Privatisations of the 1980s attest to the success of Thatcher’s revolution

Tim Knox

OF ALL Margaret Thatcher’s many, many achievements, it is easy to forget just how revolutionary and successful was her programme of privatisation. Every single privatisation was, after all, opposed by Labour – and by many nominally on her own side. Former Conservative Prime Minister Harold MacMillan lamented that it was tantamount to “selling off the family silver”. Yet this precious metal analogy was wrong: privatisation was a goose that continued to lay golden eggs throughout Thatcher’s term in office, and beyond.

This was a policy, originally developed at thinks tanks like the Centre for Policy Studies (CPS) and the Institute of Economic Affairs, which broke a ratchet that since 1945 had seen more and more industries taken under state control. Even the travel agent Thomas Cook was state-owned. But when Thatcher left office, privatisation was a policy that had not only transformed Britain but which had swept across the world.

Privatisation worked. It benefited taxpayers, shareholders and consumers. Consider the results of a series of reports, commissioned by the CPS in 1996, from NERA Economic Consulting. One studied the financial flows to and from the Treasury of the 33 major companies privatised between 1984 and 1991 (Associated British Ports, BAA, British Airways, British Gas, British Steel, British Telecom, the 17 electricity companies and the 10 water and sewerage companies).

By 1996, domestic gas prices had fallen by nearly 25 per cent

Between 1980 and 1982, these firms received an average of £300m annually from the Exchequer. But once in the private sector, they experienced a dramatic improvement in profitability, generating substantial sums in corporation tax, paying handsome dividends on remaining government shareholdings, as well as the original privatisation receipts. From an average annual loss of £300m, the 33 companies went on to contribute an average of £8.8bn a year to the Exchequer between 1987 to 1995 (excluding privatisation receipts, it was still a substantial £4.4bn a year).

Some of the case studies are remarkable: British Steel, which in 1981 alone received £1.1bn from the Treasury on a turnover of under £3bn, became a net contributor to the Exchequer once it was privatised, making tax payments totalling over £200m between 1988 and 1995. In 1995, British Telecom paid over £1.1bn in corporation tax alone – whereas in 1980 it needed an injection of £300m from the taxpayer.

Not only did the taxpayer benefit, but so did the consumer – in the form of lower prices and better service. By 1996, domestic gas prices had fallen by nearly 25 per cent since privatisation; airport charges fell by nearly 10 per cent; industrial gas prices fell by nearly 40 per cent; and telecom prices fell by 40 per cent.

And when it comes to the quality of service provided to customers, for those who were around at the time, it is hard to forget just how lousy nationalised industries were. I remember moving into my first flat before BT was privatised and being told that I had to join a six month waiting list for a telephone line. And it is telling indictment of the nationalised industries’ attitudes to customers that, before privatisation, quality of service was barely measured.

Privatisation worked for the simple reason that it exposed firms to all the forces and incentives of the free market. These companies now had to respond to the demands of investors, managers, employees and customers. Failure to do so would lead to extinction. And particularly when combined with an exposure to greater competitive pressures, these companies flourished.

Encouragingly, the coalition is planning to privatise the Royal Mail. And from time to time it says that it wants to sell off its stakes in RBS and Lloyds. Worryingly, however, it failed to see off the vested interests when it tried to privatise the Forestry Commission; and it failed to implement Labour’s plans to sell the state interest in the Dartford Crossing.

But there are more golden eggs which the coalition should encourage to come forth. Why for example are the following organisations ultimately owned by the state? London Underground, the Crown Estates, the Trust Ports, the Commonwealth Development Corporation, the Royal Mint, the Met Office, Enrichment Holdings, Glas Cymru, Channel 4 and local authority-owned airports (like Manchester). The evidence suggests that we would all be better off if these organisations were in the private sector.

Privatising these bodies would be a true tribute to Thatcher’s memory. And if a government were to be truly bold, it could push out the two biggest golden eggs of all: the NHS and the BBC. Those would be battles worth fighting.

Tim Knox is director of the Centre for Policy Studies.