The article below appeared in the October 2009 edition of the LEAP Red Papers. It highlighted why it was economically inept to privatise assets, and counter to the propaganda that promotes privatisation, i.e. if the private sector is so efficient, dynamic and entrepreneurial why not give it the liabilities to turn into assets?
Often, as in the case of the London Underground and most notably the banks, the private sector manages to turn assets into liabilities - a sort of reverse alchemy.
In the Observer this weekend was another great expose of the myths around privatisation with news that in-house public sector bids for prisons earmarked for privatisation, had 21% added to them to make them more expensive that private sector bids. It's well worth reading: Unions blast scandal of prisons privatisation by Jamie Doward.
Everything must go? Brown’s asset sales assessed
Andrew Fisher, LEAP Co-ordinator
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”.
The table 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) £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 sales), we can see that these raise around £1.5bn per year for the Exchequer.
It therefore makes no sense to sell these assets, but to actually create more revenue generating assets for HM Treasury. The state has also recently acquired several banks and the profitable East Coast Mainline franchise – all of which, if properly run, should generate 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 slightly undermines his council housing credibility gained at Labour Party conference for promising to build about 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.
Private sector – more efficient?
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 it’s all a myth as this recession has already 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.”
In the days following the public sector takeover of the East Coast mainline rail franchise, it was announced that . . .
Here’s a basic economics lesson: which will 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 best alternative to privatisation is a positive alternative. You can download LEAP's 2008 publication Building the new common sense: Social ownership for the 21st century (you can buy a hard copy here).