George Osborne wasted no time after the Conservatives were returned to power in May before signalling that flogging off public assets would be a key part of his strategy for paying down government debt. Royal Mail, and a parcel of development land around Kings Cross, were quickly earmarked for the block on 4 June. Royal Bank of Scotland is now to follow.
When Osborne announced the Royal Mail sell-off in parliament, he lumped it together with in-year spending cuts to Whitehall departments, to come up with a total of £4.5bn. Yet as the killjoys at the Institute for Fiscal Studies quickly pointed out, the two approaches – spending cuts and privatisations - are rather different.
For one thing, a sell-off brings in a one-off injection of cash, rather than the long-term improvement in the public finances that comes from, say, boosting the efficiency of the NHS. But more importantly, when the government sells an asset, whether it’s a bank or a bundle of student loans, it gains a chunk of cash but loses the future income stream – in dividends, repayments or rent – that it would have gone on earning from it.
Viewed through the lens of the next few months’ public finance figures, the privatisation spree will help Osborne to pay down public debt. But it won’t reduce the nation’s indebtedness in a broader sense, taking both sides of the national balance sheet – assets and liabilities – into account.
Of course, there are legitimate political arguments for privatisation. The government believes the private sector will make a better job of knocking RBS back into shape, for example; while some of the Thatcher-era privatisations had the subsidiary aim of firing ordinary voters’ enthusiasm for share ownership, as exemplified in the “Tell Sid” campaign that accompanied the sale of British Gas shares. Blasting the cold wind of competition through a stodgy state monopoly can deliver a better deal for consumers – though householders who have recently dealt with one of the UK’s privatised utilities might disagree.
So Osborne may have many reasons for selling the family silver; but taxpayers shouldn’t be duped into thinking they’re getting something for nothing.
