The Economy

[Bromley boy]

If the advantage of nationalisation is that we can lower revenue on the basis that shareholders are not expecting a dividend (or interest on working capital) then, as I say above, that's fine but that means that McDonnell mustn't double-count and on the one hand say that we need to dispense with these evil profit-hungry companies whilst on the other hand saying that continued profits will cover the acquisition cost.

I think this is the nub of the issue. McDonnel has stated that renationalisation will cost nothing, but has offered only the most tenuous justification of why he expects this to be the case.

That implies he either doesn’t understand the implications of what he’s said, or that he’s simply lying. Neither of which is great coming from the the shadow chancellor.

It looks worryingly like a case of ideology trumping reality.

To say it’s all pie in the sky stuff from a lunatic is like saying the current system works perfectly which it clearly doesn’t.

It’s not like saying that at all. Certain industries better lend themselves to privatisation than others, and water isn’t one of them!

Id be the first to agree the current system of privatised utilities is far from perfect but it’s worrying that the shadow chancellor appears to be “shooting from the hip” and dismissing the potentially enormous costs of renationalising so glibly.

 

[Jonny]

The problem is that nationalisation would be paid for using loans. Those loans would require the payment of interest. That in itself is likely to be more expensive than a dividend.

 

[AndrewE]

The problem is that nationalisation would be paid for using loans. Those loans would require the payment of interest. That in itself is likely to be more expensive than a dividend.

You and I are obviously living in 2 parallel universes!
In mine https://www.dividenddata.co.uk/dividendyield.py?market=ftse100 shows dividends from 9.48% down to zero, with lots of 5 and 6% among the biggest companies. Government borrowing (aka bonds) are currently near record low interest rates, with no middle-men to pay off either.

 

[Jonny]

You and I are obviously living in 2 parallel universes!
In mine https://www.dividenddata.co.uk/dividendyield.py?market=ftse100 shows dividends from 9.48% down to zero, with lots of 5 and 6% among the biggest companies. Government borrowing (aka bonds) are currently near record low interest rates, with no middle-men to pay off either.

Except that nationalisation would have to deal with the operational units, not the holding companies who could have loan arrangements in play, designed to give a vicious sting if the two companies within the cellular structure are separated. Also, during the time taken it would not be hard to throw in a 'kill' mechanism where you basically turn everything off at an awkward moment so that it is very hard to reactivate.

 

[furnessvale]

You and I are obviously living in 2 parallel universes!
In mine https://www.dividenddata.co.uk/dividendyield.py?market=ftse100 shows dividends from 9.48% down to zero, with lots of 5 and 6% among the biggest companies. Government borrowing (aka bonds) are currently near record low interest rates, with no middle-men to pay off either.

How long do you think that situation will survive with McDonnell holding the purse strings?

 

[Bromley boy]

You and I are obviously living in 2 parallel universes!
In mine https://www.dividenddata.co.uk/dividendyield.py?market=ftse100 shows dividends from 9.48% down to zero, with lots of 5 and 6% among the biggest companies. Government borrowing (aka bonds) are currently near record low interest rates, with no middle-men to pay off either.

That’s not really comparing apples with apples.

Dividends aren’t an expense at all, they are paid out of distributable profits and are not paid if the company is not making a profit, or has decided to invest profits into the business. The fact a dividend is paid at all is a sign that the company is making profits.

On the other hand interest payments on bonds are an expense (and will reduce the profits available to pay dividends to shareholders). If interest is unpaid the issuer will be in default. If the issuer (government or company) runs into financial difficulty it will need to pay a far higher coupon to persuade anyone to invest further (to reflect default risk).

How long do you think that situation will survive with McDonnell holding the purse strings?

Quite.

 

[Dave1987]

How long do you think that situation will survive with McDonnell holding the purse strings?

I suppose it comes down to where you stand with regards to how you want the UK economy to be structured. If you want a completely deregulated economy where private business rules the roost then you may get very cheap bonds but there are very big potential consequences for ordinary working people. I would suggest that you would become more and more like the US and things like the NHS will disappear. The other choice is an economy where business has to play by the rules in order to trade. Businesses may be less profitable from conforming to regulations etc but ordinary working people benefit. I've heard it said many times that "public sector bad, private sector good". That "private companies are more efficient than the public sector". Well I think the whole Carillion saga shows exactly how big private companies are "more efficient".

 

[Senex]

I suppose it comes down to where you stand with regards to how you want the UK economy to be structured. If you want a completely deregulated economy where private business rules the roost then you may get very cheap bonds but there are very big potential consequences for ordinary working people. I would suggest that you would become more and more like the US and things like the NHS will disappear. The other choice is an economy where business has to play by the rules in order to trade. Businesses may be less profitable from conforming to regulations etc but ordinary working people benefit. I've heard it said many times that "public sector bad, private sector good". That "private companies are more efficient than the public sector". Well I think the whole Carillion saga shows exactly how big private companies are "more efficient".

What, for the purposes of this debate, are "ordinary working people"? The phrase isone very often used, but I for one am not at all clear what it actually means.

 

[furnessvale]

I suppose it comes down to where you stand with regards to how you want the UK economy to be structured. If you want a completely deregulated economy where private business rules the roost then you may get very cheap bonds but there are very big potential consequences for ordinary working people. I would suggest that you would become more and more like the US and things like the NHS will disappear. The other choice is an economy where business has to play by the rules in order to trade. Businesses may be less profitable from conforming to regulations etc but ordinary working people benefit. I've heard it said many times that "public sector bad, private sector good". That "private companies are more efficient than the public sector". Well I think the whole Carillion saga shows exactly how big private companies are "more efficient".

The UK does not exist in a bubble. The interest the UK government has to pay on any bonds it issues will be dictated by the international market. If that market considers the UK a good risk they will buy bonds paying low interest, if they don't consider the UK a good risk they will demand more interest before they will commit.

Only the policies adopted by the government can affect the feelings of the market.

 

[Dave1987]

What, for the purposes of this debate, are "ordinary working people"? The phrase isone very often used, but I for one am not at all clear what it actually means.

It’s a phrase that is entirely dependent on your own point of view and your political way of thinking I suppose. I would say it stands for your average working class man or woman. And by working class i would say a man or woman who needs to work to support them and their family. Someone who can go say six months not needing to work because of their wealth or investments is not working class.

 

[Dave1987]

The UK does not exist in a bubble. The interest the UK government has to pay on any bonds it issues will be dictated by the international market. If that market considers the UK a good risk they will buy bonds paying low interest, if they don't consider the UK a good risk they will demand more interest before they will commit.

Only the policies adopted by the government can affect the feelings of the market.

International markets want economies to be deregulated as much as possible and taxed as little as possible. What you are basically advocating is that business is deregulated and taxed minimally. And you wonder why people believe the NHS is not safe under the current Government!

 

[furnessvale]

International markets want economies to be deregulated as much as possible and taxed as little as possible. What you are basically advocating is that business is deregulated and taxed minimally. And you wonder why people believe the NHS is not safe under the current Government!

I am not advocating anything, I am stating a fact. McDonnell has no power to demand that investors buy his bonds at an interest rate that suits him.

 

[Dave1987]

I am not advocating anything, I am stating a fact. McDonnell has no power to demand that investors buy his bonds at an interest rate that suits him.

Indeed he doesn’t. But at least he is bringing the conversation and mindset of political talk more towards the centre ground even though his politics are extreme left. I welcome anything that drags political and economic thinking back towards the centre. Completely pandering to what international markets want will be at the cost of public services.

 

[furnessvale]

Indeed he doesn’t. But at least he is bringing the conversation and mindset of political talk more towards the centre ground even though his politics are extreme left. I welcome anything that drags political and economic thinking back towards the centre. Completely pandering to what international markets want will be at the cost of public services.

You really don't get it. If McDonnell cannot sell his bonds because the rest of the world is happy retaining capitalism, public services will suffer even more.

 

[Dave1987]

You really don't get it. If McDonnell cannot sell his bonds because the rest of the world is happy retaining capitalism, public services will suffer even more.

Since when did I mention ditching capitalism? If McDonnell does become chancellor then I’m sure he would still be able to sell Government bonds. We are already in an enormous debt bubble with inflation rising quicker than wages. So whatever he did or did not do I don’t think it would be much worse than what May/Hammond are currently doing. What we need is responsible capitalism with business that plays by the rules and treat their workforce with decency and pay wages that people can have a decent standard of life on. I see none of that from May/Hammond. All warm words but no action. Why do you think moderate Tory MPs were critical May’s lack of action in response to the Taylor report? McDonnell is at least providing so balance to the political and economical conversation.

 

[furnessvale]

Since when did I mention ditching capitalism? If McDonnell does become chancellor then I’m sure he would still be able to sell Government bonds. We are already in an enormous debt bubble with inflation rising quicker than wages. So whatever he did or did not do I don’t think it would be much worse than what May/Hammond are currently doing. What we need is responsible capitalism with business that plays by the rules and treat their workforce with decency and pay wages that people can have a decent standard of life on. I see none of that from May/Hammond. All warm words but no action. Why do you think moderate Tory MPs were critical May’s lack of action in response to the Taylor report? McDonnell is at least providing so balance to the political and economical conversation.

OK, I'm out.

 

[Dave1987]

Wow what a mess this country is in. An opposition leader with a serious chance of becoming the next PM of this country wants to attack the biggest part of our economy i.e financial services. And an incumbent Government who don’t give a damn about the lower classes. Come back Tony Blair/Gordon Brown all is forgiven!

 

[Barn]

Come back Tony Blair/Gordon Brown all is forgiven!

I have to confess that, on some days, a Miliband / Balls administration doesn't seem like it'd be so bad.

 

[Dave1987]

I have to confess that, on some days, a Miliband / Balls administration doesn't seem like it'd be so bad.

Ow Milli/Balls would be great right now. How things have changed for the worse in this country.

 

[ainsworth74]

Ow Milli/Balls would be great right now. How things have changed for the worse in this country.

I find myself yearning for the halcyon days of the Coalition government from time to time

 

[muddythefish]

I find myself yearning for the halcyon days of the Coalition government from time to time

Seven years of unnecessary austerity plus endless stoking of the Ponzi scheme that is the UK housing market though Help to Buy - you're on your own with that one! Osborne was a disaster.

Let's face it - the economy like much of the country is a mess. Forty years of right wing ideology by governments of both colours have left us with a an unbalanced economy skewed towards financial services and the southeast, gross regional inequality, a housing crisis, the NHS in perpetual crisis, hi
hollowed out armed forces and many other problems.

Time for radical change.

 

[ainsworth74]

Seven years of unnecessary austerity plus endless stoking of the Ponzi scheme that is the UK housing market though Help to Buy - you're on your own with that one!

Oh for sure! I just meant in comparison with Theresa May's administration rather than anything else!

 

[underbank]

Come back Tony Blair/Gordon Brown all is forgiven!

Blair OK, but definitely not Brown - he didn't have a clue and did an awful lot of damage as Chancellor.

 

[Up_Tilt_390]

Blair OK, but definitely not Brown - he didn't have a clue and did an awful lot of damage as Chancellor.

But he did keep Britain out of the Eurozone, and had Blair had his way we would be using that currency as of this very moment. What particular damage did Gordon Brown do though? I, unfortunately, was too young to remember or understand.

 

[bramling]

But he did keep Britain out of the Eurozone, and had Blair had his way we would be using that currency as of this very moment. What particular damage did Gordon Brown do though? I, unfortunately, was too young to remember or understand.

Many of the issues which people regard as problems seem to have blown up in the 1997-2010 period. Housing for a start - my neighbour's house for example, sold in 97 for £167000, sold in 2013 for £1095000, the only material difference being a conservatory added.

 

[muddythefish]

Many of the issues which people regard as problems seem to have blown up in the 1997-2010 period. Housing for a start - my neighbour's house for example, sold in 97 for £167000, sold in 2013 for £1095000, the only material difference being a conservatory added.

House prices peaked in 1990 and by 1997 had been in a 7-year bear market. For the first time in living memory they had gone down in value in real terms. By 1997 house prices were cheap and coupled with increased confidence from the change in government, ready for a bounce.

By 2010 houses were well priced but since then have become massively overpriced in the south east owing to Osborne's state-subsidy Help to Buy scheme and the vast QE programme post the 2008 financial crisis that saw billions of pounds poured in to London's already bloated housing market.

 

[radamfi]

By 2010 houses were well priced but since then have become massively overpriced owing to Osborne's state-subsidy Help to Buy scheme and the vast QE programme post the 2008 financial crisis that saw billions of pounds poured in to London's already bloated housing market.

Growth from 2007 Q2 to 2017 Q2:

(Nationwide House Price Calculator)

UK: 15.49%
East Anglia: 21.47%
East Midlands: 11.06%
Greater London: 63.52%
North: -6.9%
North West: -1.81%
Northern Ireland -40.81%
Outer Metropolitan: 43.03%
Outer South East: 29.15%
Scotland: -3.31%
South West: 18.21%
Wales: -4.48%
West Midlands: 9.74%
Yorkshire & Humberside: -2.07%

Inflation 2007 to 2017: 30.7%

So all regions outside the SE have seen below inflation house price rises since 2007, and some regions have even gone down in cash terms.

 

[muddythefish]

Yes, the QE effect in London as stated, and house prices reflecting the growing wealth gaps in the wider regional economies.

 

[Dave1987]

So wages are still rising lower than inflation and the job creation bubble seems to have burst. And the Brexit effect has barely taken effect yet.

 

[Dentonian]

The problem is that nationalisation would be paid for using loans. Those loans would require the payment of interest. That in itself is likely to be more expensive than a dividend.

What is your point? Gtr. Manchester Metrolink is paid for using loans, and that's not nationalised.