“If you see Sid, tell him” went the advertising slogan for the privatisation of British Gas in 1986, encouraging Brit’s to tell their friends about the impending Initial Public Offering (IPO) of the national energy giant. And they did. In the end, 1.5m ‘Sids’ were told, with the nation clamouring to invest their £675 maximum allocation in the company, valuing it at £9bn – at the point the highest equity raise in history, and much needed as the Conservative government sought to repair the gaping holes in the country’s finances.
The purpose of rapid privatisation during Margaret Thatcher’s 11 years as Prime Minister was not only to provide economic stimulus. As the Iron Lady wrote in her memoirs, denationalising cumbersome institutions was crucial for “reversing the corrosive and corrupting effects of socialism”. The Conservative government of the 1980s sought to reduce the influence of the unions and to ensure “the state’s power is reduced and the power of the people enhanced”.
In 1984, soon after Thatcher’s Conservatives were re-elected, the government sold 50.2 per cent of its stake in British Telecoms, defying the critics who claimed it was ‘too big to sell’. Just over a third of those shares were earmarked for the general public and by the time the deadline had expired, the share placing had been oversubscribed 3.2 times. Trading – which began on 3 December 1984 – raised £3.9bn for the Exchequer and “did more than anything else to lay the basis for a shareowning popular capitalism in Britain”, according to Mrs Thatcher.
But would the then-Prime Minister change her tune if she could see the sorry state of BT (BT.A) today? Perhaps. Right now, the telecoms giant is readying itself for a hostile takeover bid following a whopping collapse of its market value in the last year. Management have used the shadow of coronavirus to cut the company’s dividend – a long overdue move in the eyes of the many thousands of people struggling to work from home using an underinvested broadband network, but a massive blow to BT’s private investors, many of whom will have owned their shares since 1984 and have relied on the generous dividend for income.
BT’s failings are not entirely of its own making. From the outset, it has been burdened by the weight of a massive pension deficit – the legacy of many years as a publicly owned and run institution. The expectation of consistent dividend payments has prevented the company from investing in innovative technologies to the extent that it should have done. Meanwhile, regulators have spent the last 30 years encouraging competition, citing studies that have found that opening industries to competition is important in order to maximise the productivity gains from privatisation.
In the case of British Gas – now operating as Centrica (CNA) – there can be no doubt that privatisation has helped spark a more open market and British Gas is now one of a handful of energy providers with an enviable market position. But regulatory issues have also dogged the company in recent years as reforms including the energy price cap have attempted to open the market even more. Centrica’s share price has fallen 82 per cent in the last five years and the company stopped paying a dividend in 2019.
Still, private investors have undoubtedly benefited from the initial sale of government company shares, as well as subsequent share sales and spin outs. Industry efficiency has also improved. In 1979, nationalised industries represented 10 per cent of the economy and 14 per cent of capital investment, with the rate of capital returns of those companies no higher than 2 per cent. Private companies, with investors to answer to, strive for higher capital returns. By the time Margaret Thatcher was ousted from office in 1990, more than 40 UK state-owned businesses employing 600,000 workers had been privatised and nationalised industries represented just 2 per cent of the economy.
Privatisation also sparked a rise in shareholding in the UK, which helped changed popular perceptions of the accessibility of investment. According to Kenneth Baker, minister for industry and information technology at the time, “when we came into office, there were about three million people who owned shares in Britain. By the end of the Thatcher years, there were 12 to 15 million shareholders”.
The wealth accumulated by private investors through capital gains and dividends has been significant and if the sole purpose of Margaret Thatcher’s privatisation was to increases the awareness of the benefits of a free and fair capitalist society, the scheme – which has been continued by successive governments – has been a success. But whether it has been good for the nation’s productivity, growth, or innovation is a different question. One to be discussed another day.
