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Labour plans to trump the Tories with free broadband for all

Emma-Lou Montgomery

Emma-Lou Montgomery - Fidelity Personal Investing

Labour has promised free full-fibre broadband for every home and business in the UK by 2030, if it wins the general election. It says the cost of the £20 billion plan would be met by nationalising part of BT and introducing a tax on tech giants.

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The plan, described as “visionary” by shadow chancellor John McDonnell comes after Prime Minister Boris Johnson promised £5 billion to bring full-fibre to every home by 2025.

But while the top-line figures sound impressive and the idea of the government picking up the average £30 a month bill that each household currently pays for broadband, may sound appealing, BT has said the rollout of such an expansive plan would, in reality, cost closer to £40 billion. So it would appear both parties are wildly underestimating the cost.

Julian David, chief executive of TechUK, which represents many UK tech firms, has also said the proposals would be a disaster for the telecoms sector and the customers it serves; halting the investment being driven not just by BT but the growing number of new and innovative companies that compete with BT.

Whether the lure of free broadband is a vote winner with the general public remains to be seen, but in the meantime, the wider impact of the threat of yet more nationalisation by a Labour government looms large. BT's share price immediately fell 3% on the news, before recovering slightly.

And as investors it’s that, that we should be focusing on while the political parties battle it out for residence of Number 10.

BT, like so many of the major utility companies and indeed other global household names in the FTSE 100 index of leading shares, is more than ‘just’ a services provider. These are the companies that so many of the country’s largest pension schemes invest in. You don’t have to have to have been around during Margaret Thatcher’s privatisation campaign in the 1980s, when utilities giants such as BT and British Gas were sold off with advertising campaigns such as “Tell Sid” urging the public to participate, to hold BT shares. If you have a pension, or hold investments in a UK large cap fund in your ISA, chances are you’ll own shares in BT.

Talk of nationalisation has the potential to affect those investments and not just in the share price fall we’ve seen in the immediate aftermath of Labour’s announcement. The water industry has already shown just how strongly political threats to nationalise it can be felt on the stock market.

Before nationalisation was mooted, shares in the major water companies traded at an average of 20 times forward earnings. As the Labour party’s chances of success have ebbed and flowed, shares in the likes of Severn Trent and United Utilities have been pushed and pulled with them. More recently, the rally following polling data showing that Labour’s popularity was waning, has lifted these companies’ shares by 10%.

The big worry for the water industry is that if Labour is successful and if nationalisation were to take place at regulated book value, as has been proposed, an additional £5 billion could be wiped off share prices, according to analysts at broker Bernstein. No doubt the same worries apply to the likes of BT.

Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Tax treatment on ISAs depends on individual circumstances and all tax rules may change in the future. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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