If the government wants economic growth it must bring essential industries into public ownership

Successive governments clobber households and small businesses by hiking interest rates to manage inflation, but don’t inconvenience corporations.

Prem Sikka is an Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labour member of the House of Lords, and Contributing Editor at Left Foot Forward.

The latest economic forecast for the UK by the Organization for Economic Co-operation and Development (OECD) makes uncomfortable reading. The UK is expected to have inflation rate of 3.5% across 2025, the highest amongst G7 countries. Economic growth, a key plank of the government’s policy, is expected to ease from 1.4% in 2025 to 1% in 2026.

Such problems are caused by obsession with neoliberal policies. The rate of inflation can’t be blamed on excessive cash sloshing around in low/middle income households. The average real wage of employees has hardly moved since 2008. The median pre-tax employee wage of £30,816 means that around 50% of workers are struggling to survive. A single person needs to earn £30,500 a year to reach a minimum acceptable standard of living. A couple with 2 children needs to earn £74,000 a year between them. Even with both parents working and earning a median wage, a typical family is unlikely to attain a minimal standard of living. Around 16m people in the UK are living in families in poverty. Millions rely upon food banks and charity.

The main cause of inflation is profiteering. The cost of energy, water, rent, food and transport continues to exceed the rate of inflation. Household energy debt has hit record £4.43bn. Some 128,000 people a year die in fuel poverty, but no government or major political party has shown any inclination to curb profiteering.

A report by Unite noted that since the pandemic, corporate profit margins have jumped by an average of over 30%. Electricity generation companies almost trebled their margins, up by 198%. Electricity and Gas supply companies increased their profit margins by 363%. Shipping companies’ profit margins have soared to 650-times their pre-pandemic levels. Companies engaged in health and social work increased their margins by 118%. Wholesale and retail trade increased its profit margins by 36%. Profiteering is a key driver of inflation and has resulted in real transfer of wealth from households to companies and their shareholders. This inevitably leaves people with less to spend on goods and services and limits their ability to stimulate the economy.

Successive governments clobber households and small businesses by hiking interest rates to manage inflation, but don’t inconvenience corporations. They seem to think that somehow markets will take corrective action even though too many sectors are dominated by monopolies and oligopolies.

For example, there is no competition in the water industry and none is possible. There is hardly any competition in the energy industry. Sectors such as mobile phones, internet, banking, housebuilding, supermarkets are controlled by a handful of companies. In recent months a cartel of pharmaceutical companies has ganged up on the UK government, demanding higher drugs prices to boost their profits. They have not been shy of fleecing the public purse which results in higher costs for the National Health Service and higher taxes. For example, cancer drug lenalidomide had a profit mark-up of 23,000%. Suppliers of hydrocortisone tablets increased prices by over 10,000% and the price of phenytoin sodium increased by 2,300% to 2,600%. Governments can break-up monopolies and empower people to check profiteering, but they don’t. Regulators are now expected to promote growth of industries, which will make them even ore toothless.

The government wants economic growth but it can’t be delivered as millions do not have the required purchasing power. The economic growth model chosen by successive governments is also problematical. Governments have deregulated, weakened consumer and employment rights, and cut real wages in the hope of attracting foreign direct investment (FDI) to provide jobs and new investment, but that hasn’t always delivered. The value of inward FDI in 2023 was £1.3bn, down from £22.9bn in 2022. The exclusion of a large proportion of population from consumption combined with the effects of Brexit and uncertainties of Trump tariffs does not make the UK an attractive FDI destination.

There are two kinds of investment flows. Firstly, there is investment in productive assets which increase the stock of productive capital. The UK invests around  18.2% of GDP in productive assets, compared to 23% average for OECD countries. Secondly, there is ‘fictitious capital’ which does not increase the productive capacity. Everyday billions of Pounds are spent on buying/selling previously issued shares i.e. A buys shares from B. None of the money goes directly into productive assets. Increasingly, stock market functions as a cash extraction machine rather than a provider of new capital. Last year, companies listed on the London Stock Exchange (not all are UK-based) raised £25.3bn in new shares; paid out £92.1bn in dividends and another £57.1bn in share buybacks. 

The FDI may provide jobs and investment, but it also brings problems of cash extraction, and investor returns which escape UK taxation. Since the 1980s, governments have privatised swathes of industries in the hope of securing private sector investment. That hasn’t always been the case. The privatised water sector has been starved of investment and companies dump raw sewage into rivers; lakes and seas. Since privatisation, companies chose to pay £88.4bn in dividends. The returns extracted by shareholders have had a detrimental effect on the UK economy.

Since privatisation, shareholders of water, rail, bus, energy and mail services have received around £200bn in dividends. Total extraction is probably significantly higher as companies engage in share buybacks and shift profits through spurious intragroup transactions, loans, interest payments, royalty and management fees. Large parts of the returns have gone abroad and have not lubricated the UK economy. No UK tax is paid on dividends paid to foreign investors.

Around 90% of England’s water companies are owned by foreign investors and states, including entities controlled from Australia, Bermuda, Canada, Cayman Islands, China, Hong Kong, Qatar, Singapore and the US. Since privatisation around £88.4bn has been paid in dividends, and a vast amount of cash went abroad.

A large part of the energy infrastructure and supply is owned by investors and state entities located in France, Germany and Spain. Around 40% of North Sea oil and gas licences are owned by investors from Canada, France, Israel, Italy, Korea, Norway, Spain, the United Arab Emirates and the US. 82.2% of offshore wind capacity is foreign-owned. Since 2020 alone, top 20 energy companies have made operating profits of £514bn.

Though train passenger services are currently being brought into public ownership again, at the height of privatisation over 61% of rail journeys were completed on franchises operated by foreign companies. These include entities controlled by the governments of France, Germany, Hong Kong, Italy, Japan and the Netherlands. Between 1996 and 2019, train operating companies and rolling stock companies paid over £8.3bn in dividends. Another report noted that £2bn was paid out between 2015 and 2023.

The government is not nationalising rail rolling stock companies (ROSCOs) It will operate passenger services by leasing carriages from ROSCOs. Around 87% of the rolling stock is controlled by three companies registered in Luxembourg, with an average profit margin of 41.6%. ROSCOs paid £409m dividends in 2021/22, £542m in 2022/23 and £331m in 2023/24, mostly to foreign investors.

It isn’t just privatised companies, a large part of the UK infrastructure is owned from abroad. For example, London Heathrow airport is owned by private and state investors from Australia, China, France, Qatar, Saudi Arabia, Singapore and Spain. Similar patterns apply steel, auto, ports, shipbuilding, banking, insurance, care homes, hospitals, GP surgeries, veterinary services and other industries. The temptation is to sweat assets and maximise cash extraction.

Successive governments have used blunt tools for managing inflation. Instead of selective taxes on the rich to withdraw surplus cash from the economy, governments have used austerity, real wage and benefit cuts, and higher interest rates. Profiteering must be curbed but political parties funded by corporations are unwilling or unable to do so. This exacerbates poverty and economic exclusion and in turn is a barrier to investment in productive economy.

The UK is a major financial centre, but the finance industry has been unwilling to finance productive investment as the City of London has little appetite for long-term investment and risks. Swathes of essential industries are owned from abroad, resulting in huge cash extractions which do not lubricate the UK economy and are not taxed in the UK. To control inflation and stimulate growth the government must acquire more economic policy options by bringing essential industries into public ownership but are hampered by self-imposed arbitrary fiscal rules. The government could also levy a withholding tax on dividends, interest and other payments to foreign investors but has chosen not to. Without major policy changes, the UK is unlikely to turn a new leaf on its economic problems.