Chameleon Magazine

Back in June, Andy Burnham sounded remarkably certain about Thames Water.

Asked what should happen to Britain’s stricken water giant, he said public ownership was “absolutely an option” and went further: in the case of Thames Water, nationalisation was what “should be done.” (The Guardian)

Wonderful.

After years of sewage, debt, dividends, rising bills and corporate financial engineering, here was the simple solution Britain had apparently been waiting for.

Take it back.

Then Burnham became Prime Minister.

And suddenly the word nationalisation started behaving like a bar of soap in the bath.

By the end of August, Burnham was talking instead about “public control” of Thames Water rather than straightforward nationalisation. Meanwhile, the company’s creditors were preparing themselves for the possibility of a legal battle with the Government. (Financial Times)

So what happened?

Possibly, somebody finally introduced Downing Street to three deeply unexciting letters:

ISDS.

Investor–State Dispute Settlement.

It is the sort of thing nobody puts on an election leaflet because “Vote for us and we shall carefully examine the bilateral investment treaty implications” has never really electrified a crowd.

But it matters.

Britain may be perfectly entitled to nationalise a company operating within Britain. What it cannot necessarily do is simply confiscate foreign-owned investments, announce that they are now public property and send everyone home with a commemorative mug.

International investment treaties can protect overseas investors against expropriation without appropriate compensation. Depending upon the investors, their corporate structures and the treaties involved, disputes can potentially end up before international arbitration tribunals.

And Thames Water is hardly the village waterworks.

It has roughly £20 billion of debt, serves around 16 million people, and its financial fate is now heavily intertwined with hedge funds, institutional investors and international creditors. (Financial Times)

This is where the cheerful political slogan collides with international finance.

Burnham can stand at a lectern and say:

“Water belongs in public hands.”

The lawyers then enter carrying approximately fourteen filing cabinets and ask:

“Which hands currently own the securities?”

That is rather important.

Legal research into the nationalisation of failing British public-service companies has specifically identified foreign investment treaties as a potential complication. Even where a company is financially distressed, overseas investors may have treaty rights capable of producing compensation claims. That could mean taxpayers paying considerably more than politicians might initially imagine. (MDPI)

And suddenly nationalising a bankrupt-looking water company stops sounding like:

“We’ll take it off them.”

It starts sounding more like:

“We’ll take it off them, subject to insolvency law, creditor rights, valuation disputes, international investment agreements, court proceedings, arbitration risk and several thousand billable hours.”

Which perhaps explains the increasingly fashionable phrase “public control.”

Because public control can mean all sorts of things without requiring the Government immediately to buy the whole thing.

The existing Special Administration Regime, for example, allows the Government to intervene to protect continuity of water services if necessary. The previous government position explicitly distinguished that mechanism from renationalisation. (UK Parliament)

Thames Water’s investors have even proposed giving the Government a “golden share”, handing ministers veto powers over significant decisions in an attempt to avoid outright nationalisation. (The Guardian)

How extraordinarily convenient.

We appear to have travelled in a matter of weeks from:

“Nationalise Thames Water.”

to:

“Perhaps the Government could have a special share and keep an eye on things.”

This does not mean Burnham cannot nationalise Thames Water.

He can try.

Parliament is sovereign, governments can nationalise businesses, and Britain has done it many times before.

But nationalisation and free nationalisation are two very different propositions.

And that may turn out to be the lesson.

It is enormously easy for politicians to tell voters that privatisation was a terrible mistake and that essential infrastructure should simply be returned to the nation.

It becomes rather more complicated when somebody asks who actually owns the assets, who owns the debt, which investors are protected by which treaties, what compensation they might demand and which court or arbitration tribunal gets to decide.

Perhaps Burnham knew all of this when he made his original declaration.

Perhaps his position has merely evolved as the full financial picture became clearer.

But from the outside, it certainly looks as though the man who arrived promising to put Britain’s water back into public hands has discovered that Margaret Thatcher didn’t merely sell the family silver.

She sold it into an international financial system with lawyers attached.

And getting it back may prove considerably more expensive than shouting “nationalise it.”