Nov 17, 2018Posted by on
This week on Facebook: In 2008 I wrote an article about privatisation under a New Labour government, in which The Guardian newspaper figured prominently. Some eight years later I am still writing about the sale of pubic assets, with the media on the left now writing in support of a ‘Labour’ opposition party and highly critical regarding the sale of public assets. At least this time around The Guardian has been more honest, if still remaining somewhat circumspect↔ about the part that the New Labour Administration played in the sale and funding of public assets (1).
The Government implements economic policies though its fiscal policy measures, which are intended to promote economic growth, when measured against GDP. A government economic policy is always politically motivated, being coincident primarily with the public opinion of their financiers and — occasionally — their supporters.
Government economic policy, measures by which a government attempts to influence the economy. The national budget generally reflects the economic policy of a government, and it is partly through the budget that the government exercises its three principal methods of establishing control: the allocative function, the stabilisation function, and the distributive function. Encyclopaedia Britannica: Government economic policy
The UK State would claim that in exercising the three principal methods of establishing control of the political economy, it makes investments for the benefit of the public at large. However, the State uses government economic policy to fund deficit financing, maintain, if not increasing, the national debt and using notional↔¹ taxation to pay for both.
Investment, process of exchanging income during one period of time for an asset that is expected to produce earnings in future periods. Thus, consumption in the current period is foregone in order to obtain a greater return in the future. Encyclopaedia Britannica: Investment
The State has a very poor track record on public investment¹, particularly regarding the procurement and sale of public investment assets (2).
Public investment, investment by the state in particular assets, whether through central or local governments or through publicly owned industries or corporations. Encyclopaedia Britannica: Public Investment
Public-private partnership (PPP), partnership between an agency of the government and the private sector in the delivery of goods or services to the public. Areas of public policy in which public-private partnerships (PPPs) have been implemented↔ include a wide range of social services, public transportation, and environmental and waste-disposal services. Encyclopaedia Britannica: Public-private partnership
While the State’s current fiscal policy may be in reducing the national debt, it fails to take into account past and future public investment. The political reason for reducing the national debt is to permit the continuation of deficit financing with forecasted economic growth as a realistic percentage of GDP.
Central to our plan to fix the public finances is the sale of Government assets to help pay down the national debt and ensure economic security for working people. UK Treasury on Public Assets
The State has arbitrarily↔²· conducted the sale or purchase of public investment assets for purely political gains. While a public sector investment invariably↔ incurs losses to the public purse↔, the following video opines that purchasing public sector assets discourages private investment.
The UK State has set-up↔¹⋅¹ a private limited Government-owned company called UK Government Investments (UKGI), with the purpose of supporting government departments on public sector asset sales. This company advises ministers and senior officials on the best strategies and structures for a sale. It carries out market testing in devising and managing the sale execution process to achieve value for money for the public purse.
Public sector, portion of the economy composed of all levels of government and government-controlled enterprises. It does not include private companies, voluntary organisations, and households. Encyclopaedia Britannica: Public sector
Assessing the true value of a public sector asset is complex, in which politics drives the evaluation for short term gain. The losses incurred by the public purse, such as any public investment prior to the sale of public sector assets and any consequential costs to the public purse as a result of any sale — are largely ignored .
The public sector holds financial, corporate and physical assets in the pursuit of policy objectives and not for its own sake or for the creation of profit. In pursuing policy objectives, the public sector pursues Value for Money, defined as optimising net social costs and benefits. This Public sector assessment of value is based upon the interests of society as a whole and is not an assessment of value to the public sector alone. UK Treasury — The Valuation Of Public Sector Assets
I am of the view that the UK is broke and that it seems (at least to me) that the State, in its management of the public administration, is only interested in the short term revenue that a public sector asset would generate by its sale². The State has no interests in the value of a public sector asset in terms of its societal↔ value, other than in generating public investment where private investment is not forthcoming (3). At some date in the future any public sector asset primed with public investment (4) can be privatised³ — at a loss to the public purse (5).
1. A Short history of privatisation in the UK — 1979-2012: In the technocratic nomenclature of the IMF, this would be called a “structural adjustment programme”, but that doesn’t really capture the sweeping scale of the transformation. We can see this through a potted history of privatisation in the UK.
2. “Shrinking The State” l Privatisation in the UK: Privatisation is the process of transferring ownership of a business, enterprise, agency, public service, or public property from the public sector (a government) to the private sector, either to a business that operates for a profit or to a non-profit organisation. It is also used by some to describe the outsourcing of public services or functions to private firms, e.g. revenue collection, law enforcement, and prison management.
3. A perspective on UK infrastructure finance (YouTube): An interview with Burges Salmon’s Graham Soar about how we can improve the delivery of UK infrastructure. Topics include: private finance for infrastructure projects and what the UK government can do to attract investment.
4. The Great British sell-off. Who’s in? Back in the days when British Gas was on the block, and all those Sids were about to be made a few hundred quid richer, state assets were being sold at a gallop. Many of those going under the hammer – with fat fees for the merchant banks who steered them – were assets it now seems barely believable were ever state-owned. British Rail’s hotels, the cross-channel ferries, Rolls-Royce were all once owned by the state.
5. The Government needs to work on its sums when selling off state assets: The Treasury would probably like you to believe that last year’s sale of Eurostar was a marvellous result for the taxpayer. Last March it agreed to offload the state’s 40 per cent stake for £585m. A further £172m was brought in through the redemption of preference shares, netting £757m for the cash-strapped Exchequer. But here’s the first problem: the House of Commons Public Accounts Committee (PAC) believes that sum represents only a fraction of the taxpayer’s investment in the business and the high-speed rail link between London and the Channel Tunnel (known as HS1). The National Audit Office says UK taxpayers have spent £3bn on these services.
Referenced Articles Books & Definitions:
- A text subscript above and preceding the title here, refers to a book, pdf, podcast, video, slide show, url etc and a download that is usually free.
- Brackets containing a number e.g. (1) reference a particular article (1-5).
- A superscript in bold¹ is used for a reference included below.
- A superscript (not bold) indicates the intended context of a word (definition↔¹).
- Links (without superscript) reference a source.
- A url* followed by an asterisk (especially below) indicates a long read.
- Occasionally Open University (OU) free courses are cited.
- JSTOR lets you set up a free account allowing you to have 6 (interchangeable) books stored that you can read online.
¹Government Waste (2014) exposes £120 billion of wasteful spending (url/pdf) In advance of the Comprehensive Spending Review, we can reveal how the Government could cut vast swathes of wasteful and unnecessary spending. A new online edition of theBumper Book of Government Waste, published today, identifies potential savings to the tune of nearly £120 billion, a figure almost exactly equal to the current budget deficit. This equates to a massive£4,500 for each and every household in the UK – enough to give every family in the land a luxury holiday or pay their household energy bills nearly three times over.
²Government assets worth £337bn (2007): Chief secretary to the Treasury, Stephen Timms, said: “The 2007 National Audit Office Report will encourage departments to make the best possible use of their existing asset base by exploiting under-utilised assets and disposing of assets no longer required for service delivery.”
³Foreign ownership of British assets has damaged our economy (url*): Unlike any other developed nation the UK has sold off considerable amounts of its major industries and assets to overseas owners. This has weakened democratic control of industry, inflated our exchange rate and seriously undermined our manufacturing base.