The Prime Minister's Office, CC BY-NC-ND 2.0
Key British assets which bring in millions of pounds worth of profit and provide incalculable social benefits are to be sold soon if the chancellor gets his way. Buried within the recent Spending Review are plans to sell off billions of pounds worth of public assets: the Land Registry, National Air Traffic Services (NATS), the Green Investment Bank, bailed out banks RBS and Lloyds, and the student loan book amongst others. The government is also exploring bringing in private sector capital to the Ordnance Survey – it's unclear as yet how this would work. These proposals are in addition to the planned asset sales being forced on local authorities and government departments. The government is also currently consulting on privatisation of Network Rail.
This fire sale, if it goes ahead, would be the most extreme privatisation programme this country has ever seen. If Thatcher’s privatisations were akin to selling off the family silver, these proposals are like selling off all the furniture and fittings, and gutting the whole house.
No public mandate
The public is still largely unaware of these plans, but recent polling by Survation on behalf of We Own It shows that they believe these assets should be kept public, which raises questions of political legitimacy.
This fire sale would be the most extreme privatisation programme this country has ever seen64% of those polled believed that student loan debt should not be sold to private companies. 70% believed that the Land Registry should stay public, 60% that the government should keep its stake in NATS. Only one in five of the public wanted the Green Investment Bank to be privatised.
These views were held by people across the political spectrum. Further privatisation would be extremely unpopular with Conservative voters, suggesting Osborne is out of step with his own supporters. 70% of Conservative and 75% of UKIP voters were against the idea of selling off the Land Registry, as compared to 79% of Liberal Democrat voters and 71% of Labour voters.
The findings tally with earlier polls carried out by YouGov in 2013 showing that two-thirds of the British electorate wanted energy, railways and the Royal Mail in public ownership. The government’s current privatisation trajectory is far to the right of what British people want.
The government has no democratic mandate for privatising these national assets, but not only that – they make no financial sense and will likely have a negative impact on British citizens. Students, their families, homebuyers, rail and air users will likely end up paying more for a worse service.
We Own It is now launching a new petition with 38 Degrees to stop the £12 billion privatisation of the student loan book, planned to begin in 2016, as part of its wider Top Trumps campaign raising awareness about the planned asset sales.
Already, average graduates will now have to pay an extra £3000 as Osborne has frozen the student loan repayment threshold in readiness for the sale. Shockingly, the UK government doesn’t have to consult the public before privatising student loans, and the terms of the loans can be changed without the permission of graduates.
The coalition government originally planned to sell off the student loans made between 1998 and 2012, but abandoned the sell-off plans in July 2014 – so these loans are still in public hands and at risk again. They are thought to be worth £12 billion so this is the biggest single public asset up for grabs.
What the sell-off means for students, and anyone who has graduated in the last 15 years, is that interest rates could rise, forcing graduates to pay more back. In addition, we are all likely to lose out in the long term, because of the likely terms and conditions of the expected sell-off. Clauses will likely be introduced to reduce any risk to the companies involved, with the public forced to compensate the buyers of the loans if repayments are lower than expected. In the late 1990s, the Labour government sold two tranches of student loans for £1 billion each. Today, the government is £240 million worse off than if it had kept those loans in public ownership, leading Martin Wolf of the Financial Times to describe the plans as “economic illiteracy”. Meanwhile, the Institute for Fiscal Studies (IFS) has dismissed Osborne’s claims that you can finance new loans by selling old ones as ‘economic nonsense.’
Martin Wolf of the Financial Times to describe the plans as “economic illiteracy”It's not just the student loans decision that doesn't make financial sense. The other assets up for grabs are making a profit in public hands and would continue to return money to the public purse for years to come. NATS returned £82 million back to the public last year. Through Britain’s 49% stake in the service, we sell services to airports and airlines in 30 countries, generating £157 million in pre-tax profit in 2014. The Land Registry currently has a 98% customer satisfaction rating, and returned £100 million to the Treasury in 2013. Ordnance Survey made £32 million profit in the past year, and its data underpins £100 billion of the economy.
If these assets are sold, it doesn’t take an economist to realise that future governments will face a significant loss of revenue, thereby making it harder to invest, protect its citizens, plan ahead, and keep to a sustainable economic path.
Selling the bailed out RBS bank now would create a £13 million loss. The New Economics Foundation has suggested that a much better use of public money would be to turn it into a network of local, accountable banks – and are campaigning for this with Move Your Money and Sum of Us.
The only lens through which the sales make sense is that of short-term economic and political expediency; the sales will temporarily improve headline debt statistics. The Office for Budgetary Responsibility states that “As in July, asset sales make the difference between debt rising and falling as a share of GDP in 2015-16.” Like a dodgy street conjurer, Osborne will use this sleight of hand to create cash without borrowing – at immense medium and long-term cost.
The principles of value for money and a sustainable long-term plan for the economy are being sacrificed at Osborne’s absurd ‘budget surplus’ altar – derided by most professional economists. He may have compared the country with an individual who’s maxed out on his credit card before, but under this same dubious metaphor the individual has been forced to sell his possessions, give up his job and his home simply to prove he’s got cash but is not spending anything. It’s not a sustainable, logical strategy.
Dangerous, more expensive, less accountable
It is likely that these sales would lead to worse service for consumers, and increased risk. Privately-owned Railtrack was held responsible for the tragic rail crashes of the late ‘90s, which was why the publicly-owned Network Rail was created as its replacement. Selling it off is an ideological move which risks passenger safety.
NATS currently keeps 220 million passengers safe and handles 2.2 million flights in UK airspace every year. If you take a flight, you're likely using the services of NATS. Would safety be compromised by the need to run a profit for shareholders? The polls show that British people don’t want to take that chance.
Meanwhile, if the Land Registry is privatised, this may threaten its neutrality, drive up the cost of buying a house and force small, local high-street solicitors out of business. Vince Cable vetoed its sale last year after a successful campaign – but Osborne has resurrected the plan.
It’s important to realise how extreme these proposals are and how at odds with public thinking. There is now a drive globally to halt and even reverse some of the privatisations of the past. For instance the city of Hamburg has decided to buy back its utility grids; Berlin bought back its water services in 2011. Globally, 235 cities have taken control of their water over the past 15 years. Even as our government becomes more extreme, there is a move towards public ownership further afield and a recognition of what it delivers.
We can and we must overturn this undemocratic, unpopular and economically illiterate fire sale. Public pressure defeated the coalition’s plans to sell off Britain’s forests; recently it forced the government to climb down on its proposed cuts to tax credits, army cuts and deals with Saudi Arabia.
Anyone would think from reading the Spending Review that having an asset was a bad thing and something to be jettisoned as soon as possible. But by definition, assets are things of value that provide an ongoing benefit – whether that's profit that can be reinvested or an important service to the community. There’s an emotional and moral argument too; some of these institutions are part of our national heritage. The Ordnance Survey is 224 years old, for example. Previous generations’ hard work and innovation created these assets, current generations make them successful today and it’s our duty to ensure they are passed on to the next.
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