Delivering a privatisation by punishing enthusiasm is wrong

Allister Heath

IT IS an utter scandal that those who applied for more than £10,000 worth of Royal Mail shares were awarded nothing. Why? Since when is a privatisation to be conducted along class war lines? And if that is what the coalition wanted in the first place, why not cap the allocation from the start, or warn potential investors? Why should those prepared to give the state more for its shares get nothing at all, while those bidding for less get more? Why is enthusiasm being punished? It’s complete madness. The government should have allocated more shares to private investors, and then ensured that everybody got something – perhaps £750 for all. In the context of a limited resource, this policy would have been properly egalitarian, but not punitive.

So who’s to blame for the 8.2 per cent crippling price hike imposed by SSE Energy? Liberum Capital calculates that two-thirds can be laid on the door of government energy policy, with the remainder caused by higher wholesale prices. Network charges, driven by the decarbonisation programme, are up 10 per cent and government-imposed levies are up 13 per cent. Liberum expects SSE’s profit margins to be around 4.2 per cent this year.

Does this mean that these companies are beyond criticism? As many users angered by bad service will testify, of course not. Does it mean that the energy market is perfect? Of course not – it needs reform to make it easier for consumers to shift provider, to bolster competition, to improve clarity and to allow more players to enter the market.

But politicians of all parties are the main drivers of recent price hikes. They need to be more honest and finance environmental and other policies out of general taxation, not by increasing the bills of consumers and blaming greedy capitalists. We need transparency, and greater consumer power, not yet more demagoguery.

Outside London, the public sector continues to pay wages above the market rate. To compete, private employers must pay uncompetitive rates too, reducing their demand for workers, thus increasing unemployment – or must hire less well qualified people.

Companies outside London ought to prosper as most factors of production – including property – are cheaper. But their key advantage is eroded as a direct result of the government’s nationalised pay negotiations; this helps to explain why the gulf between the capital and the rest of the UK has continued to grow in recent years.

A Policy Exchange report reveals today that the average UK public sector worker enjoys a 6.1 per cent pay premium over a private sector counterpart, adjusting for age, gender, full time and part time work, region, qualifications and length of employment.

The premium has increased by a fifth since the crisis began in 2007 and by eight per cent since 2010. In the north east, Merseyside and South West it can be worth up to 14 per cent. In central London, the east and south east, on average public sector workers are paid slightly less than private equivalents.

The private sector has a non-trivial pay advantage only in inner London, where public sector workers get about 3.1 per cent less. Crucially, these figures only look at actual salaries: generous pension arrangements, better working hours and the like are not included.

So what is to be done? We need to ditch national pay bargaining and adopt a system that takes account of local labour markets and rewards performance. Automatic pay uplifts need to be abolished. Equivalent public and private sector jobs should be paid the same on average, including the value of all benefits and non-pecuniary arrangements, on a regional basis, including in London. This would save the taxpayer billions overall and help to boost private sector employment in those parts of the UK that need it the most.
Follow me on Twitter: @allisterheath