Privatisation in the UK

A History and Analysis

 Historical background

• 1976 - IMF cuts

• 1977 - First privatisation -
British Aerospace
• 1978/9 - “Winter of Discontent”
• 1979 - Election of Thatcher
• 1980’s - Major privatisations
 The First Phase

• British Gas
• British Steel
• British Telecom
• British Water
• British Rail
 The Results

“Any rational calculation of the

overall costs and benefits of the
whole experiment must give a
negative result”

Will Hutton, 2002

 Private Finance Initiative
(PFI)
• Private contractors pay for construction cost of building projects
in the public sector, and lease finished project back to the
public sector for periods up to 30 years.

• PFI contracts take cost of borrowing off the Public Sector

balance sheet, improve the government’s finances.

• Cost of borrowing is much higher in the private sector - annual

expenditures on PFI higher than if projects funded in public
sector.

• Contracts approximately 30 years duration; PFI locks future

governments into on-going spending commitments.

• PFI does not transfer risk to the private sector - services not
allowed to fail.
 The current state of PFI:
2009

• Over 800 PFI/PPP projects in operation in Britain.

• Approx £54 billion of investment.
• 12% of government infrastructure projects
• Over £200 billion of long-term debt repayment
by the British government

In Government We Trust: Market Failure and the Delusions of

Privatisations, 2009 - Funnel, Jupe, Andrew
 Private Finance Initiative
(PFI)
“Though the government maintains that this offers
better value than using public money, in reality
the numbers behind all PFI projects are rigged.
While the government retains much of the risk, the
investors keep the profits, which often run to
many times the value of the schemes. The public
liability incurred so far by the private finance
initiative is £215bn. One day the repayments will
destroy Britain’s public finances”

George Monbiot, May 2009

 Labour on Privatisation

• “PFI is just Privatisation by another name” –

Harriet Harman, 1996

• “Our air is not for sale” – Andrew Smith, 1996

• “Morally unacceptable...” “Fundamental objections...” - Jack Straw,

1997

• “A publicly owned, publicly accountable rail network” - John Prescott,

1996
 Labour on Privatisation

“Practically in every single

instance, the Labour Party was
wrong to oppose privatisation”

Peter Mandelson, 1998

 The Record:
Health

• Of 133 new hospitals built since 1997, 101 were

financed using PFI.

• 149 PFI financed hospitals in the UK by 2009.

• NHS will pay up to £70.5 billion for the

buildings.
 The Record:
Health

• Great Western PFI Hospital Swindon - 100 fewer

beds, could not meet local demand.

• Plans for PFI hospital in Worcester forced closure of

existing services at Kidderminster Hospital; new
PFI hospital cut beds and staffing levels because of
serious financial deficits.

• Nationally, 12,000 beds have been lost since 1997

because of PFI costs.
 The Record:
Health

• NHS Wandsworth Trust: to pay more than

£10m a year until 2034 to private firm
Catalyst for new hospital.

• Hospital costs Catalyst £73m to build and

run; Taxpayers to pay £340m over
lifetime of project
 The Record:
Health
“Instead of using the opportunity of the taxpayer
bailout to re-open the contracts and negotiate
better rates in favour of the public sector, the UK
Government is allowing the banks to restore
their balance sheets by charging relatively high
rates of interest for PFI schemes. The increased
costs of serving the debt are met from NHS
annual budget, and result in reductions in the
money available for services”.

Allyson Pollock: Edinburgh University, Centre for International Public

Health Policy
 The Record:
Prisons

“…very little innovation in custodial

management. Most of the gains have
come from using fewer staff, lower
wages, less employment protection for
staff and fixed contracts.”

Phil Wheatley, DG, UK Prison Service

 The Record:
Prisons

• 2008 internal BPS papers leaked to BBC.

• Private prisons consistently worst for security,

maintaining order, and re-offending rates.

• Doncaster Prison 2005 - Chief Inspector of Prisons

found that conditions inside the prison had
deteriorated since the award of the contract.
 The Record:
Water
• Publicly owned Danish water utilities :
Copenhagen annual water leakage rate - 4%

• Public water utilities of Paris and Milan leakage

rates - 10%

• Privatised water companies in the UK: Severn

Water leakage rate- 26% , Thames Water – 32%

Data from OFWAT (the UK Water Regulator), EU research project

“Watertime” and a study by the Asian Development Bank
 The Record:
Railways

“Quite apart from the privatisation itself, the way in

which the industry was fragmented was incredibly
damaging. The notion that a relatively healthy
company like British Rail could be broken into 100
parts, all of which had to be profitable, could only
have been dreamt up by rabid ideologues, more
concerned with theory than practice……The
privatisation of the railways represented one of the
great political and economic crimes of the 20th
century”.

On the Wrong Line, Christian Woolmar, 2005

 The Record:
Railways
• Cost cutting, poor track maintenance resulted in failure to
maintain the track network and a series of train accidents.

• Accidents - Southall, Ladbroke Grove, Hatfield, Potters Bar.

• Accident Inquiry : Railtrack’s incapacities and lack of

regulatory oversight.

• Railtrack divested engineering knowledge of British Rail into

private contractors, had inadequate maintenance records
and no coherent asset register.
 The Record:
Railways
“The failures also demonstrate how far
privatisation, as an ideology, has permeated the
state in Britain, especially when a Labour
government not only refused to countenance re-
nationalisation of the railways but in fact extended
privatisation as part of its Third Way to include the
London Underground”

In Government We Trust: Market Failure and the Delusions

of Privatisation, 2009 – Funnell, Jupe, Andrew
 The Record:
London Underground
• 2003: PPP scheme over massive objections
• 30 year PPP contracts fragmented LU in to four parts
• Transport for London in public sector, managed contracts,
provided staff and trains
• 3 privately owned infrastructure companies responsible for
maintenance/renewal of track, tunnels, signals and stations
• 2 companies became Metronet Consortium, 1 became Tube
Lines. Metronet a combination of different firms.
• In 2004 Metronet fined £11m for poor performance.
• In 2008 Metronet sought Administration
 The Record:
London Underground

“Contracts that were supposed to deliver 35

station upgrades over the first three years
delivered 14-40% of the requirements;
stations that were supposed to cost Metronet
£2m in fact cost £7.5m; by November 2006
only 65% of scheduled track renewal had
been achieved. They have ended in collapse
and chaos. It was a spectacular failure”

Transport Select Committee 2008

 The Record:
Railways

Lost opportunities
• Railtrack’s Insolvency
• Metronet’s collapse
• East Coast Mainline to be re-sold
 The Record:
Civil Service

• Facilities, IT, HR
• MoD (DII ; DERA = QinetiQ)
• Forensic Science Service
• ONS
• VOSA
• DWP – back office and front line
 The Record:
Civil Service: Welfare Reform

• David Freud Review

• “Multi-billion pound business”.

• Welfare Reform Bill (clause 25) allows

for contracting out of JCP functions
 The Record:
Civil Service Reform

• Observer, March 2009 - secret documents sent

by senior DWP officials to JCP directors with
data revealing private firms performed far
worse than JCP Plus in delivering Pathways to
Work

• “Restricted” DWP report reveals how private

forms placed only 6% of claimants into work
against 26% claimed when bidding for
contracts. JCP Plus placed 14% in same period.
 The record:
Civil Service – Welfare Reform

• Intensive Activity Period - 2% of firms reached

target of getting 40% entrants in to work

• Basic Employability Training - 77% of firms not

meeting target of getting 25% of entrants in to
work

• Gateway to Work – 4% of firms reached target of

getting 45% of 18-24 entrants into work
 Operational Efficiency
Programme (OEP) : 2009
• Royal Mint

• Land Registry
 
• Met Office

• Ordnance Survey

• Defence Storage and Distribution Agency

• Defence Vetting Agency

• UK Hydrographic Office
 PFI Now:
Two sets of accounts

“In spite of the widespread expectation that almost

all PFI projects would go on the books as the
Treasury fulfils a longstanding promise to move the
public sector to international financial reporting
standards, the Treasury has now issued guidance to
Whitehall departments indicating that, while they
will count on departmental accounts, a different
accounting standard will apply for the Treasury’s
budgeting purposes”
Nicholas Timmins, Financial Times, May 2009
 PFI Now

Treasury Infrastructure Finance Unit :

• IFU lends directly to PFI projects and to the European

Investment Bank and government owned banks. These
lend the money to PFI consortia, which build the project and
then charge the taxpayer for the next 25 years for the
service the taxpayer has already paid for through its loans!
 
• PFI scheme for expansion of M25 motorway: to ensure PFI
consortium remains solvent during construction phase the
government will lend it £400m. The EIB has pledged £500m
– also taxpayers money.
 PCS Privatisation policy

“These examples are not the result of

accidental errors of judgement. They result
from a political and economic logic which
argues that in almost every sphere of our lives,
the market and the profit motive will perform
better than any other system. It is this dogma
that all who want democratically accountable
and publicly owned services must challenge”

Mark Serwotka, November 2007

 The socialist case for public
services

• Social need instead of social profit

• Public accountability instead of

commercial confidentiality

• Long term planning instead of short

term gain
 The logic of re-
nationalisation

• Sweden: Moratorium on privatisations

• France: Paris Water supply
• Germany: Minting currency
• Estonia : Railways
• Venezuela: National Bank and National Oil
• The UK: East Coast Mainline
 Where next?

“The measure of the restoration lies in the

extent to which we apply social values
more noble than mere monetary profit.
The joy and moral stimulation of work must
no longer be forgotten in the mad chase of
evanescent profits”

Inaugural speech - Franklin Delano Roosevelt, 1933