Winners and Losers: the great privatisation game
Who has benefited from the Government's privatisation programme: the public or top executives?
Over the past 30 years, the UK has transferred billions of pounds worth of assets from the public to the private sector.
Politicians and business leaders have extolled the benefits of privatisation in terms of improved efficiency and a higher standard of service. Campaigns such as the ‘tell Sid’ adverts promoting the sale of British Gas suggested that privatisation would pass ownership of the newly-privatised companies to millions of small shareholders across the UK. However, a thorough analysis of trends in the privatised companies reveals a less convincing picture:
- The average UK energy bill has risen by 140% in the past 10 years to £1,252 while household incomes have increased by 20%.
- Water bills have increased by 74% since 1994/95 while leakage rates are up in some cases by nearly 30%.
- Some rail fares have gone up by 100-200%. Season tickets, which are subject to government controls, have risen just above inflation at 55-80%.
- Though the sell-off of privatised companies raised £50 billion for Government (at 2000 prices), the Government also had to write-off debts for many of these companies and take on their pension obligations. Many privatised firms have also required subsequent support from the taxpayer
- 170,000 jobs have been lost in privatised companies, while pay for the remaining workers has stagnated
- The initial increase in individual share-owners has not abated the overall trend towards institutional share ownership.
For the executives of the newly privatised companies, the benefits have been much more apparent. CEOs of privatised firms are paid as much as £5 million, perhaps 50 times what a senior public servant could expect. Similarly, analysis from Brewin Dolphin shows that investors in privatised companies have seen their shares increase in value by 419% since privatisation, compared with a FTSE 100 average of 206% over the same period (suggesting that the sale of these companies at a knock-down price represented poor value for taxpayers). Many shares in privatised companies are now owned by foreign investors, so the gains from the share price increase have gone overseas.
The scale of benefits to the business leaders and investors raises doubts about the entire case for privatisations. Executives and investors exert huge influence over economic policy debate. As a profession, senior managers (in the private and public sector) benefit financially from the lucrative pay packages on offer in privatised companies, so it is no surprise that they use this influence to promote the sell-off of public assets, even though the benefits to the public are much less apparent.
Since 4 January 2016 the average FTSE 100 CEO has earned:
Income inequality in the UK
Wealth inequality in the UK
- New PM spells big change for boards
A piece by Stefan Stern in the FT on 21.7.2016
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- Investment Association, Executive Remuneration Working Group
Read our response to the working group's interim report, in which we argue for a fundamental rethink to the principles of executive pay