Margaret Thatcher privatised Britain’s power, water and rail network, handing huge profits to the private sector, at the expense of ordinary homeowners. Perhaps the best way to mark her death yesterday would be to renationalize the Utilities. Bolivia nationalised its domestic energy resources a few years ago. A shrewd move, at a time when owners of natural resources hold the best cards.
Maggie Thatcher’s greatest legacy was (together with US President Ronald Reagan) initiating the free market economics that have led directly to the bonus culture and gaping income inequality.
The era of “greed is good” capitalism went global, a fitting tribute to this extraordinary politician. Britain’s first and only female Prime Minister, she set the template for a massive transfer of public money into private hands.
The privatization of the state owned energy industry took a lumbering inefficient national power grid and turned it into a lumbering, inefficient and eye-wateringly expensive Corporate national power grid, where nearly 20% of households are officially in fuel poverty. Where the country’s natural gas had been owned and controlled by the State, it was frittered away for a few billion, a figure that now seems like small change compared to the problems of how to replace aging power plants.
UK energy regulator Ofgem warned last month that Britons may not be able to afford to heat their homes in the years ahead unless there is radical overhaul of the country’s energy supplies.
The regulator warned the country’s current system may not be sufficient to ensure “secure and sustainable” power across the country beyond 2015.
The big six, which include SSE and RWE, already under fire for increasing domestic bills during an economic downturn, but the latest weekly Ofgem projections show dual-fuel retail bills are now up to an average of £1,420 a year, delivering £95 in profit per customer – a profit margin for the firms of 7%.
That is up from an average bill in 2011 of £1,030 and a profit margin of 3.2%, according to figures provided earlier by the companies but only now published by Ofgem.
The 2011 figures – the first the companies provided under the regulator’s drive to bring more transparency to the market – also revealed the profit margins of the big six on their power generation divisions. EDF, the French-owned business that is demanding huge subsidies from the UK government to build nuclear plants, had a profit margin of more than 30% in 2011 while Centrica’s was 17%.
Ofgem said average margins in generation across the big six increased from 18.4% in 2010 to 24.4% in 2011.
In announcing proposals for a radical range of options, including setting up central buying of power, Ofgem’s chief executive, Alistair Buchanan, admitted that maintaining the current free-market approach was no longer an option.
Energy bills could rise between 14% and 25% by 2020 as the industry pays for the £200bn cost of investment needed to overhaul of the current system. He warned that increasing number of consumers would be unable to afford the cost of heating their homes.
Maggie Thatcher’s early experiments in privatization were copied all over the world, particularly in Russia, to unsuccessful effect. China has not gone down the same path.
By 1990, 42 major British businesses employing almost 900,000 people had been sold off, in every case for less than they were worth with no clawback against future profits. In every case the business running them have been sold and resold, and their executives awarded enormous bonuses.
Coal, railways and nuclear energy – not obvious privatisation fodder – passed into the private sector between 1994 and 1997.
So ingrained had it become in the public consciousness that in 1995 under Tony Blair’s leadership the Labour Party amended Clause IV of its constitution which had committed it to “the common ownership of the means of production” which if unchanged would have meant a future Labour government reversing the privatisations. Unthinkable then, but what about now? When it was claimed last week that prices in the gas market were rigged the public was appalled.
The revelations come on the back of a series of above inflation energy bill rises announced recently by members of the so-called “Big Six” suppliers.
British Gas announced a 6% increase at the same time as it was predicted the company would make £1.4bn profit this year.
Meanwhile 2,700 Britons die every year through not being able to afford to heat their homes – and around 7.8 million people can’t afford their fuel bills.
However, an interesting accidental experiment has occurred in the privatised rail industry which is subsidised to the tune of billions each year by the government.
In 2009, after National Express backed out of the East Coast Main Line franchise it had to be temporarily re-nationalised and since then profits have soared, which are going into government coffers. Punctuality and efficiency of the service has also improved. Is it the shape of things to come? Rosie Rogers, national co-ordinator of the political think tank Compass says why not? “I think the price fixing is the latest example of how privatisation and outsourcing isn’t always the best option. With public ownership there is more accountability. “People don’t feel they (private companies) are accountable, they might get a telling off or a slap on the wrist when things go wrong, but that’s it.
“People are becoming increasingly concerned about what they are paying for.”
A series of recent polls have shown overwhelming support for the re-nationalisation of railways. Those arguing for it say it is a cheaper option to the privatised system as so much in Government subsidies is paid into it. They also say an easy low-cost way of bringing the network back into public ownership would be to simply take each franchise back into the public sector when it expires or when the franchisee is unable to meet the franchise conditions. However with the former Public Utilities it might not be so simple. Dr Martin Farr, political expert atNewcastle University, said: “I’m not sure it could be done even if the public wanted it. It would be difficult to defend the amount it would cost in compensation to the shareholders.” And while Ms Roger gives an emphatic “yes” answer to the question has privatisation failed, Dr Farr is not quite so certain. “It depends on the eye of the beholder,” he said. “There are cases for both sides.”
The problem with the old state monopolies is that they became state bureaucracies, dedicated to defending their narrow interests. They were incapable of the kind of flexibility and innovation that you get with the best of consumer markets. Could you imagine state companies developing the iPhone or the iPad? We would still be using valves. But it is becoming increasingly clear – and not just on the left – that state ownership will not go away and indeed is perhaps becoming more relevant today than at any time over the last 30 years.
We are beset with commercial organisations that are too big to fail, too big to bail, too big to trust, and the state is getting ever more involved in managing them. Large sections of the banking industry have become unstable and rapacious monopolies and, in the case of Royal Bank of Scotland and much of Lloyds Banking Group, have fallen into state ownership. Large sections of the rail network, including the East Coast mainline franchise, and track-and-stations owner Network Rail, have come boomeranging back to public ownership. And following the West Coast mainline bidding debacle, Labour is now talking about re-nationalising the entire rail system. If there is to be a new generation of nuclear power stations, it looks as if the state is going to have to finance it because the private sector just doesn’t want to know.
As the financial crisis morphs into an economic depression, the state is having to intervene in the economy in ways that would have horrified Margaret Thatcher. But this is exactly what happened in the 1930s. The rail system was run by inefficient private companies which couldn’t generate the necessary investment. Technological developments in telecommunications were hampered by the need for private companies to put shareholders first. And of course, the private health service – unreliable, expensive and slow – was unfit for purpose and had to be replaced by the NHS, which some say has the same faults, but is actually the cheapest and most efficient national health provider in the world.
With the eclipse of socialism, state ownership is no longer seen as a political programme: a means to expropriate the capitalist class and build communism. We know that didn’t work. But pragmatists are realising that state ownership is the only solution for many areas of economic activity.