Privatisation in the UK

8/14/2019 Privatisation in the UK

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Privatisation in the UK

A History and Analysis


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Historical background

1976 - IMF cuts

1977 - First privatisation -British Aerospace

1978/9 - Winter of Discontent

1979 - Election of Thatcher 1980s - Major privatisations


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The First Phase

British Gas

British Steel British Telecom

British Water

British Rail


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The Results

Any rational calculation of theoverall costs and benefits of thewhole experiment must give anegative result

Will Hutton, 2002


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Private Finance Initiative(PFI)

Private contractors pay for construction cost of building projectsin the public sector, and lease finished project back to thepublic sector for periods up to 30 years.

PFI contracts take cost of borrowing off the Public Sectorbalance sheet, improve the governments finances.

Cost of borrowing is much higher in the private sector - annualexpenditures on PFI higher than if projects funded in publicsector.

Contracts approximately 30 years duration; PFI locks futuregovernments into on-going spending commitments.

PFI does not transfer risk to the private sector - services notallowed to fail.


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The current state of PFI:2009

Over 800 PFI/PPP projects in operation in Britain.

Approx 54 billion of investment.

12% of government infrastructure projects Over 200 billion of long-term debt repayment

by the British government

In Government We Trust: Market Failure and the Delusions ofPrivatisations, 2009 - Funnel, Jupe, Andrew


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Private Finance Initiative(PFI)

Though the government maintains that this offersbetter value than using public money, in realitythe numbers behind all PFI projects are rigged.

While the government retains much of the risk, theinvestors keep the profits, which often run tomany times the value of the schemes. The publicliability incurred so far by the private financeinitiative is 215bn. One day the repayments will

destroy Britains public finances

George Monbiot, May 2009


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Labour on Privatisation

PFI is just Privatisation by another name Harriet Harman, 1996

Our air is not for sale Andrew Smith, 1996

Morally unacceptable... Fundamental objections... - Jack Straw,1997

A publicly owned, publicly accountable rail network - John Prescott,1996


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Labour on Privatisation

Practically in every single

instance, the Labour Party waswrong to oppose privatisation

Peter Mandelson, 1998


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The Record:Health

Of 133 new hospitals built since 1997, 101 werefinanced using PFI.

149 PFI financed hospitals in the UK by 2009.

NHS will pay up to 70.5 billion for the

buildings.


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The Record:Health

Great Western PFI Hospital Swindon - 100 fewerbeds, could not meet local demand.

Plans for PFI hospital in Worcester forced closure ofexisting services at Kidderminster Hospital; newPFI hospital cut beds and staffing levels because ofserious financial deficits.

Nationally, 12,000 beds have been lost since 1997because of PFI costs.


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The Record:Health

NHS Wandsworth Trust: to pay more than10m a year until 2034 to private firm

Catalyst for new hospital.

Hospital costs Catalyst 73m to build and

run; Taxpayers to pay 340m overlifetime of project


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The Record:Health

Instead of using the opportunity of the taxpayer

bailout to re-open the contracts and negotiatebetter rates in favour of the public sector, the UKGovernment is allowing the banks to restoretheir balance sheets by charging relatively highrates of interest for PFI schemes. The increasedcosts of serving the debt are met from NHSannual budget, and result in reductions in the

money available for services.

Allyson Pollock: Edinburgh University, Centre for International PublicHealth Policy


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The Record:Prisons

very little innovation in custodialmanagement. Most of the gains have

come from using fewer staff, lowerwages, less employment protection forstaff and fixed contracts.

Phil Wheatley, DG, UK Prison Service


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The Record:Prisons

2008 internal BPS papers leaked to BBC.

Private prisons consistently worst for security,maintaining order, and re-offending rates.

Doncaster Prison 2005 - Chief Inspector of Prisons

found that conditions inside the prison haddeteriorated since the award of the contract.


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The Record:Water

Publicly owned Danish water utilities :Copenhagen annual water leakage rate - 4%

Public water utilities of Paris and Milan leakagerates - 10%

Privatised water companies in the UK: SevernWater leakage rate- 26% , Thames Water 32%

Data from OFWAT (the UK Water Regulator), EU research projectWatertime and a study by the Asian Development Bank


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The Record:Railways

Quite apart from the privatisation itself, the way inwhich the industry was fragmented was incrediblydamaging. The notion that a relatively healthy

company like British Rail could be broken into 100parts, all of which had to be profitable, could onlyhave been dreamt up by rabid ideologues, moreconcerned with theory than practiceThe

privatisation of the railways represented one of the

great political and economic crimes of the 20thcentury.

On the Wrong Line, Christian Woolmar, 2005


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The Record:Railways

Cost cutting, poor track maintenance resulted in failure tomaintain the track network and a series of train accidents.

Accidents - Southall, Ladbroke Grove, Hatfield, Potters Bar.

Accident Inquiry : Railtracks incapacities and lack ofregulatory oversight.

Railtrack divested engineering knowledge of British Rail into

private contractors, had inadequate maintenance recordsand no coherent asset register.


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The Record:Railways

The failures also demonstrate how farprivatisation, as an ideology, has permeated thestate in Britain, especially when a Labour

government not only refused to countenance re-nationalisation of the railways but in fact extendedprivatisation as part of its Third Way to include theLondon Underground

In Government We Trust: Market Failure and the Delusionsof Privatisation, 2009 Funnell, Jupe, Andrew


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The Record:London Underground

2003: PPP scheme over massive objections

30 year PPP contracts fragmented LU in to four parts

Transport for London in public sector, managed contracts,provided staff and trains

3 privately owned infrastructure companies responsible formaintenance/renewal of track, tunnels, signals and stations

2 companies became Metronet Consortium, 1 became TubeLines. Metronet a combination of different firms.

In 2004 Metronet fined 11m for poor performance.

In 2008 Metronet sought Administration


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The Record:London Underground

Contracts that were supposed to deliver 35station upgrades over the first three yearsdelivered 14-40% of the requirements;

stations that were supposed to cost Metronet2m in fact cost 7.5m; by November 2006only 65% of scheduled track renewal hadbeen achieved. They have ended in collapseand chaos. It was a spectacular failure

Transport Select Committee 2008


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The Record:Railways

Lost opportunities

Railtracks Insolvency

Metronets collapse

East Coast Mainline to be re-sold


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The Record:Civil Service

Facilities, IT, HR

MoD (DII ; DERA = QinetiQ)

Forensic Science Service

ONS

VOSA DWP back office and front line


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The Record:Civil Service: Welfare Reform

David Freud Review

Multi-billion pound business.

Welfare Reform Bill (clause 25) allowsfor contracting out of JCP functions


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The Record:Civil Service Reform

Observer, March 2009 - secret documents sentby senior DWP officials to JCP directors withdata revealing private firms performed far

worse than JCP Plus in delivering Pathways toWork

Restricted DWP report reveals how private

forms placed only 6% of claimants into workagainst 26% claimed when bidding forcontracts. JCP Plus placed 14% in same period.


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The record:Civil Service Welfare Reform

Intensive Activity Period - 2% of firms reachedtarget of getting 40% entrants in to work

Basic Employability Training - 77% of firms notmeeting target of getting 25% of entrants in towork

Gateway to Work 4% of firms reached target ofgetting 45% of 18-24 entrants into work


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Operational EfficiencyProgramme (OEP) : 2009

Royal Mint

Land Registry

Met Office

Ordnance Survey

Defence Storage and Distribution Agency

Defence Vetting Agency

UK Hydrographic Office


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PFI Now:Two sets of accounts

In spite of the widespread expectation that almostall PFI projects would go on the books as theTreasury fulfils a longstanding promise to move the

public sector to international financial reportingstandards, the Treasury has now issued guidance toWhitehall departments indicating that, while theywill count on departmental accounts, a different

accounting standard will apply for the Treasurysbudgeting purposes

Nicholas Timmins, Financial Times, May 2009


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PCS Privatisation policy

These examples are not the result ofaccidental errors of judgement. They resultfrom a political and economic logic whichargues that in almost every sphere of our lives,the market and the profit motive will performbetter than any other system. It is this dogmathat all who want democratically accountable

and publicly owned services must challenge

Mark Serwotka, November 2007


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The socialist case for publicservices

Social need instead of social profit

Public accountability instead ofcommercial confidentiality

Long term planning instead of shortterm gain


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Where next?

The measure of the restoration lies in theextent to which we apply social valuesmore noble than mere monetary profit.The joy and moral stimulation of work mustno longer be forgotten in the mad chase ofevanescent profits

Inaugural speech - Franklin Delano Roosevelt, 1933

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Privatisation in the UK