You are here: Home - Investing - Experienced Investor - News -

Labour’s renationalisation plans – does it affect your investments?

Written by:
At its party conference this week, Labour outlined plans to bring PFI contracts back within control of the government, and reiterated plans for renationalisation of rail, water, energy and Royal Mail. Many people will be shareholders in these companies, either directly or via their pension fund. How will it affect them?

There are two main types of investment that are affected by the plans. The first are infrastructure investment trusts. These are trusts such as 3i Infrastructure, John Laing Infrastructure and HICL Infrastructure. All are multi-billion pound trusts that investors have turned to because they pay a good income and offer reasonable stable capital growth.

These trusts hold PFI assets and would be vulnerable to those assets being taken back under government control. Equally, these infrastructure funds are used widely by pension funds. Labour has said it will swap them for government bonds, but 10-year government bonds currently have an income of 1.4%, compared to 4-6% for these trusts.

Should investors sell out?

The level of compensation is usually written into PFI contracts, so – in spite of their claims to the contrary – any Labour government might not have a choice about how much they pay to take them back.

Analysts Canaccord issued a note saying: “PFI contracts typically document a right for project companies to receive compensation if they are voluntarily terminated by the public sector, and generally this compensation is based on market value.” Investment trust analysts estimate that the compensation could exceed £100bn. Either way, shareholders should be protected. The share prices of these trusts haven’t moved significantly since the announcement.

The utilities sector is the other vulnerable area. Over 690,000 people applied for Royal Mail shares when it floated in 2013 and far more will have exposure to utilities companies, such as Centrica, National Grid or Severn Trent through their pension funds.

Here compensation arrangements are more difficult. Although the Labour Party has said shareholders would be compensated, it has said they won’t necessarily receive the full amount if the company in question has been a ‘poor corporate citizen’. Again, the details are scant, but it means investors may not receive the full current share price on renationalisation.

However, share prices have barely moved with investors believing that, when push comes to shove, the bill will simply be too big for a Labour government with plenty of other spending commitments.

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Autumn Statement: Everything you need to know at a glance

Yesterday Chancellor Jeremy Hunt made his first fiscal statement in the role, outlining a range of tax measure...

End of Help to Buy: 10 alternatives for first-time buyers

The deadline for Help to Buy Equity Loan applications passed on 31 October. If you’re a first-time buyer who...

Moving to an energy prepayment meter: Everything you need to know

As households struggle with the soaring cost of energy, tens of thousands of billpayers are expected to move o...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

DIY investors: 10 common mistakes to avoid

For those without the help and experience of an adviser, here are 10 common DIY investor mistakes to avoid.

Mortgage down-valuations: Tips to avoid pulling out of a house sale

Down-valuations are on the rise. So, what does it mean for home buyers, and what can you do?

Five tips for surviving a bear market mauling

The S&P 500 has slipped into bear market territory and for UK investors, the FTSE 250 is also on the edge. Her...

Money Tips of the Week