In 1986, the government was keen to “Tell Sid” about a great new offer. The fictional character was urged to buy shares in British Gas, which was about to be listed. It was perhaps the high point of Margaret Thatcher’s privatisation push.
It was not only British Gas. Jaguar, British Airways, British Telecom and Rolls-Royce were among the blue-chip names that joined the public markets. The Conservative government was determined to sell off even those assets that were nailed down, from electricity networks to railway lines.
More than 30 years later, Britain lives with the consequences of that 1980s revolution. From buses to trains to energy, there are signs that the wheels may be coming off. Last week, two of Britain’s best-known bus operators revealed plans to merge, in a sector battered by the pandemic. The rail franchising system of the 1990s has already hit the buffers, with train lines brought back to full government control. Meanwhile, a surge in gas prices has brought dozens of energy suppliers to their knees.
Has the great privatisation experiment failed, or is the free market merely doing its job and shaking out the weakest competitors?
On the buses
When Thatcher deregulated the buses, Brian Souter and his sister, Ann Gloag, took the chance to build their Perth-based company, Stagecoach, into a major player on the buses and, later, trains.
Last week, Stagecoach revealed plans to be taken over by National Express in an all-share deal that would leave its shareholders with a quarter of the enlarged company.
The combined group will have a one-third share of the regional bus market, although the companies do not currently overlap in the same parts of the country. Nonetheless, Emily Yates of the Association of British Commuters said competition would only worsen. “We have five bus companies that have 80 per cent of the whole market, and now we’re talking about a merger. It’s absurd,” she said.
When the government of the 1980s deregulated the buses outside London, the goal was to boost passenger numbers and competition. In fact, dozens of local monopolies sprang up and fares in many places rose. A damning report by a group of academics this year found that Britain’s bus system “provided a master class in how not to run an essential public service”.
The government recognises the problem and this year published a National Bus Strategy to give city mayors powers to run the buses more like they are in London, where TfL has greater control over private operators. This builds on earlier moves in 2017.
Paul Swinney of the Centre for Cities said the strategy was an “explicit recognition that they think that privatisation hasn’t worked”.
Alistair Hands, commercial director of Arriva buses, said the new strategy laid a positive route to recovery for the sector, noting buses are essential to the green agenda.
“A full bus can take something like 30 cars off the road,” he said.
Trains
Over on the rails, Covid put the final nail in the coffin of the franchising system, which saw firms bidding to run lines for a set time. The problem with the old system was that competitive bidding for franchises led to companies making unrealistically low offers for how much they could run the service for. The result: poor service and, in many cases, the private company handing back the keys early to the government.
Now, the railway is being reorganised under a body called Great British Railways (GBR) from 2024. Train operating companies will have management contracts and do not carry any of the risk if revenues decline because of falling passenger numbers.
Grant Shapps, transport secretary, declared that “full fat-privatisation has clearly turned out to be a flawed model”.
However, some argue that the railways never fully left state control: franchises often had scores of obligations dictated to them.
“The way competitions were run and franchises were implemented was the problem, not the concept,” one railway executive said. “Overbidding was encouraged. It wasn’t good government procurement.”
Lord (George) Young, transport secretary under John Major when the railways were privatised in the 1990s, said it met the three objectives it was set: reduce dependence on the Treasury, develop a private sector of train operators, and make the railways more customer-focused. He warned that the new system would disincentivise private investment. “If they’re just running a management operation on behalf of the government, they’ve got no incentive to modernise the stations or, indeed, generate a lot more traffic,” he said.
Energy
Meanwhile, the crisis currently driving young energy suppliers to the wall has led to calls for a rethink of that sector. Ed Miliband, Labour’s shadow minister for energy, said the situation “was a fundamental failure of long-term government planning”.
Darren Jones MP, the Labour chairman of the business select committee, blamed reforms that encouraged too many new suppliers to offer cut-price deals. Many experts now predict dozens more energy suppliers will collapse with perhaps the ten strongest remaining, arguably a more healthy competitive environment. Most analysts argue that privatisation is not the problem per se, but the regulations set up afterwards.
Sir Vince Cable, the former coalition government business minister who oversaw the high-profile privatisation of Royal Mail in 2013, said each case should be viewed on its merits.
“It’s rather healthy that we’re looking at privatisation and nationalisation from a purely practical point of view, rather than ideological,” he said.
“The ownership doesn’t really matter, providing you’ve got the right structure in place for running the bus network. And I think the same is probably true of railways, too.”
Sid, if he is still alive and holding his shares, may need to be told.