Sleazing along

How the future chancellor, Gordon Brown, once defended public enterprises from privatisation

The New Statesman 3 August 1990

Selling Britain's public enterprises to the private sector has been as crucial a part of the new Labour project in government as it was under the Conservatives. The Chancellor, Gordon Brown, has displayed zeal in this policy, as his partial privatisation of the London Underground and air traffic control showed. But in 1990, as a member of Labour's shadow Treasury team, Brown denounced the dismantling of the public sector to the profit of private companies.

Selected by Robert Taylor

"Never mind Sid, just tell Lord Hanson." So far, as Frank Dobson has pointed out, the story of privatisation of the electricity generating industry is one of a huge advertising budget misspent. Instead of financing a multi-million pound TV campaign in the hope of catching Lord Hanson's eye, the government might just as well have sent him a brief proposal by letter – 20p first class.

If this were merely Whitehall farce in the "Yes Minister" vein it would not matter much. But when electricity is finally privatised, an industry worth £30 billion will have been been sold for less than one third of its value. And to raise that £10 billion, taxpayers will have to foot bills of more than £300 million in City fees, privatisation ads telling Sid, and, as we know, almost certainly some very substantial sweeteners for Lord Hanson.

In the process an efficient, well-organised and highly profitable national asset, built up over decades by massive public investment, will be transformed into an unpredictable collection of miscellaneous holdings with no long term benefit to the taxpayer and no greater choice for the ordinary customer.

The electricity scandal will not go away nor will the dissatisfaction of of ordinary customers with the services of British Telecom, British Gas and the newly privatised water authorities. The increasingly sleazy story of the Rover privatisation is still unfinished. Only last week yet another sweetener came to light when a letter of 14 July 1988 surfaced via the the European Commission. In that letter Lord Young promised British Aerospace "sympathetic" treatment in any application for public funds relating to its various defence, aircraft and other non-car interests. A few days before, the European Commission turned its attention to the Inland Revenue's admission that it had had eight meetings with British Aerospace at which advice on minimising tax liabilities for British Aerospace was made available – a curious example of compassion from the tax gatherers, and not a service widely accessible to the PAYE person in the street. At these meetings, tax collector and taxpayer agreed that British Aerospace could set up a leasing company to buy equipment for Rover and thus defray some of its tax bills. No doubt Lord Hanson has taken note.

With every successive revelation it is clear that the public interest counted for little when the government's overwhelming imperative was simply to privatise at any price. Scandals and sleaze may be portrayed as incidental. Yet, as Conservative ministers try to export privatisation – still proclaimed as the flagship policy, the jewel in the Thatcher crown – to eastern Europe, any country considering a similar course of action should take a long hard look at the true costs. In privatisations so far, nearly £1,000 million has gone, paid out in City underwriting and other fees to float the float the public assets so far privatised. More than £100 million has been spent on share advertising and marketing alone. But who have been the main beneficiaries of privatisation? Not the ordinary shareholders, despite all the Conservative hype about mass capitalism. Less than 12 per cent of British Telecom is now owned by ordinary members of the public. To date, 40 per cent of Jaguar has ended up in the hands of foreigners. The grim fact is that more of the ownership of these major companies is in foreign hands than remains at home under popular capitalism.

But were the interests of the ordinary shareholder ever meant to come first? It is instructive to examine how the argument for a mass popular capitalism emerged from Conservative Central Office only as an afterthought, as a public relations gimmick, and therefore how easily it could be discarded. With PowerGen not one share is now earmarked for the general public. Indeed, mass capitalism became the Tory theme song only when the previous argument for privatisation, efficiency through competition, became untenable, as water and gas were sold as virtual monopolies.

"The primary objective of the government's privatisation programme is to reduce the power of the monopolist and to encourage competition," the minister in charge of privatisation said in 1983 oblivious to what was to happen with water and gas. "The long term success of privatisation will stand or fall by the extent to which it maximises competition," he said. In 1983 the idea of privatising public utilities as monopolies would have been dismissed as counter to the main purpose of the exercise. Yet, within a year, the argument was completely reversed. The same minister said that "I firmly believe that where competition is impractical, privatisation programmes have now developed to such an extent that regulated private ownership of the monopolies is preferable to nationalisation."

At a stroke the idea of efficiency through competition, the entire justification for the privatisation programme, was abandoned. As the impracticality of any real competition in the sale of such products as gas, electricity and water became more obvious, and concessions were made to vested interests in the City and the privatised monopolies to ensure future profits, competition was dropped. Not only was it thrown aside, but a new pretext for privatisation suddenly arose: wider share ownership.

Popular mass capitalism is a resounding slogan but if the government were serious about meeting the needs of thousands of of ordinary shareholders, City institutions would at least been exhorted to make life easier for the first-time shareholder. Instead small investors are being offered third-class City services at top-class rates. One survey has shown that minimum commissions, even before VAT, are above £20 in 75 per cent of companies, even for the smallest transfer of shares. It is now accepted that on the day of the Stock Exchange crash in Autumn 1987 many small investors were unable to get through to dealers with orders to sell and many institutions were reluctant to help them. So much for making mass capitalism the priority.

The truth is that the taxpayer has been sold short, the consumer remains stolidly unimpressed and the goal of competition quietly abandoned. Once they talked of crusades on behalf of the consumer and a triumph over the monopolies. Now with PowerGen, as with so much before, the sham is revealed. The most common result of privatisation is a sell-out to the City, consumers all but forgotten, a lesson that eastern Europe would do well to learn quickly.

This article first appeared in the 05 March 2007 issue of the New Statesman, The great generational robbery