Can the energy suppliers be nationalised ?
In principle, yes.
Won’t it be too expensive ?
So where will the money come from?
No money is required.
So the government will confiscate private assets?
No, that would breach international law.
So how will the government take over the energy suppliers?
By an ‘asset swap’
Can you explain?
Yes, the government can create bonds from nothing. It then sells these bonds to private investors who own shares in the energy companies. The private investors pay the government for the bonds by surrendering their shares to the government. This transaction is very similar to an ‘asset swap’, where two parties agree to swap their assets (the government and private investors agree to swap bonds for shares)
- Before nationalisation, private investors have shares in energy suppliers worth, say, £50 bn
- The UK government creates and sells interest bearing bonds worth £50 bn to the private investors.
- By way of payment, the private investors surrender their shares to the UK government
After the ‘asset swap’, the private investors own the government bonds. They will receive guaranteed payments of interest each year (or every six months) from the government.
After the ‘asset swap’, the government owns the energy suppliers and can control their investment strategy and pricing policy. For instance, the government can direct the energy suppliers to invest in technologies that make the UK green and / or self-sufficient in energy.
After the ‘asset swap’, the government is entitled to receive dividends out of the energy suppliers’ profits. The government can use the dividends to pay the interest due to the private investors.
When the bonds mature (ie fall for repayment), hopefully, a long time into the future, the government can either ‘roll the bonds over’, or redeem them for cash generated out of profits.
Why would private investors agree to swap their shares for bonds?
Government bonds are very safe. It is very unlikely that the UK government will go bust and default on its financial obligations. So government bonds have fewer risks than shares in private companies. Generally speaking, investors prefer a fixed and known return to a volatile and unpredictable return. In short, shares are more risky than government bonds.
Won’t the asset swap increase the government’s debt?
Yes and no. Although the gross debt will be increased, this will be offset by an asset (the shares) to the same value. So the net debt (liabilities minus assets) will be unaffected. So the debt hawks can not validly dismiss the ‘asset swap’ on the ground that debt will be increased