Privatisation in the UK – success or failure?

17th July 2015 / Editors Picks, United Kingdom
Privatisation - success or failure

As capitalism staggers from one crisis to the next, inducing new rounds of bailouts, austerity and privatisation, societies are being dispossessed of public goods built up over generations, creating deepening crises of everyday life.

Primarily, the privatisation process installed by the Thatcher era has been the outsourcing of public services or functions to private firms. The purpose has been to take a public cost and move it ‘off balance-sheet’ to reduce long-term liability to the public purse. This was sold to the public after lengthy political campaigns to convince them that public services were failing and required the huge investment and expertise that could only be delivered by private entities.

Almost universally, this philosophy has failed. But there is a more sinister side to privatisation – the selling off of national assets and both are done without due democratic process.

Take the railways for instance. In its last year before privatisation, our railways required just £431m in public subsidy. By 2006, the figure had reached over £6billion. Economists at UBS found British fares are now the most expensive in the world. Even the Conservative former transport minister, Philip Hammond, has conceded the trains have become “a rich man’s toy“. If we paid the same fares as the French with their nationalised service, it is estimated we would save over £4bn a year.

Then there’s the privatisation of our water supply. The universal experience of water privatisation in the UK was a sharp increase in the cost of water. On average, prices rose by over 50% in the first 4 years and privatised water companies are planning to increase prices by 40% by 2020. A parliamentary committee in 2000 disagreed with OFWAT and made the claim that since privatisation, the water supply and sewage system had got worse through inadequate investment.

In a statement the committee blamed the regulator as well as the companies, comparing the post-privatisation system in water with the practices of the railways. “The current Ofwat method for assessing the investment companies need to make to maintain our water pipes and sewers is seriously flawed. This means that current levels of investment may be insufficient to ensure that the basic levels of service which customers presently expect can be met in the future. Like the railways—it would be better to invest in infrastructure to prevent problems rather than in reaction to them – why wait for failure?”

Then we had the housing sell-off. Rolled out during the first half of the 1980s. Privatisation was dominated by the Conservatives’ flagship policy – ‘Right to Buy’ – which allowed sitting tenants to buy their council homes at huge discounts up to half of market value. The selling of council stock homes was accompanied by the slashing of housing budgets and ever more draconian controls on local authority borrowing and spending. The result was large rent rises, falling house building and, by 1986, an estimated £19bn repair backlog for council homes and £25bn for private sector homes (Hughes and Lowe, pp.217-8). The more the Conservatives cut and financially constrained, the more privatisation became the norm for both tenants and local authorities. The Conservatives also introduced greater powers for private landlords and liberalised mortgage lending for buy-to-let investment to boost the private rental sector and help to develop major property companies, agencies and estate agents.

From 1980 to 1990 4.39 million homes had been sold-off, transferred from councils or demolished to make way for new private developments.

The collapse of the housing market amidst the global financial crisis demonstrated how Labour’s disastrous continuation of the privatisation project made Britain’s housing and economy dangerously vulnerable to market shocks and personal indebtedness. But far from taking the market out of housing, since taking power from Labour in May 2010, the Conservative-Liberal Democrat Coalition Government moved in exactly the opposite direction, taking the privatisation project to a new, more aggressive and disastrous level – yet to blow up in our faces.

The top losers of the housing market is everyone; no-one benefits from escalating property prices, other than banks taking more and more of your disposable income and as if to rub salt in the wound the subsequent cyclical crashes that predatory banks make another fortune on.

Then there’s the equally terrible privatisation project that has literally seen surging energy prices that are having savage consequences for household discretionary incomes. Thousands of old people will certainly die this winter again as a result of the corporate stitch-up that is called a regulated market – designed in large part by the same John Major who has called for the introduction of a windfall tax on energy profits as even he can see the awful consequences on an already strained working class.

Meanwhile, David Cameron’s coalition has signed a private finance initiative-style deal with EDF, and two Chinese companies – all three state-owned, just not ours – to build a new nuclear reactor which will guarantee electricity prices at almost double their current level for the next 35 years.

As if all that wasn’t grotesque enough, most of the profitable Royal Mail has now been privatised. The current loss to the “taxpayer” from selling shares below their market value is upwards of £2.3bn – almost double the government’s entire planned savings from benefit cuts in 2013-14. And its biggest shareholder is now the hedge fund TCI.

Given David Cameron’s overtly aggressive stance on Ukraine and Russia and the threats of energy cuts as political weapons, you would think that the number one priority from our utilities is security of supply, operation in the public interest of the UK and long-term strategic planning and cost effectiveness without profiteering – not distributing wealth to the French and Chinese whilst sabre rattling at a nuclear power on our doorstep.

The existing privatised utilities have failed on all counts. The case for public ownership of basic utilities and services – including electricity, gas, water and communications infrastructure – is overwhelming. It’s also supported by a large majority of the country’s voters.

And what of our beloved NHS. Of the total contracts awarded since April 2013, nearly 60 percent have gone to non-NHS providers, says the NHS Support Federation. In one case a £1.2bn contract for cancer and end-of-life care in Staffordshire, currently out to tender, has caused controversy because it is the biggest such outsourcing deal in NHS history. The NHS is being dismantled for the profit of corporations, promises of wealth and jobs for the lawmakers who make it happen and all this to the enormous detriment of the wider public who are heavy invested in this amazing service that is the envy of the world.

With no democratic discussion or debate, government is selling off public land and national parks to enable more profiteering. Your home could be Fracked without reference or compensation, not even notification to you as the landowner will be required. Centuries old by-laws of property rights systematically destroyed with no public debate. Democracy is being ridden over roughshod.

By now, It should be patently obvious that powerful corporate interests are driving what is, by any measure the abject failure of the privatisation model. The last 30 or so years has seen enormous transfers of income and wealth from workforce, public and state to the corporate sector.

Privatisation of public services is a wholly failed and corrosive business model. It simply doesn’t work and never will. It stands to reason that privatisation equals profits and profit does not equal financial efficiency to the public purse. The privatisation philosophy is a mirage, a one trick pony that has proven time and time again to end in failure. In Britain, privatisation puts up any asset up for sale to hollow out the country’s industrial base to disastrous effect. Both the political and corporate elite have much to answer for, they have ruined lives, destroyed industries, off-shored much of the workforce, decimated and have been pauperising the middle classes and pitted the people of the country in different social groups against each other in a new blame culture that has tragically manifested itself in a voyeuristic pseudo fantasy such as Channel4’s Benefit Street.

The elite are quickly running out of excuses. Anger is moving from local issues to national effort; public disaffection, disengagement and blame is now being pointed firmly in one direction. And the response is to surveil your every move if you become a ‘dissident‘. Your privacy, civil liberties and rights are being eroded to stop anything that might look like a concerted effort to push back against the wealth transfer. The public are waking – slowly.

Graham Vanbergen


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