Monday, 14 December 2009
Everything must go? Brown’s asset sales assessed
Just as Thatcher bagged up the family silver and flogged it at knock-down prices to her mates in the City, so Brown and Darling have scraped around for any valuable bits that Thatcher and Major inexplicably overlooked.
And so on 12th October 2009, Gordon Brown announced what Alistair Darling had already announced in the Budget in April 2009: the great New Labour sale – everything must go! – from the Royal Mint to Royal Mail, the Ordnance Survey, the Channel Tunnel Rail Link and much much more!
The flaw is that many of these government controlled assets are exactly that: assets. They generate income into the Exchequer, and so Brown is – as John McDonnell MP pointed out – “slaughtering geese that lay golden eggs, for a one-day fry-up”.
Table 1 below shows the level of revenue that some of these assets generate to the Exchequer every year. In addition the Student Loan Company received £900m in 2008/09 in student loan repayments (although these should be written off as unjust debts).
Organisation Turnover Surplus
Ordnance Survey £117m £16m (13.7%)
Royal Mint £159m £5m (2.9%)
Tote £2,900m £156m (5.4%)
Royal Mail £9,560m £321m (3.4%)
Dartford Crossing £23m £4m (17.7%)
Urenco (1/3rd for sale) £1,130m £240m (21.2%)
Without even taking into consideration the revenue generated by some of the proposed asset sales (e.g. Channel Tunnel Rail Link, land and council house sales), we can see that these raise around £1.5bn per year for the Exchequer.
It makes no sense to sell these assets. In fact the imperative would be to create more revenue-generating assets for HM Treasury. The state has recently acquired several banks and the profitable East Coast Mainline franchise – all of which, if properly run, should generate substantial revenue to the Exchequer.
Another income generator is council housing which, as Defend Council Housing has shown, has money taken from it every year. This is why the private sector is keen to get its hands on it – and Brown is only to happy to oblige.
Brown’s £16bn asset sale announcement on 12th October included the sale of tens of thousands of council homes – which a cynic might suggest undermines his council housing credibility gained at Labour Party conference for promising to build approximately 2,000 council homes over the next few years.
As Jeremy Corbyn MP said: “To sell assets means a loss of already huge public investments and enables the purchaser to fleece the public for decades to come” – which is of course why they are ‘assets’ and why the private sector wants them.
Brown’s asset sales make no economic sense – they will damage the UK exchequer in the medium to long term and result in worse services due to the innate inefficiency of the private sector. Yes you read that right
Private sector – more efficient? No.
This asset sale further exposes to ridicule the rhetoric of private sector efficiency and dynamism. Why not sell state ‘burdens’ to these entrepreneurial alchemists to turn to profit – using their innate efficiency? Because the dynamism of the ‘profit motive’ is a myth, as this recession has so clearly demonstrated.
One private train operator was recently quoted in the trade press as saying, “I do find it slightly irritating that we don’t operate on a level playing field with [state-owned] European companies . . . you have entities supported by the state in Holland, Germany and France which do not have the same constraints on them of delivering for shareholders in the way we do. I was concerned that the Dutch could be satisfied with a very low return”. Still a return you note, but the inefficient distribution of surplus to shareholders is factored out.
In the days following the public sector takeover of the East Coast mainline rail franchise (formerly operated by National Express) it was announced that seat reservation charges would be abolished and an extra £12m invested in station improvements. The Transport Secretary Lord Adonis stated that he expected to “see real improvements in the service and better value for money”, and Elaine Holt who now manages the franchise on behalf of the state said, “over time we'll introduce further improvements to the service, the stations and the trains”.
This crisis is throwing capitalism into sharp relief – profit is wasteful, and the corporate sector has consumed more state welfare than if the whole country was on the dole. But it’s always been obvious, which would provide a better public service – a public sector operator where any surplus is reinvested into service improvements, lowering costs, and raising staff wages; or a private sector operator that must divert a proportion of that surplus to its shareholders?
A similar instance occurred with the nationalisation of Northern Rock. CBI director general Richard Lambert, said: “It is critically important that state ownership of the bank should not be allowed to distort the savings market, through access to government funds on favourable terms”. This roughly translates as a publicly-owned bank can offer better terms to savers (aka “distort the savings market” in CBI-speak).
The private sector is terrified of fair competition from the state and non-profit models of production – and this should give us the confidence to argue for and develop the alternatives.
*This article is taken from the LEAP Red Papers: The Cuts, which can be discussed in full on the LRC website