What are the legal aspects of nationalisation?

Why might a government nationalise a sector, service or industry?

Nationalisation is used to describe many different forms of state ownership and management. It may or may not involve the transfer of shares, physical assets or contractual and other rights from the private sector to the state. The government will need to have identified the services, assets or enterprises that it intends to bring under public ownership or control before proceeding with any nationalisation programme.

There are various factors a government will consider when doing this:

• the quality, reliability and value of service
• the cost to consumers and to the public purse
• how best to secure long-term investment, innovation and sustainability
• whether it wants to keep certain assets or operations under UK control (or indeed keep them going at all)
• how to secure the stability of the UK financial system (as happened with banking legislation after the 2008 financial crisis).

The views of voters will also matter: in its 2024 election manifesto, Labour pledged to renationalise most of the UK’s railways, for example.

What legal model do governments use?

Any large-scale nationalisation will almost certainly require primary legislation – an act of parliament – given the extent of the legal changes involved, along with the need for parliamentary approval of any significant public spending plans and the wider political ramifications.

The government needs to decide on the appropriate vehicle for public sector ownership or operation of the relevant undertaking – whether the secretary of state or a central government department (perhaps unlikely for any long-term commercial operation), a GoCO (government-owned, contractor-operated company), a joint venture with a private company, or some specially created statutory body. This will need to be spelled out in the legislation so parliamentarians know what they are voting for.

What other issues need to be decided?

Many other questions are likely to arise that the legislation will need to answer, including:

• What legal obligations are set on the new public sector operator as to performance, quality of service, charging, improvement and innovation, investment?
• How is compliance with those obligations to be overseen and monitored, and by whom?
• What role will ministers have in either the running or the oversight of the public sector provider? Nationalisation implies, ultimately, government accountability for the relevant service, to the public and to parliament. What form will that take and how will ministers discharge it? This might include ministers having legal power to give directions to the public sector operator, or appoint members to its board, along with the imposition of reporting obligations.
• What happens to the staff of the existing private sector operator or operators? Are they transferred to the new public sector operator, by the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) or otherwise?

Are there any legal limits or constraints on what a government can do?

Parliament is sovereign and, in principle, can make whatever laws it chooses by primary legislation. That can include compulsorily transferring assets, or cancelling or changing existing contracts.

In practice things may not be quite that simple.

The influence of the European Convention on Human Rights 

Where an act of parliament interferes with rights under the European Convention on Human Rights (ECHR) it can be challenged under the Human Rights Act 1998 (HRA). Although the courts cannot strike down an act under the HRA, they can grant a ‘declaration of incompatibility’ if they find that a provision of an act breaches an ECHR right. In the context of nationalisation, that is most likely to arise in relation to Article 1 of Protocol 1 to the ECHR (A1P1) (protection of property), for example if the legislation makes provision for the transfer or alteration of existing property or contractual rights.

Although a declaration of compatibility does not legally require the government to change the legislation (or take any other step), in practice there would be pressure on it to take remedial action. If it failed to do so, it could face a claim in the European Court of Human Rights in Strasbourg.

So a government will generally wish to ensure that any such legislation is compatible with the ECHR, and in particular that any interference with property rights is proportionate and can be justified in the public interest. That may involve including provision for compensation to be paid if any assets are compulsorily transferred.

Some associated secondary legislation may be subject to judicial review

Not every detail of a proposed nationalisation will be set out on the face of the act of parliament. Much is likely to be determined later by ministers under powers to make secondary legislation (regulations), or to issue directions or guidance. That is particularly likely to be the case with emergency legislation, such as that introduced by the government on a rare Saturday sitting in April, where there may simply not be time to settle all the issues as the primary legislation speeds through parliament.

Those issues might include critical elements of the programme, such as timing or sequencing, the identification of particular assets or rights to be transferred, determining any compensation payable and details of monitoring or accountability arrangements. Exercise of those powers would be subject to judicial review – for example on grounds of irrationality, failure to act in accordance with the statutory powers, or procedural unfairness. So, like any other major government action, the detailed implementation of any nationalisation will be subject to the scrutiny of the courts.