaneously seeks to protect corporate profits whilst trying to protect customers. Ofgem’s price cap formula is fundamentally flawed as it favours the most inefficient and expensive supplier. Suppliers offering cheaper tariffs are penalised and forced to compensate the losing suppliers.

"The problem of high energy prices cannot be resolved by privatisation or neoliberal economics where wealth gushes upwards. This paper puts forward policies for equitable distribution of income and wealth to reduce poverty and economic inequalities, the root cause of the daily crisis faced by millions of people. It recommends progressive taxation and democratisation of corporations, so that they serve the interests of communities and people rather than just shareholders and executives. It recommends that essential industries, such as energy, be brought into public ownership. It shows that there is very little cost associated with bringing energy, and other essential industries, into public ownership."

FIXING THE ENERGY PRICE CRISIS

98.The energy prices crisis cannot be fixed by the mechanisms and policies which have created it. There can be no effective competition in the transmission, distribution and supply of household and business energy. Upstream, relatively few gas, oil and nuclear power companies control the supply. For any market to work effectively, it must have many buyers and sellers. That is not possible. Therefore, we have a state-guaranteed private monopoly and its profiteering is endangering the welfare of the rest of society.

99.The energy sector needs to be brought under public ownership so that the resources extracted by shareholder are instead used to boost investment and lower bills. Public ownership has numerous models [115] ranging from corporations, cooperatives, mutual, not-for-profit and other organisations, all managed by professional managers and fully accountable to parliament.

100. Public ownership can be in many forms ranging from 100% ownership and control to majority or fractional stake, giving the government representation on company boards to influence decisions.

101. Any form of public ownership must be based on democratic principles, with workers and employees on boards overseeing the performance of the executives and fixing their rewards.

102. Any mention of public ownership sends neoliberals into cold shivers and they demand to know how this will be financed. Such questions were not asked when governments gifted £895bn of quantitative easing [116] to speculators, or provided £1,162bn of guarantees and cash to rescue banks after the 2007-08 crash [117], or handed vast Covid related contracts to Conservative Party donors. The same process of generating money/resources can be used to bring energy (and other essential sectors) into public ownership.

103. There is virtually no cost of bringing the energy retail sector into public ownership:

a) The government is already bailing out Bulb Energy. It could formally bring it into public ownership and through it offer low-profit energy to consumers. This would immediately bring other retailers into line and those who don’t will be pushed out of the market.
b) The current retailers, such as OVO and Octopus, could be allowed to run their current contracts to maturity and then be eased out of the supply chain and be replaced by a not-for-profit organisation.
c) All retail suppliers can be replaced by state-owned regional boards/companies, as was the case before privatisation.
d) Under public ownership, no retailer can go bust. There will be no costs associated with supplier bankruptcy, Supplier of Last Resort (SoLR) levy and other costs.

104. Transmission, distribution and supply companies can be bought into public ownership. There is no need to borrow money as that only increases profits for banks. Any state with a major currency can create money to reshape society. The UK is one such state and is already adept at creating money. For example, it handed £895bn of quantitative easing to speculators. So, the state can create money to bring energy sector into public ownership. The only reason, it might not do so is if the economy is at full throttle, and that is not the case. If the creation of that money is considered to be inflationary, then it can remove some of the money from the economy through progressive taxation and by eliminating tax anomalies. For example, by taxing capital gains at the same rates as earned income and charging national insurance on the same, it can generate more than £25bn i.e. remove £25bn a year from the economy. Under this approach taxation isn’t part of some ‘tax and spend’ formula, a residue from the logic of gold standard days now long gone. Instead taxation becomes part of fiscal, economic and social policy management.

105. Quantitative easing (QE) will not increase government debt, according to Business Secretary Jacob Rees-Mogg. This is what he told Sky News on 2 August 2022, when questioned about Prime Minister Liz Truss's plan to cut taxes by £30 billion and to borrow to pay for it:

“If you look at the borrowing of the state at the moment, total borrowing, excluding the quantitative easing of 875 billion pounds, which is owed by the government to the government, so if you net that off, we under 60 per cent of GDP, I think that is a perfectly sustainable level [118]”

He seemed to say that government borrowing does not matter and that QE has cancelled £875 billion [it should be £895bn] of the national debt.

106. We know that the City of London which has long profited from the state will oppose People’s QE. The irony is that the state creates money, hands it to banks and borrows it from banks at higher costs. Why are banks allowed to create money, which is what any act of lending does, when the state can create it? Neoliberals want the state to borrow money and they then refer to excessive debt as a negative development. They claim that taxes finance government expenditure. It is hard to think of any era when taxes ex-ante funded government expenditure.

107. Even for industries brought into public ownership by borrowing, neoliberal logic overlooks some important aspects. The purchase of industries or even minority share in those industries with debt gives rise to two things:

Firstly, there is a liability on the government balance sheet.
Secondly, at the same time, the government balance sheet will have new assets.

So there is no net increase in government liability. This is how businesses operate. In the case of the government, the City emphasises debt but ignores the asset side. That liability can be serviced by debt interest payments, just like companies pay interest on their leverage.

Public ownership will mean that the amounts currently paid to shareholders will not need to be paid and will instead be either invested in business or used to lower bills. The government can issue redeemable public bonds in nationalised entities acquired with borrowing, giving people a return in the form of an interest payment. This loads the public debt onto companies brought into public ownership, a practice used by private equity and admired by the City.

108. The regulator for the energy sector must have stakeholder representatives on its board.

109. The UK government needs change its policies and prioritise investment in renewable energy. To accompany the May 2022 windfall tax (see above), the government handed tax sweeteners to oil and gas companies. They will receive an 80% investment allowance for “new” investment in fossil fuels. For every £100 invested, they will receive a subsidy of £91. The companies can lease secondhand assets and claim the investment allowance [119]. The oil and gas produced with public subsidies need not be sold to UK households.

In contrast, for every £100 invested in renewable energy, the investors receive a tax relief of £25, and from April 2023 this will decline to only £4.50. One possible explanation for indulgence of oil/gas companies is that they have been rewarded for funding the Conservative Party [120].

110. Public ownership needs to be accompanied by initiatives to improve energy efficiency. For example, giving poorer households grants to insulate homes and supporting the use of solar panels, wind, biomass and other renewable sources to generate electricity.

111. New buildings must be built to a higher level of energy efficiency. This requires regulation, the very thing that the government is opposed to. Indeed, its “permitted development” policy allows the improvement and extension of homes without the need to apply for planning permission [121], and builders can hire their own inspectors rather than be guided by local authority inspectors.[2]

Prem Sikka's full report can be read here.

Notes

References

  1. ↑ "Energy Price and Cost of Living Crisis: A Crisis of Poverty, Inequality, Democracy and Failed Economic Policies"
  2. ↑ "Prem Sikka and Rescue Britain"
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