Labour hasn’t factored BT’s pensions black hole into its nationalisation plan
Here’s a riddle: how do you spend several billion pounds of taxpayers’ money and get nothing but a bunch of smiling accountants in return?
The answer: tear Openreach out of BT, as Ofcom attempted a few years ago and Labour now proposes as part of its plan to nationalise the provision of ultrafast broadband.
Read more: Labour ‘doesn’t understand broadband’, says industry
Anyone who gets involved with BT at corporate level quickly stumbles across the mysteries of pension administration.
At any given point in recent years, the BT pension scheme has been in deficit to the tune of several billion pounds – with the taxpayer on the hook should the company ever go belly-up.
How big can the deficit grow? How many billions each year must BT divert from investment and services into the seeming black hole?
The answer varies. The key thing is to keep the pension fund administrators and the Pensions Regulator happy.
And here you get into the whacky world of risk, and how to measure it and what price to put on it once you have measured it.
Long story short: risk goes up when a company carrying a liability shrinks. Better to have a whale than a minnow standing behind any pension scheme.
BT’s Openreach division is, admittedly, no minnow. But it’s smaller than the wider BT Group. And yet it’s Openreach where most of the pension liability lies. Take Openreach out of Group and pension risk increases.
The result? The Pensions Regulator makes Openreach put more money into the pension scheme than BT Group had to, to reduce the fund’s deficit.
The issue may sound arcane, or even hard-to- credit – but it was one of the key practical issues which helped to derail Ofcom’s attempt to break up BT. Take Openreach out of BT and you spend billions extra plugging the pension scheme for no obvious gain to anyone.
It’s laudable to have the Labour party rediscover its sense of ambition, and its courage to try new ideas. But this one – nationalising broadband provision – seems to suffer too many knock-on effects, ones that will pose huge headaches to any government trying to make the plan a reality.
To take another: what about BT’s rivals? Virgin Media owns its own wires in the ground in half of the UK. Sky and others own bits of infrastructure too. They woke up on Friday morning to the news they’re expected to compete with a state behemoth offering consumers broadband for free.
To top that, the Labour party seems to be hinting that these rival companies will need to ensure the newly nationalised Openreach can access the wires and ducts they’ve put into the ground. What’s the compensation bill for all this?
There’s a fair chance the UK remains in the EU under a Labour government, so this poses the next set of questions.
What will EU competition and human rights regimes have to say about the entire plan? Especially as Labour says it will pay shareholders beneath market price for any entity it takes over. The number of citizens holding BT shares numbers hundreds of thousands and possibly close to a million.
Read more: 21 UK stocks in danger if Labour wins the election
Nationalisation aside, the Labour party is also promising to pick up the monthly broadband bill for every household in Britain. This will strike many ordinary people as downright odd. Water? You pay. Electricity? You pay? Gas? Ditto. But broadband – aha….
What was it Nye Bevan said about “the language of priorities” being at the heart of socialism?
Michael Prescott was director of corporate affairs at BT from 2010 to 2017 and is now group managing director of corporate and political strategy at Hanover Communications.