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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:

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.

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Posted on 18 March 2014

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