Privatisation isn’t working?

Former Conservative Prime Minister Harold Macmillan described Margaret Thatcher’s privatisation programme as “selling off the family silver”. The argument in favour was that government run services were inefficient and introducing market competition would increase efficiency. So utilities like Gas water and electricity were privatised. However public utilities were monopolies and did not have any competition. Industry watchdogs were therefore set up to regulate prices and services but they have often proved toothless, witness British Gas’s 12% price hike after the government promised to cap energy price increases.
But are privatised services and industries better than their publicly owned ancestors? Or were there other reasons behind the sales. Reasons like the weakening of union power perhaps or the hollowing out of (mainly Labour lead) local authorities. Let’s have a look.

Assets sold Cheap

Assets are almost always sold on the cheap. Shares in the Post Office leapt in value by 38p per share on the day after the sale. The post office was undervalued to the tune of £1 billion. Although it might not seem to fit into the category of privatisation the Right to Buy council houses was just that. Tenants were given discounts of up to 50% of the market price of their homes depending on their length of tenure, while many ordinary people became home owners for the first time.  It is now estimated that 40% of former council houses are now privately rented at higher rents.  The privatisation of military research company Quinetiq cost the MoD £80milion  

Profits privatised

Despite the theory of privatisation that business run better in the private sector. Privatisation has been distorted to hive off the most profitable parts of businesses while leaving the debts in the public sector so fair comparisons are difficult. When National Express failed to run the East Coast railway line it was effectively renationalised in 2009. By 2013 the state operating company Directly Operated Railways made £208 million profit for the government. Yes the line was still re-privatised; why?

Losses Nationalised

Many an acquisition has floundered because the buyers don’t want to take on the open-ended responsibility of providing pensions for workers in a defined benefit contribution scheme. In the private sector you either buy the whole business or none of it. The government however sweetened the deal for investors with the Post Office by keeping the “loss making” pension fund in public ownership. The The Royal Bank of scotland as privatised during the Great crash of 2007/ 2008 and has sustained £58 Billion of losses since then, all underwritten by the state.

Mediocrity Subsidised

The argument in favour of marketisation of government services is that under a capitalist system the best businesses will flourish and bad ones will fail so the system will exercise its own quality control. However this does not work if businesses are not allowed to fail because they are too important to society and so they are rescued by the government. This was the case with the banks in 2008, with care homes when their privatised providers were unable to cope and with G4S who were rescued by the Army when they failed to deliver security guards for the 2012 Olympics. Even after the tagging scandal they were awarded further government contracts.

Decline in Quality

It is questionable whether privatising services has actually lead to an improvement in the delivery of the services. Take the case of Southern Rail, in 2016 just 56% of services arrived on time. In the 1990’s most care homes for run by local authorities many of these were privatised and many of these private companies were unable to run the services for the price they has tendered. Southern Cross made a complete mess of their care homes. Serco took over the running of Bradford schools after the local authority were deemed to be failing. The results in schools did not improve during the time of Serco’s contracts. Virgin trains started an unsightly spat with Jeremy Corbyn after he could not get a seat. This however served to highlight the extent of their NHS contracts. After NHS cleaning services were contracted out the quality of cleaning declined to the extent that the MRSA superbug has flourished. According to the Centre for Disease Control, there were more than 80,000 MRSA infections and 11,285 related deaths in 2011. And don’t get me started on Southern Rail.

Prices Rise

The nature of many public utilities means that they are monopolies. By selling these monopolies to the private sector the government often allows them to raise prices by significantly more than inflation. Rail fares have trebled in price since privatisation. Water bills for instance have increased by 40% in real terms since privatisation. PFI contracts are a form of privatisation where the government instead of carrying out capital building projects (like schools and hospitals) itself allows the private sector to construct buildings then he schools or hospital trusts rent them back. This means a hospital that might cost £20m to build actually costs the NHS £50m in rent over the 20 year life of the PFI contract. This is actually why the NHS is failing as the enormous cost of the contracts into which Trusts are locked is draining resources which should be spent on patient care.

Wages Fall

One of the (intended?) outcomes of privatising services is the lack of union recognition for the workers whose jobs are transferred. This has lead to a precipitous decline in wages. While government departments were committed to union recognition, a living wage, and decent pension contributions private contractors were not. The government could contract out a service, paying the same as it cost them to deliver that services to private contractors. The private contractor by reducing wages and could squeeze more profit out.

Working conditions deteriorate

Privatisation has also led to people being removed from employment altogether and rehired as “private contractors”. Parcel Force drivers, working for the privatised Royal Mail are even forbidden by their contracts from challenging their employment status. Some now earn as little as £2.50 an hour after their expenses are deducted. They have to pay Parcel Force for the cost replacements when they are off sic which has lead to drivers working whilst ill. Southern Rail are trying to introduce driver only trains which conductors argue is dangerous.

Lack of Accountability

The cynical might argue the governments also privatise or contract our services when they want to distance themselves from unpalatable actions. By hiring ATOS to carry out work capability assessments the can claim that they are not directly responsible for the cruelty meted out to claimants. The same treatment is now being meted out to the disabled by ATOS and Capita in assessing PIP (Personal independence payments). 60% of appeals are successful   which suggests that they are not doing their job properly.  Or maybe putting off  claimants with Byzantine procedures is their job.

Fosters Corruption

The revolving door of government ministers going on to work for the successful buyers of industries which they helped to privatise is a breeding ground for corruption. Whilst there might not be evidence of actual corruption there is the appearance of undue influence. 142 peers linked to companies involved in private healthcare were able to vote on the 2012 health bill that opened the way to sweeping outsourcing in the NHS, surely they should have recused themselves from voting on an issue in which they had a direct financial interest.

Foreign Ownership

Once assets are in private hands they can be sold to anyone, including foreign companies. So often MP’s (of all stripes) have blustered (after the fact) that so-and-so industry should not be sold off to foreign companies; seemingly oblivious to the fact that they themselves voted for the privatisation that allowed it to happen. So EDF (Energy De France) now owns one of the big six energy companies and are building Nuclear power plant Hinckley Point C with the Chinese under a scheme where their profits are guaranteed by the British taxpayer at a cost of up to £30bn according to the National Audit Office. Yes you heard it right, they want free market economics but without the free market risks. No wonder foreign companies (and even governments) are queueing up to buy British assets. It’s win-win for them and lose-lose for us. US health care companies are circling the NHS and the Tories seem keen to sell it to them as part of a post-Brexit trade deal. The price of these desperate trade deals with US will be surrendering the jewel in the crown of the welfare state.

So why Privatise?

We pay the government for services in the form of taxes both direct: (income tax and national insurance) and indirect (VAT, stamp duty, alcohol and fuel). Privatisation takes a huge chunk of this money and pays it directly to companies who more often than not deliver a poorer service than the one they replaced. The profit is usually whisked out of the country as many of these companies pay little or no tax in the UK. Why are governments handing multi-billion pound contracts to companies who do not pay tax here?

Well the companies finance the politicians (historically the Tories but New Labour wasted no time in joining the privatisation bandwaggon) and in return politicians pass privatisation friendly laws without regard to what is good for the country. Time and time again the National Audit Office, whose role is to scrutinise public spending for parliament has criticised these deals only for them to be waived through anyway. Ultimately it’s the most astonishing transfer of wealth we have seen since the Robber Barons of the US in the 19th and 20th centuries.


Marcia Hutchinson MBE  is a former lawyer and publisher of culturally diverse  educational resources.


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