Mike Hedges AM reflects on a costly disaster.

As people have received their water bills, or had to change supplier following the failure of some energy companies, and now with British Steel almost closing in Scunthorpe, people have discovered the downsides of privatisation. While it made a few people very rich, most of us have ended up paying a high price.

The Conservatives under Thatcher came to power in 1979 with privatisation as a key part of its manifesto, and it became a central part of their ideology as the 1980s progressed. Many industries and utilities, including some that had been nationalised by the Attlee government of 1945-51, were made into private companies. Steel, railways, airways, airports, and aerospace industries, and the public utilities – gas, electricity, telecoms, and water – were privatised. When the Conservatives won the 1979 general election, nationalised industries represented 10% of the economy and 14% of capital investment.

The stated objectives of privatisation were:

• Make the privatised firms more efficient.
• Increase labour productivity and proper regulation of the industries.
• Increase share ownership in society.

It was not only government industries that were privatised: we also had the privatisation of mutual building societies.

Building societies

Building societies are mutual organisations owned by their members – their retail savers and their mortgagors. From the late 1980s though, most of the larger societies –decided to convert to plc status to become banks rather than building societies. To do this, they floated on the London Stock Exchange and offered free shares to their personal customers. Other societies became demutualised through agreeing to be acquired by banks such as Birmingham Midshires, Bristol & West, Cheltenham & Gloucester and National & Provincial.

This easy way to make money from shares came to a halt within a few years. The last to demutualise was the Bradford & Bingley in 2000. The remaining large building societies all made it clear that they supported mutuality and did not see the business case for demutualisation and conversion to a bank.

Every one of the demutualised societies quickly lost their independent status either by being acquired by other banks, or by running into calamitous financial difficulties during the 2007-8 financial crisis exemplified by Northern Rock, and Bradford & Bingley. Shareholders of the Northern Rock and the Bradford & Bingley found that their holdings became worthless.

Water

Water privatisation  in England and Wales took place in 1989, through the sale of the ten regional water authorities The newly created, privately owned water and sewerage companies paid £7.6 billion for the regional water authorities. At the same time, the government assumed responsibility for the sector’s total debts, amounting to £5 billion, and granted the WSCs a further £1.5 billion of public funds. England and Wales became the only countries in the world to have a fully privatised water and sewage disposal system. A publicly owned monopoly was turned into a private monopoly, and we have paid the price.

Research by the University of Greenwich suggested that consumers in England were paying £2.3 billion more every year for their water and sewerage bills than they would if the water companies had remained under public ownership. By 2024, the rise in inflation and interest rates left several water companies with unsustainable debt. Water companies sharply increased bills, failed to deal effectively with sewerage entering rivers, but were still able to pay £1.4bn in dividends in 2022.

The only long-term sustainable solution is to return water and sewerage companies to public ownership.

Gas and electricity

British Gas was privatised in 1986. The first parts of the electricity industry were privatised in late 1990, when the twelve regional electricity companies in England and Wales were sold. This was followed by the Scottish industry and the generating businesses National Power and Powergen and the National Grid being privatised.

The National Grid’s core business is moving electricity and gas around the country. Due to privatisation, UK consumers and workers have suffered from increased energy prices, fuel poverty and thousands of job losses while private firms are recording growing profits. The privatised transmission grid operator National Grid paid out dividends of £1.4 billion in 2021.

The national grid was a public monopoly which was turned into a private monopoly. The unbundling of the energy sector in the 1980s paved the way for an oligopolistic structure where the ‘big five’ firms currently control 70 per cent of the household energy market.

British Steel

From the mid-1970s, British Steel pursued a strategy of concentrating steelmaking in five areas: South Wales, South Yorkshire, Scunthorpe, Teesside and Scotland . In  1987 the Conservative government stated that it intended to privatise the British Steel Corporation. In 1988 the assets, rights and liabilities of British Steel Corporation were transferred to British Steel plc. The company merged with Dutch steelmaker Hoogovens to form Corus and was then taken over by the Indian company Tata.

While privatised utilities have a monopoly, industrial companies must trade and compete. In 2020  the Jingye Group, a Chinese steelmaker, became the owner of British Steel at Scunthorpe.

We now have the Government stepping in to stop the Chinese owners of British Steel in Scunthorpe closing it down. We have seen the closure of iron and steelmaking in Port Talbot by Tata and the proposal to use an electric arc furnace to recycle sheet steel.

I do not believe either Port Talbot or Scunthorpe have a long-term future as privatised companies owned by Chinese and Indian companies. Now is the time to bring both back into public ownership.

For utilities, mutuals and industries, privatisation has been a costly disaster for most people. There is a need for a strategy to bring the privatised industries back into public ownership and put an end to the Thatcherite experiment. We need a plan: I would suggest that we start with steel and water, with the rest to follow.

Mike Hedges is the Senedd Member for Swansea East and a former Leader of Swansea Council.

Image: Mike Hedges. Author: Steve Cushen, licensed under the Creative Commons Attribution-Share Alike 3.0 Unported license.