The privatisation of state owned assets is not only a useful way to raise revenue but has historically injected more competition into markets. This frees the employees of state owned assets to be more creative and is likely to lead to greater innovation and productivity enhancing changes. Harriet Maltby’s recent article for CapX reinforced that point and made a strong case for much more ambition with respect to asset sales over the course of this Parliament. Recent work carried out by the TPA has given a fascinating snapshot into the vast array of assets owned by local authorities. No local council needs to own a cheese factory or a wet fish stall.
If the Government wanted to make the task of deficit and debt reduction easier over the coming years then it should embark on a new privatisation programme. There is definitely scope for quite substantial asset sales such as the Royal Mail and RBS stakes owned by the taxpayer. We should never have been in the situation which required us to bail out the banks; aside from the deep concerns over moral hazard and efficiency, the burden on taxpayers has been intolerable. Nevertheless, it is clear that RBS is now a very different company to the one we bought and it is better to sell it now than hold on to it forever.
The sale of the Government’s 40% share in Eurostar earlier this highlighted the fact that whilst the state does not run many companies, it still owns chunks of a lot of other companies. For example, the Government should press ahead with plans to sell its stake in Urenco, the state owned uranium enrichment company. Other examples of state owned assets which the Government should consider privatising include Channel 4 which would benefit from being totally freed from state ownership; this is something that even Labour considered when it was in power. In an article for CityAM, CPS Director Tim Knox suggested a number of other state owned assets which could be privatised such as local authority-owned airports.
Nevertheless, for future privatisations the Government should ensure that the balance is more in favour of retail investors rather than institutional investors. Minimum purchase amounts should be set as low as possible to ensure that the widest pool of people can buy shares. Privatising these assets is a good in itself but it would be a missed opportunity if privatisation over this Parliament was not used to increase asset ownership amongst the general population. The share of the population which owns equities or bonds remains disappointingly low and the decline in home ownership has been well documented.
Extending asset ownership is a powerful tool to raise living standards and to give people a bigger stake in the future of our economy. Greater asset ownership leads to a healthy cycle of rising incomes which spreads asset ownership even more and increases wealth. This reduces dependency on the state and helps to cut demands on the welfare budget. As much more ambitious privatisations start to occur over the next few years, the Government should use the opportunity to spread mass private ownership.