A Labour government would confiscate about £300 billion of shares in 7,000 large companies and hand them to workers in one of the biggest state raids on the private sector to take place in a western democracy, according to analysis by the Financial Times and Clifford Chance.
The UK’s 2.6 million landlords would also face a moment of reckoning if Labour won the next general election after shadow chancellor John McDonnell said he wanted a “right to buy” scheme for private tenants as well as higher taxes on landlords.
With British politics in turmoil and the chances of a snap general election fast increasing, the FT is this week examining the consequences for the UK economy of a Labour government – which would be the most left-wing in modern history.The Labour leadership is determined to shift power away from bosses and landlords and to workers and tenants.
Ownership funds
The £300 billion share seizure would be the consequence of Mr McDonnell’s plans for “inclusive ownership funds”, where every company with more than 250 staff would have to gradually transfer 10 per cent of their shares to workers. The radical plan would see the transfer of 1 per cent a year of shares from shareholders to workers over 10 years.
Shares would be held and managed by workers, who would receive dividends of up to £500 each per year. Any income beyond that level would be redistributed to the exchequer, representing a stealth tax by the state.
Labour has never put an estimate on the scale of the transfer of private wealth from shareholders to workers that the policy would entail. But the FT and law firm Clifford Chance have sought to gauge the size of the policy by extrapolating data from the office for national statistics (ONS).
The ONS estimates that financial and non-financial corporations have a book value of £5.5 trillion. The national accounts do not separate out large companies, but 57 per cent of overall corporate turnover derives from large companies, according to the ONS. On that basis the value of large private-sector companies is about £3 trillion – meaning Labour would expropriate £300 billion.
For comparison, the windfall tax by Tony Blair’s New Labour government on utility companies raised just £4.8 billion.
“There is no historic precedent for this,” said Dan Neidle, a partner at Clifford Chance. “We are in completely uncharted territory.”
Mr Neidle predicted litigation from aggrieved companies and shareholders, challenges from other countries, including the United States and China, potential WTO complaints and perhaps “retaliation in kind”.
Matt Kilcoyne, of the Adam Smith Institute, called the share move “expropriation”. He added: “Our largest investors are pension funds and they’ll see billions of pounds wiped off their books. So we’ll all see the value of our pensions fall. It’s the biggest raid of all our nest eggs in living memory.”
Mr McDonnell said greater employee ownership increased a company’s productivity and encouraged long-term thinking. “It’s right that we all share in the benefits that investment produces,” he said.
‘Right to buy’
Meanwhile, the shadow chancellor has told the FT that he wants to see a new “right to buy” for millions of private tenants.
Mr McDonnell said he wanted to “tackle the burgeoning buy-to-let market” to make it easier for workers to buy the homes they live in. He suggested the sum paid by tenants would not necessarily be the market price.
“You’d want to establish what is a reasonable price, you can establish that and then that becomes the right to buy,” he said.
“You [the government] set the criteria. I don’t think it’s complicated.”
If a Labour government pushed ahead with the policy, it could be as totemic as Margaret Thatcher’s “right to buy” policy in the 1980s, which allowed millions of council tenants to buy the property they lived in.
The idea of a private right-to-buy was mooted by Jeremy Corbyn, Labour leader, during his leadership bid in 2015 but it never became party policy. Reviving the idea as "great" and "radical", Mr McDonnell said it could help reverse the problems caused by Thatcher's policy.
Since then, the number of council houses has fallen from 6.5 million to just two million.
Research by Inside Housing, a magazine, found that about 40 per cent were now in the hands of private landlords.
Landlords had failed to reinvest in properties and had made a “fast buck” at the cost of the community and their tenants, Mr McDonnell argued.
“We’ve got a large number of landlords who are not maintaining these properties and are causing overcrowding and these problems. In my street now . . . a third of the houses are right-to-buy, badly maintained, overcrowded; it’s horrendous.” – Copyright The Financial Times Limited 2019
