Labour will punish shareholders for pension fund deficits or 'asset stripping' under water nationalisation plans

Staff will transfer to new publicly run authorities, ‘except for senior executives and directors, whose posts will be readvertised on dramatically reduced salaries'

Shareholders in the privatised water companies will be docked compensation if they have plundered pension funds or “asset-stripped”, under Labour’s nationalisation plans.

John McDonnell, the shadow chancellor, set out detailed proposals for taking back control of the industry, vowing to end what he called “profiteering in dividends and vast executive salaries”.

Under the plans, shareholders would be compensated with bonds – “cost neutral to the public purse”, Labour claimed – but parliament would decide the payout level.

Labour’s policy document said: “Parliament may seek to make deductions for compensation on the basis of: pension fund deficits; asset stripping since privatisation; and state subsidies given to the privatised water companies since privatisation.”

An aide could not rule out stripping shareholders of all their compensation, but said: “We are not expecting that to be the case.”

New regional water authorities would be run by local authorities, but with workers sitting on their boards, along with representatives from trade unions and community and environmental groups.

In his Liverpool conference speech, Mr McDonnell said: “We are ending the profiteering in dividends, vast executive salaries and excessive interest payments.

“Surpluses will be reinvested in water infrastructure and staff, or used to reduce bills. Real investment will allow the highest environmental standards.”

All staff would transfer to the new publicly run authorities “except for senior executives and directors, whose posts will be readvertised on dramatically reduced salaries”.

However, Mr McDonnell insisted renationalisation would not be “a return to the past”, because the industry would be “in the hands of local councils, workers and customers”.

“We don’t want to take power away from faceless directors only to centralise it all in a Whitehall office, to swap one remote manager for another,” he said.

A public and community ownership unit in the Treasury would be set up to deliver the planned return of energy, rail and the Royal Mail – as well as water – to public ownership.

“Let me make it absolutely clear that the full weight of the Treasury will be used to take on any vested interests that try to thwart the will of the people,” he said. “We will drive this policy through.”

Mr McDonnell also confirmed plans to give workers dividend payments of up to £500 a year, by forcing all large companies to give their staff shares in their firms.

The package triggered a backlash from the CBI, whose director general Carolyn Fairbairn warned the result of Labour’s policies would be a drop in living standards for workers and customers.

“Labour must meet business halfway or they will crack the foundations of this country’s prosperity,” Ms Fairbairn warned.

“From renationalisation to dilution of shares, Labour seems determined to impose rules that display a wilful misunderstanding of business.

“Their policies would immediately reduce the value of shares owned by ordinary people by over 10 per cent and hobble UK ambitions to compete on a global stage. That’s a double whammy for people’s pensions and savings.”

To huge applause, Mr McDonnell also declared that Labour is ready to fight and win a general election, telling the government: “Bring it on.”