Privatisation in the U.K. has failed

It always makes me smile with some irony when Ukrainian policy makers - or others from EM - all so often cite the U.K. as a model for privatisation and deregulation whether that is railways or the energy sector. The Thatcher era is somehow looked back on as one delivering tremendous achievements in productivity and a model for reform globally.

However, as a Brit, experiencing the services sold off, mostly during the Thatcher era, I struggle to see how U.K. privatised industries offer a model for anyone. Typically privatised services in the UK, from rail to energy and telecom, at least when viewed from a customer perspective, are diabolical.

Take rail as an example. The U.K. was supposed to have invented railways but the U.K. rail system is frankly no longer fit for purpose - trains are almost always overcrowded, and late, and now increasingly subject to industrial action and strikes. Coverage across the U.K. is mixed and spartan and integration with other transport forms poor at best. A recent journey I made from Manchester airport to London was subject to a long delay - I had to stand most of the way (5 hours) as there were no seats as other services had been cancelled. Oh, and trains are expensive, meaning it’s often cheaper to drive, to the huge detriment of the planet.

It’s a similar story on the buses. In my home town in Yorkshire, considerations of economies of scale have seen local hospitals and further education institutions closed and moved to the district centre in Wakefield. This means that to access those services a journey of now 10-15 miles in many cases is needed. Buses would have been the default setting in the U.K. for ordinary people to make any such journey 30 years ago. Privatised bus routes are now though either non existent or infrequent. It means that to access such services requires either use of private cars or taxis. The latter would cost perhaps £30-40, making such an option beyond the reach of ordinary people if such activities entail a regular commute, or indeed otherwise. And again, environmentally a disaster.

What about energy?

Well you can go on various comparison website and try and get the cheapest deals. But this implies access to and some kind of IT capability and nouse. Not sure the aged or those less well educated have such equal access/opportunities.

Even for those more savvy, my experience is that large energy companies take customers for a ride. We were recently overcharged for recurrent incorrect billing by a large energy company. Literally despite tens, if not hundreds, of calls, with many hours caught in call waiting systems, only to get poorly trained staff, even a simple task of changing a name on an account seemed to be too much for this large energy company - often using cheap call centres in EMs to field responses. They sent the bailiffs around, with menace, to get paid - despite the error being completely of their own making. We appealed to the energy ombudsman and won our case on all points - the ombudsman told us we did not owe the money and the energy company had to apologise, pay compensation albeit derisory, and call off the bailiffs. And yet even now the same energy company seems to be suggesting the Ombudsman’s ruling is only a recommendation and in fact that we still owe the original sum. So if we don’t pay the bailiffs will be around again. We will absolutely fight this for sure - but the point is we have the resources and wherewithal to do that. Many others don’t. They will be bullied by large - ironically - typically foreign state owned U.K. privatised utilities. And where is the state? Where are the regulators to prevent such bullying by these large utilities? Why do Ombudsman services appear to count for nothing? Even if the state has stepped back and privatised these assets, it is currently failing dismally in setting the regulatory environment and long term strategic planning around privatised industries. Customers are not protected, neither is the planet.

Why does the U.K. not have an energy or transport policy fit for purpose?

How come over the past winter U.K. consumers paid more for their energy than anywhere else in Europe? Why? Because energy policy in the U.K. has a starting point in the early 1980s which was centred on closing coal mines in order to break trades unions. And since then it’s been resort to totally free markets - just in time energy. That’s fine - I would argue it has not really delivered cheap energy to consumers - but irrespective of the debate around that - the lack of energy storage and long term strategic energy planing was literally criminal. Why was the Rough offshore gas storage facility closed just a few years back when the threat from Russia was well known and laid bare by people like myself and the Chatham House crew? Because the free market mantra had taken over and there was no truck with the long held understanding around market failures or the difficulties of allowing free markets to work when it comes to natural monopolies or utilities. Free market dogma at all cost - but the cost was born by the U.K. consumer.

The same lack of joined up thinking is evident in the U.K. housing market. The sale of the government owned council housing stock in the 1980s was a boon for the then Thatcher government. It got a financial windfall to cut taxes, pump prime growth which ensured successive election victories. And Council house tenants typically loved the policy - they got to own their own property. My own (life long Labour voters - although my great grandmother refused) grandparents did the same albeit they would have been better not doing this given most of their asset was then subsequently taken by the state as their contribution to their social care. I digress, the point is now the U.K. has a dearth of state housing - those in desperate need of housing, including asylum seekers are now housed in hugely expensive hotels. The government is not building public housing - its left to the private sector, and partnerships with housing associations. But bottom line is that not enough social housing is being built as there is no long term planning or strategy and the windfall from selling the council house stock was spent years back in tax cuts for the rich. Even private new house construction is being hampered by a whole system of house ownership laws, leasehold rules which is not fit for purpose. And the Grenfell tower disaster revealed that building regulations are also not fit for purpose. Again we go back for the role of the state in regulating essentially private or privatised markets, with the broader regulatory regime simply not fit for purpose.

In conclusion here, the big gains from privatisation were mostly windfall short term cash gains for the then Thatcher government; and political gains - crushing unions and securing backing from those able to buy Council houses on the cheap (most were sold at huge discounts to market value). The longer term benefits of privatisation are debatable but have evaporated I would argue by the failure of the state to properly regulate privatised sectors.

As a parting thought. How is selling a British government owned utility to a German or French government owned utility likely to significantly improve the efficiency of the service to U.K. consumers? The only gain is the short term cash windfall to the exchequer - sure it could generate longer term, economy wide benefits if this money was invested in thing’s improving the long term productivity of the U.K. economy - education, skills, transport infrastructure. But it was largely fretted away in tax cuts for the rich - likely much of that money is now parked in offshore accounts, protected by Panama paper like secrecy.