Mass privatisation masks Britain’s failed economic policies

3rd March 2016 / Editors Picks, United Kingdom

This article was written by truepublica editor Graham Vanbergen and first published in the European Financial Review for the February/March edition 2016

There is no doubt that throughout the last forty years or so neoliberalism has dominated government, housing, transport, energy and the financial sector in Britain and subsequently impacted on society in highly destructive ways. The peak of which is demonstrated no better than by the financial crisis that followed 2008 and the lingering state of recession in its aftermath.

At one point, just after the financial crisis started the government was on the hook for £1.16 trillion to save the banking industry from collapse. That fell to £456 billion in cash, loans and guarantees by March 2011.

You could point to many reasons for it, but there is one moment, a seminal moment of blame. Following the election of Margaret Thatcher in 1979 and subsequent meetings with US president Ronald Reagan, the financial markets experienced a transformation, more like a corporate coup d’état that effectively protected the banking industry from accountability. Financial protections imposed after the Great Depression were repealed. Financial crimes soared, it’s pinnacle reached in 2008 with a great unraveling, yet to be fully experienced.

This agreement on both sides of the pond made finance more important than manufacturing. Union powers were quashed and the Reagan/Thatcher theory of so-called ‘trickle down economics’ from that moment failed to trickle down as the middle classes embarked upon an unrelenting contraction. Higher corporate profits came at the expense of stagnating real wages for everyone else.

Gargantuan bank bailouts, quantitative easing and privatisation is the smoking gun of this failed project. The result today is that the current Conservative government has focused on austerity and ‘selling the silver’ in its battle for economic resurrection.

In 2013, George Osborne withheld £30 billion from the National Insurance fund that taxpayers contribute towards to be used only for social welfare. At the same time, poverty, increasing at an unprecedented rate drove millions into malnutrition with child poverty alone expecting to reach a Dickensian five million by 2020. Varying statistics puts around one quarter of Briton’s living in poverty.(1)

To fill the surging black hole of spiraling public indebtedness, Chancellor of the Exchequer, George Osborne is now pillaging state assets, built up over generations, to buy some time in the hope that his ‘economic miracle’ doesn’t evaporate.

By the end of this year alone, Osborne will have sold £60 billion of state assets and by the end of this parliament (in 2020) that total will have reached a staggering £100 billion,(2) not including buildings or land – more than Thatcher, Major, Blair and Brown combined.

2015 saw the largest sale of state assets in a single year ever.

SafeSubcribe/Instant Unsubscribe - One Email, Every Sunday Morning - So You Miss Nothing - That's It

UK plc. is now on full CPR. In an effort to manually preserve function, desperate measures are being taken with dangerous consequences.

In 2013, the NHS blood plasma supplier was sold to a US private equity firm. Britain’s self-sufficiency for blood and blood products vanished over-night and with it the safeguards most other countries around the world never enjoyed.

The National Audit Office has warned that the “privatisation of forensic services poses a threat to justice and putting the work in police hands would be disastrous”. With the closure of an independent state run forensics organisation, the burden of proof moves to the police and the private sector where criminal trials could collapse for all sorts of reasons, legitimate or otherwise.

In a first, the government privatised Hinchinbrook hospital near Cambridge. Circle Holdings walked away after three years into a 10-year contract due to profit issues amid a damning report of failings in patient care.

The costs of private ambulances has soared 156% in just two years with The College of Paramedics saying there are currently “not enough paramedics to provide a safe and effective service”.

London’s fire service is now beset with crippling financial problems because there is obviously no profit in privately managing 500 fire engines and 50,000 individual pieces of safety equipment. A lack of investment has left the most endangered people in a fire, those living in high-rise buildings and industrial blazes at serious risk.

Air traffic control in the UK is being sold off, irrespective of the warnings provided by experts who quite rightly claim that it will leave 2.2 million passengers in one of the most crowded air spaces on earth in a ‘vulnerable position’.

These services aren’t just critical; they are life saving in every sense and shouldn’t be auctioned to the highest bidder.

Then we have the non-critical but highly successful organisations that contribute to the public purse being sold off such as; the Met Office, Ordinance Survey, Nuclear fuel processor Urenco, Land Registry, Channel 4, The Royal Mint, the list goes on.

Our experience of 30 years of privatisation in the UK is not good.

In its last year before privatisation, the railways required just £431m in public subsidy. By 2006, the figure had reached over £6 billion; today that subsidy is still £5.4 billion. Economists at UBS found British fares to be the most expensive in the world. Even the Conservative former transport minister, Philip Hammond 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 the taxpayer would save over £4 billion a year.3

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 four years and privatised water companies are planning to increase prices by 40% in the next four years. A parliamentary committee disagreed with OFWAT and made the claim that since privatisation, the water supply and sewage system had got worse through inadequate investment.

Surging energy prices have had savage consequences for household discretionary incomes as a result of the corporate stitch-up that is called a regulated market, designed in large part by the same John Major who called for the introduction of a windfall tax on energy profits as even he could see the dreadful ramifications on an already strained working class. Nearly 7 million people now sit in the new category of ‘fuel poverty’.(4)

In Britain, there is a creeping colonisation of public life through corporate rapacity that has reached new heights. This is perfectly exhibited by The Guardian’s report in which the Department of Health had, with some irony, put McDonalds, KFC, PepsiCo, Mars and drinks company Diagio at the centre of writing government policy on obesity, diet related diseases and alcohol consumption. Other than turning a profit and enriching shareholders, what contribution could these organisations make to a society besieged with alcohol related illness and injury and uncontrollable diabetes – both of which are then left to a cash-starved National Health Service to solve.(5)

But nowhere has seen the neoliberal dice rolled harder since Thatcher’s privatisation drive than in housing. The seizure and extraction of social housing, taken out of public welfare and thrust into the financialised and commodified world of property speculation has been truly historic.

Up to 1979, nearly one third of all housing in Britain, or 6.6 million homes was decent social and council housing stock. A far cry from the awful accommodation provided by private landlords in previous generations.

The ‘Americanisation’ of Britain’s society had arrived in the form of home ownership that everyone should aspire to – individualism to reign supreme.

The privatisation of social housing sat at the heart of Tory policy. The Right-To-Buy scheme, allowed sitting tenants to buy their council owned home at discounts up to half market value. By 1987 over 1 million council homes had been sold, by 2009, 4.39 million homes had been sold off.

It should be of no surprise that 40% of social housing ended up in the hands of private sector landlords after the mass personal bankruptcies and foreclosures in subsequent recessions. Banks and building societies were given government funded financial incentives in the form of ‘Business Expansion Schemes’ to rent tens of thousands of repossessions to stop the housing market being completely flooded.

What followed next was the slashing of local authority budgets and severe, even oppressive controls on spending – all leading to large rent rises and a dramatic fall in house building. By 1986, council homes racked up a repair backlog of nearly £19 billion.

Public house building declined from a peak of some 150,000 units in the 1970’s to almost nothing in the 1980’s, the private sector failing in every way possible to pick up the slack.

In 2010 we saw an invigorated Conservative party implement a devastating 50% cut in the affordable housing budget for 2011-2015 forcing housing associations and councils to apply 80% of market rate to the poorest in society in its austerity drive to save money.

New legislation now requires that the homeless, disabled, war veterans or any other vulnerable group no longer have a right to a secure tenancy of any type, either council, housing association, river boats or even mobile homes.

Today’s government is now embarking on Right-To-Buy again. This time on Housing Associations, forcing them to sell property in another scheme that will cost councils £6 billion over the next four years, at a time of huge cuts in funding for local authorities.

What we are now left with is a housing crisis. This crisis now requires constant government intervention to such an extent that the property market in Britain is representative of a Ponzi scheme.

First, the Bank of England applied its Zero Interest Rate Policy (ZIRP) forcing anyone with cash savings to invest elsewhere. Hundreds of thousands became reluctant landlords. One fifth of all house sales are now snapped up by Buy-To-Let investors. Nearly 40% of all property sold in the UK today is bought with cash funds.

In a political sound bite to help struggling (first time) buyers keep up with escalating prices, George Osborne cooked up two schemes in the guise of ‘Funding For Lending’ and ‘Help-To-Buy’. The former dramatically failed and ended up lowering mortgage rates, the latter forces the already overcommitted taxpayer to underwrite £12 billion of mortgage lending to people who haven’t got an adequate deposit of their own, who therefore shouldn’t qualify for a mortgage at all.

To help these buyers even further, the taxpayer is now burdened with another £835 million in subsidies with the ‘Help-To-Buy’ ISA, a tax-free savings and top-up scheme to help create a deposit.

All of this might have worked if someone had thought beforehand to build some houses.

As reports – “UK residential property already attracts a £3.7 billion public subsidy through Help-to-Buy mortgage guarantees and equity loans, a further £6.7 billion a year in mortgage interest tax relief and £10.4 billion a year in Principal Private Residence Tax Relief. If the European Commission were to investigate the UK for providing state aid to the residential property sector, the UK would be bang to rights”.(6)

Mervyn King, Chair of the Bank of England at the time of the crisis told the Treasury Select Committee “that the billions spent bailing out the banks and the need for public spending cuts were the fault of the financial services sector”.

Mass privatisation and the competitive market approach applied without proper restriction or accountability to infrastructure such as housing, transport and energy has clearly failed. The speed of the sell-off displays George Osborne’s desperation to balance the books as PM in waiting.

Graham Vanbergen –

Visit The European Financial Review



At a time when reporting the truth is critical, your support is essential in protecting it.
Find out how

The European Financial Review

European financial review Logo

The European Financial Review is the leading financial intelligence magazine read widely by financial experts and the wider business community.