The Great British Privatization Heist, Some Notes

Photograph Source: Phil Scott (Our Phellap) – CC BY-SA 3.0

The next Conservative government must not pander or protect certain sectors. Let’s not go out of our way to help small businesses, agriculture trade unions, coloured people, women.

(Friedrich von Hayek, speech to 1978 Conservative party conference, in front of Margaret Thatcher)

I’ve just read a detailed report, titled “The Great Train Robbery”, on UK rail privatization from its beginnings in 1994 to 2012.  Essentially– and this is the model followed by all the UK’s privatized enterprises– the newly privatised railway companies positioned themselves, with John Major’s Tory government’s explicit connivance, to limit risk to profits and maximize their ability to extract “value” (a polite word for ripping-off customers to expedite to the utmost dividends paid to shareholders, who are in the case of the UK railways are mostly multinational conglomerates, when they are not foreign governments). Foreign companies also dominate British water.

In other words: these profits are politically constructed, especially since from the inception of its privatization the railway system receives a bigger state subsidy compared to the days when it was state-owned.

The Report states that “overall, some 92.4% of the net profit has been distributed as dividends between 2007 and 2011”. To unpack this a little:

For every £100/$125.51“earned” by the privatised railways, shareholders got £92.4/$116 in the form of dividends. This left a paltry £7.6/$9.55 to be ploughed back into reinvestment for the railway system, after executives had eaten into this meagre amount for their stupendous compensations and bonuses. It should be recalled that in the days when the system existed as the state-owned British Rail, those who ran the system were regarded as civil servants and paid accordingly. Railway executives were paid the same as their equivalents in, say, the department in charge of the government’s fleet of ministerial cars.

The result has been deteriorating service for customers, exorbitant ticket prices, persistent delays and overcrowding, with the system focused on the most profitable lines (mainly in the commuter areas outside London) while the rest of the country faces a decline in provision.

Even if these ratios were £70 of the £100 of the net profit going to the shareholders, with £30 being ploughed back into reinvestment for the railway system (as pointed out, after its executives had rewarded themselves on a fulsome scale unrelated to performance), this slightly less unacceptable ratio would still represent a significant loss for the national, regional, and especially local economies.

There is a recent illustration of the stunning levels of executive remuneration in the denationalized industries.

According to The Guardian, the chief executive of National Grid was paid £6.5m/$8m for the year to the end of March 2022, and his salary is due to increase by 3.75% from July. National Grid posted an 11% increase in operating profits last month to almost £4bn/$4.92bn in the 12 months to the end of March.

The UK is going through an energy crisis, with rising prices forcing people to use candles for lighting and unable to turn on their electric cookers when preparing meals.

There are calls for a windfall tax on soaring energy company profits, which the Tory government has refused to implement. Predictably, the CEO of National Grid warned that such a tax would “harm reinvestment”.

A Harvard Business Review article from 1989 titled “Does Privatization Serve the Public Interest?”, by John B. Goodman and Gary W. Loveman, states that “by 1987, the Thatcher government had shed more than $20 billion in state assets, including British Airways, British Telecom, and British Gas”.

Also “denationalized” before 1987 were British Aerospace, Cable and Wireless, British Steel, British Petroleum (BP), Britoil, Rolls Royce, Jaguar, and water.

Thatcher also sold-off council housing to the private sector.

By the time Thatcher was ousted from office in 1990, more than 40 UK state-owned businesses employing 600,000 workers had been privatized. Over £60bn/$75.1bn of state assets had been sold, and the share of employment accounted for by state-owned industries fell from 9% to under 2%. But this was not the end of the story.

“Denationalizations” after Thatcher included the final sell-off of British Coal, as well as electricity generating companies Powergen and National Power, and of course British Rail.

When Blair’s New Labour came to power in 1997, privatization continued, albeit by the backdoor. Citing the need to produce an “entrepreneurial culture” (i.e. Thatcherism MK 2), Labour, while abandoning the full-scale privatizations of the Thatcher-Major era, replaced them with the equally-flawed Private Finance Initiative (PFI).

PFIs were introduced by New Labour into the London Underground, the NHS and schools. PFIs were sold to the public on the alleged grounds that they raised money (Blair and his acolytes forgot conveniently to mention that this was only going to be in the short-term), and all without needing to introduce higher taxes (this was their touted clincher-argument for PFIs).

When the Tories returned to power in 2010, they privatized Tote betting, sold off Northern Rock and other nationalized banks, the Royal Mail, the probation services, roads, large sectors of education and the NHS (NHS dentistry is now fully private). Even sections of the police, traditionally an ally of the Tories, were privatized.

The Tory-Lib Dem coalition of 2010-2015 privatized court language services, giving Capita and Applied Language Solutions a failed £168m/$210.3m contract to provide interpreting services to courts, police, and prisons.

The Tory minister in charge of this failed privatization, Chris Grayling, earned the soubriquet “Failing Grayling” for this and other grievous shortcomings during his no-longer-existing ministerial career.

“Failing G”, who’s always pinned his political fortunes to BoJo, even awarded a multi-million-GB pound post-Brexit contract for cross-Channel ferry services to a company which did not own any ferries.

BoJo, even while hung-over after his several booze-fuelled revelries (admittedly not all part of Partygate, he had party-loving form long before that), could not put up with these abysmal failures in the face of public ridicule, and the nincompoop Grayling was despatched to the backbenches.

The UK’s privatization binge is glorified asset stripping, pure and simple.

Spread that over the decades since Thatcher, it is easy to understand why taxes are high (the highest since the 1950s) and the norm has become substandard and overpriced services in the denationalized industries.

Kenneth Surin teaches at Duke University, North Carolina.  He lives in Blacksburg, Virginia.