John McDonnell interview: why the shadow chancellor still wants to overthrow capitalism

The shadow chancellor is almost ready to overthrow capitalism, but first he has to give his work experience assistant’s jacket back.

“I put it on by mistake,” John McDonnell explains, wriggling out of the arms and handing it to the tousle-haired youth. “We’re the same size.”

Four years ago it would have been unthinkable that this rebellious backbencher — sacked from the Greater London Council (GLC) by Ken Livingstone in the 1980s for being too radical — could ever have a realistic shot at No 11 Downing Street. But Jeremy Corbyn’s coup and the Brexit-induced meltdown in the Conservative Party have made some form of hard-left Labour government a distinct possibility. For many business leaders, the prospect of McDonnell and Corbyn seizing power is more terrifying than the hardest of no-deal Brexits.

“They’d be a total disaster,” says a knighted chairman of a FTSE 350 company. “They would spell the end of the economy. I’ve got no time for McDonnell — he’s a wickedly dangerous person.”

Mild-mannered and polite, McDonnell seems more suited to a Werther’s Original advert than an Arthur Scargill rally as he settles into a chair in his Westminster office, although there is an underlying steeliness forged through years of operating in the political wilderness.

He answers questions reasonably, somehow managing to sound more reasonable the harder he is pressed. “Why?” McDonnell asks, sounding genuinely surprised when we suggest that many Sunday Times Business readers would be worried about a Labour government. He says he has been to see City institutions such as Goldman Sachs and Schroders — the now-famous “tea offensive” — to explain Labour’s planned initiatives.

“If you read the Telegraph and the Mail you think I’m going to come in here, nationalise your company, send you on a re-education course somewhere up north and introduce a wealth tax that would deprive you of all your livelihood,” he says. “I just take them through our programme . . . I say, here’s the nationalisations we’re going to do and that’s the limit of our ambitions, and we’re going to do that because people have had enough of being ripped off — full stop.”

How do the sharp-suited financiers at Goldman Sachs and Schroders react?

“They’re on the same page, because they realise what the challenges are.”

There is a demotic simplicity in Labour’s talk of nationalisation that appeals to a broad range of voters, particularly given the late trains, leaking water pipes and soaring energy bills imposed on them by privatised companies.

McDonnell manages to make it all sound like common sense, part of a consensus — “Look at what’s happening across Europe at the moment, privatisation is on the back foot” — but becomes vague as soon as he is pushed on details.

The Centre for Policy Studies estimates that it would cost at least £176bn to renationalise the rail and water companies, plus power networks and Royal Mail, which Labour would carry out in its first term. That is equal to 10% of the national debt, or £6,500 per household — enough to build 3m affordable homes.

McDonnell says that, in fact, there would be “no net cost” because “these are all profitable sectors and it will be covered by the income that we get from the operations”. So how would Labour pay?

“It’s bonds for shares.”

And who would buy the bonds?

There is a pause.

“It’ll be normal government bonds.”

Bought by international investors?

“Yes, they will be.”

The problem is, Labour does not plan to pay market value for any companies it nationalises. A leaked blueprint circulated among MPs in January suggested that the party would ignore typical measures and determine takeover values via a “political process of negotiation with shareholders”, taking into account state subsidies, pension fund deficits and “asset stripping since privatisation”. Labour would offer less than £20bn to water industry shareholders — under half the companies’ £44bn market value.

McDonnell says parliament would set the prices for nationalisations. “It’s the basis upon which all past nationalisations have happened,” he says, adding that Clement Attlee’s postwar Labour government nationalised “a whole series of sectors” using a “very straightforward system that worked”.

Yet it would undermine the principles of the free market taken for granted since 1979. It is not the kind of thing international bond investors tend to like.

“We’ll be open and transparent in all we do to reassure them,” says McDonnell, who claims gilt yields will not shoot up. “I don’t think there’ll be any dearth of people coming forward for those bonds. They will get a stable rate of return.”

Despite memories of bureaucracy and stale British Rail sandwiches, McDonnell insists his privatisations would not be a return to the statist past, but a new model mixing community engagement and expert management. He thinks private sector staff would stay on, even without private sector pay: “There’s high levels of commitment to public services in this country. There’s no shortage of recruiting people . . . for reasonable wages.”

Has he met any water company bosses? “No.” Have they asked to see him? “No.” Doesn’t he think that would help Labour understand the nuances?

“We have a thorough analysis of where they’ve gone wrong,” says McDonnell. “I don’t need to see the chief executives of the companies to explain that to me.”

Labour’s position on nationalisation is already exerting an effect on its targets. Analysts cite the threat as a drag on the share prices of National Grid, Royal Mail and Severn Trent, and last week it was reported to have disrupted the £2bn auction of Electricity North West.

Asked whether Labour has made its pledges responsibly, McDonnell says: “We’re being straight with people. We mustn’t be dishonest. I say to people, there’s no tricks up my sleeve.”

The shadow chancellor’s nimbleness has won him unlikely admirers. Paul Drechsler, former CBI president, says: “He’s very impressive. I’ve seen him address a dinner audience and, for 95% of the time, you would have followed him out of the room. Then an interesting combination of Karl Marx, Lenin and Trotsky pops out and it reminds you why we should be nervous about him.”

McDonnell grew up in an Irish Catholic family in Liverpool. His father was a bus driver; his mother was a cleaner and later worked on the biscuit counter at BHS. He went to Great Yarmouth Grammar School, then trained to be a priest before dropping out to work at Birds Eye, Silentnight (“I hope no one’s got any of my mattresses”) and Philips, where he made TVs (“the job title was ‘exposer’ — try travelling with that on your passport”).

He took A-levels at night school and a degree at Brunel in west London, going on to do a master’s at Birkbeck. McDonnell worked as a union official before arriving at the GLC. After his ousting, he held various local government posts, then became an MP in 1997.

He and Corbyn voted against the Labour leadership hundreds of times. They are “close friends and allies”, meaning McDonnell, too, is mired in allegations of tolerating anti-semitism. He dismisses the idea that Corbyn is held hostage by a hard-left clique as a “media invention”, but says of anti-semitism: “We’ve got to tackle it and we are . . . Jennie Formby [the general secretary, accused last week of interfering in anti-semitism cases] has introduced major reforms. We’re eight times as fast as we were before in dealing with things . . . It’s a real problem in society. We’ve been infected by it as well.”

The opposition team works from a warren of tatty offices. There are vintage posters on the walls saying “Live in peace, vote Labour”. McDonnell has a model of a pony and coal cart on a shelf.

Nationalisation is one of several fundamental changes Labour would ring. It would force big firms to transfer 10% of their shares into an “inclusive ownership fund”, with workers getting £500 of dividends each year and the rest going to the Treasury. In the City, this is referred to as “theft”. McDonnell says it is simply the reality of a “stakeholder economy”.

Labour would order companies breaching environmental targets to delist from the stock exchange. It might use Royal Bank of Scotland as a development bank and is looking at a tax on commercial land ownership to fund councils.

High earners would face a new additional rate of income tax of 50% above £125,000, and the 45% band would begin at £80,000 rather than £150,000. McDonnell is at pains to say there would be no mansion tax or wealth tax.

This year, about 393,000 top-rate taxpayers will generate about a third of all income tax. McDonnell plays down suggestions that many could leave for countries such as Malta or Portugal. “Most people are altruistic,” he says. “They’re not selfish as some portray.”

Two years ago, McDonnell said Labour was war-gaming a run on the pound if it won an election. He now says he thinks sterling will strengthen “as a result of the plans we’ve laid out”, and that there will be no need for capital controls.

So he is still working towards the overthrow of capitalism, as his Who’s Who entry boasted? “Oh yeah,” McDonnell grins. “I want to transform it completely. It’s evolving anyway. It’s a system I think will evolve out of existence.”

The Sunday Times, 14 July, Oliver Shah and John Collingridge