John McDonnell has dismissed the risk that Labour’s plans to renationalise utilities could be overturned by the courts on human rights grounds.

During an interview on Radio 5 Live’s Pienaar’s Politics programme yesterday (12 May), the shadow chancellor of the exchequer rejected the suggestion that his party’s public ownership plan would be successfully challenged in the European Court of Human Rights.

Such a case could be mounted on the grounds that failure to pay full market value would represent an interference with property rights, which are protected by the European Convention on Human Rights, according to an analysis published by Magic Circle law firm Clifford Chance last year.

A report in the Sunday Times last week, outlined that Labour plans to pay shareholders in the UK’s water companies £20 billion, which is less than half their £44 billion full market value, as claimed in a report by the Social Market Foundation last year.

McDonnell said: “Where there have been challenges, the court has upheld the ability of governments to do that.”

He reiterated Labour’s position that shareholders would not be hit in the pocket because they would be compensated with government bonds, offering stable returns.

During the interview the shadow chancellor also outlined his proposals to delist companies from the London Stock Exchange if they fail to tackle climate change.

The stock exchange would evaluate how companies are performing in relation to standards on efforts to address global warming, alongside other audits that it carries out, he said: “We have to make sure that we use every level of government to tackle climate change otherwise it will be too late.

“Once the message goes out there, I believe that companies will rise to the challenge.”

McDonnell lined up water as the first industry Labour will bring back into public ownership when he gave his keynote speech at the Labour party conference last year.

Michael Roberts chief executive of Water UK said it would be a “devastating blow” for millions of pensioners if the water industry was subject to a “smash and grab raid by a future government paying well below market value for it”.

Labour said it will fix the “broken” water industry by bringing water companies back into public ownership, “saving households £100 per year on their bills.”

Peter Simpson, the chief executive of Anglian Water hit back at the proposals and said the water sector is already tackling issues highlighted by Labour as part of its reason to target water companies.

Senior utilities analysts at Barclays have accused the Labour party of giving an unrealistic valuation of water companies and how much it would cost to renationalise the industry.

In a circular seen by Utility Week the investment bank’s utilities research team referenced the “lowball number on valuation” which came to light following a leaked Labour document.

The Barclays note suggested that shareholders will have three main areas of challenging compensation. These include using UK courts to adjudicate a value along the lines of Northern Rock or Railtrack; the International Bill of Human Rights which enshrines the rights of individuals to enjoy property and finally bilateral investment treaties which allow international courts to set values for compensation.