When private companies are nationalized, does the Government set the price?


The Labour Party manifesto for the 2019 General Election is expected to detail the nationalisation of many former publicly owned companies such as the Rail Network, Energy Networks, and even the Telephone Network.

If these policies were to go ahead, I have the following questions.

  1. Would the government simply pick the price they wish to pay for the currently private companies?

  2. Do they pay Market Rate?

  3. Can the company refuse to be taken into public ownership?


Posted 2019-11-20T17:37:04.397

Reputation: 676

I assume you're asking specifically about the Labour party's plan? – divibisan – 2019-11-20T17:47:05.957

1Also, it might help to clarify what you mean by "former publicly owned". Do you mean that these industries were once owned by the government? Or that they are currently publicly traded companies, but would no longer be once they were nationalized? – divibisan – 2019-11-20T17:49:33.120



I think the answer for the UK in the context is broadly:

  1. yes the Government (or legislation) will set the price, likely at an asserted 'market rate'
  2. there likely will be arguments about what the market rate is and whether that is fair
  3. I don't think a company will be legally able to ultimately prevent itself being taken into public ownership, although it might mount some legal challenges and they might deliver more compensation

It's likely there will be controversies about the perceived unfairness of the price, the confiscatory nature of the transfers into the public sector, and a transfer of wealth from the public to private sector (e.g. compensation).

Labour's manifesto for the 2019 election and supporting material (Funding Real Change, Review of Corporate Tax Reliefs) were published on 21 November 2019.

First note that, in the manifesto, "nationalisation" and "nationalise" are not mentioned once - the language is "public ownership" or "democratic public ownership" - but nationalisation is mentioned in the two accompanying documents. I say that not out of suspicion, merely to make it easier for readers to find pertinent passages.

The companies to be taken into public ownership or nationalised are in rail, water, energy, Royal Mail, the "broadband-relevant parts of BT" and, at a local authority level, buses (if the LA decides).

There is little detail in those documents about the process but that is not unusual for manifestos.

The Funding Real Change document says:

Taking companies into public ownership is fiscally neutral by international accounting standards when bonds are exchanged for shares (as in previous nationalisations)

We can find more detail in the document Bringing Energy Home - Labour’s proposal for publicly owned energy networks, which I found when searching Labour's website for material related to this topic (nationalise, public ownership) - I don't know when it was published, but the metadata says it was created in March 2019.

The formal legal structure for bringing assets into public ownership (as used in the nationalisations that occurred after the Second World War as well as that of Northern Rock) is an act of parliament with a two-step process:

i. The assets to be nationalised are transferred to public ownership through an Act of Parliament.

ii. Provision is made for compensating the former owners through a bond issuance by Treasury.

Existing shareholders will be compensated with bonds. This is cost neutral to the public purse, according to the Office for National Statistics and international accounting standards, because the public sector exchanges a liability (the bond) for a profitable asset (the energy network companies). The UK legal framework is clear that the level of compensation should be decided by Parliament. This was confirmed in 2012 by the UK Appeal Court and the European Court of Human Rights in relation to the nationalisation of Northern Rock. xxv

Parliament may seek to make deductions for compensation on the basis of: pension fund deficits; asset stripping since privatisation; stranded assets; the state of repair of assets; and state subsidies given to the energy companies since privatisation. Existing debts of the companies will be carried over with the companies under public ownership and honoured in full. They will be refnanced over a period of time so that the costs of debt are reduced. We expect public energy companies to get high credit ratings because both Moodys and Standard & Poors have a standard methodology for rating ‘government-related entities’. This takes account of the profile of the business itself, including, for example, de facto monopoly position, and the presence of explicit or implicit government support.

Rail might be relatively easy. Rail operators could be brought into public ownership at the ends of their franchises. For other companies, it will be politically and legally more difficult.

(An interesting point about the rail companies is that 71% of operator income is from routes wholly owned or part owned by foreign state-owned companies such as SNCF and Deutsche Bahn.)

As the material suggests, we could look at how companies including rail were nationalised in the UK's post-war period to think about how other private companies might be nationalised now.

Before 1948, other than during the periods of state control or sequestration in the First and Second World Wars, rail infrastructure and rolling stock were owned by private companies. In 1921 the-then 123 rail companies were forced to merge into four big companies to avoid the bankruptcies (and therefore line closures) of smaller companies under financial stress.

The nationalisation of rail, along with canals, sea and shipping ports, bus companies and long distance road haulage took effect from 1 January 1948 under the Transport Act 1947.

Shares in the big four railway companies were exchanged for British Transport Stock, with a guaranteed 3% return chargeable to the British Transport Commission and repayable after forty years.

The nationalisation was controversial. Shareholders opposed the nationalisation of rail on the basis of what some saw as its confiscatory nature and a too low price set by the Government. The Government said the price was fair considering the poor conditions of the companies and infrastructure at the time. But some people argued that the war damage, the Government's control and the Government's actions in other areas (e.g. giveaways of other kinds of transport) had helped create those conditions.


Posted 2019-11-20T17:37:04.397

Reputation: 4 620


An explainer: https://www.cliffordchance.com/briefings/2018/03/uk_nationalisationthelawandthecost.html

Anything less than a fair market value would probably be deemed a violation of the ECHR right to private property, and subject to ECJ challenge.

Companies generally can't refuse. In any case, buying the shares on the open market would trigger the normal rules for majority ownership buyouts - companies can't even refuse private takeovers.

(If somehow the UK left the EU and the separate ECHR, it probably could confiscate by simple act of Parliament)


Posted 2019-11-20T17:37:04.397

Reputation: 20 613

Why would the ECJ get involved? (A violation of the ECHR is not enough in and of itself.) Also, wouldn't English or other British courts get involved first? – Relaxed – 2019-11-20T21:15:08.207

an alleged "violation of the ECHR right to private property" would be heard by domestic courts and ultimately the European Court on Human Rights, not the ECJ. – Lag – 2019-11-20T21:25:40.927