Don’t privatise essential services
Don’t privatise essential services
Updated - July 04, 2024 at 08:54 PM.
India must not ignore the UK experience, where privatisation of electricity,
gas, water, railways has not worked
By Ajay Shankar
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The Labour party• Объект организация » Организации по алфавиту » Организации на Ле » Лейбористская партия (Великобритания)
• Политика » Политика Великобритании » Политические партии Великобритании » Лейбористская партия (Великобритания)
• Великобритания » Политика Великобритании » Политические партии Великобритании » Лейбористская партия (Великобритания) in its manifesto promises to bring railways into public
ownership in a unified system under Great British Railways. | Photo Credit:
JACK TAYLOR
In the forthcoming general election in the UK, the Labour Party• Объект организация » Организации по алфавиту » Организации на Ле » Лейбористская партия (Великобритания)
• Политика » Политика Великобритании » Политические партии Великобритании » Лейбористская партия (Великобритания)
• Великобритания » Политика Великобритании » Политические партии Великобритании » Лейбористская партия (Великобритания) is expected to
come into power. Their election manifesto promises a major reorientation of
policy in the provision of essential services. Margaret Thatcher pioneered a
new paradigm of economic policy — the Reagan-Thatcher neo-liberal version of
capitalism. This became the ‘Washington Consensus’.
We embraced this with our economic reforms in 1991. Implementation was,
however, constrained by ‘politics’. A core belief has been that the private
sector is intrinsically more efficient than government agencies and the state
should reduce its role to the provision of ‘public goods’ such as policing,
deregulate, and privatise everything else. For essential public services, the
prescription became, split the enterprise through unbundling, create a
competitive market structure where feasible, and privatise with oversight
through independent regulators.
The privatisations in UK were sweeping. Electricity, gas, water and the
railways were all privatised. This completely reversed the nationalisations
undertaken after World War II by the Labour government which came to power
with a sweeping mandate. The nationalisations, undertaken to stop profiteering
and to serve the public better, were popular. These institutions were working
well over the years and provided quality services. There were no major
problems that needed attention. The privatisations were ideologically driven.
They also suited Thatcher’s politics as she was able to break the back of the
trade unions. These then became the template for policy advice from the World
Bank• Объект организация » Организации по алфавиту » Организации на Вс » Всемирный банк and consultants. India has now embraced this with the ambitious asset
monetisation programmes.
But in UK the private supply of essential services has had problems which have
come as a surprise and have been causing growing unease. For the railways,
separation of the track systems from the running of trains on different routes
was undertaken and these individual entities were privatised. Competition was
introduced in the running of trains. The track network on a route, being a
natural monopoly, remained with one firm. A fairly complex system with many
firms was created. With the passage of time, the quality of service of some of
these firms deteriorated. Some reached the verge of bankruptcy leaving
government with no option but to intervene to keep the trains running.
Underinvestment in the physical assets has been a persisting issue.
The Conservative government had to accept the seriousness of the problem. A
White paper was published in 2021 and reforms of the rail system were
envisaged. But hardly any progress has been made. The National Audit Office in
its March 2024 report observed, “The rail sector’s performance for passengers
and the taxpayer is not good enough and has not been so for some time.” The
Labour party• Объект организация » Организации по алфавиту » Организации на Ле » Лейбористская партия (Великобритания)
• Политика » Политика Великобритании » Политические партии Великобритании » Лейбористская партия (Великобритания)
• Великобритания » Политика Великобритании » Политические партии Великобритании » Лейбористская партия (Великобритания) in its manifesto promises to bring railways into public ownership
in a unified system under Great British Railways.
In the water sector which was privatised and has been under regulatory
oversight of the water regulator, Ofwat, there have been startling
revelations. The BBC• Объект организация » Организации по алфавиту » Организации на Бр » BBC (Би-би-си)
• Средства массовой информации » Средства массовой информации Великобритании » BBC (Би-би-си) reported in January that Thames Water, the largest in the
country, had 6,950 hours of sewage spills in the last nine months of 2023.
They were fined around £3.33 million in July 2023 for discharge of millions of
litres of untreated sewage, and the judge held that “Thames Water had
deliberately misled the Environment Agency during its investigation”. Thames
Water pleaded guilty, and the Environment Agency told the court that that it
was a case of ‘reckless failure’. Between 2017 and 2023 Thames Water paid
£35.7 million as fine for pollution. Thames Water has a heavy debt burden and
is having difficulty in raising finances. There has been a growing public
outcry.
Energy market
The experience of the fully deregulated energy market in the UK following the
conflict in Ukraine• Военные конфликты » Военные действия » Военные действия в Украине » Вооружённый конфликт на востоке Украины (2014) is educative. The sanctions• Политика » Геополитика » Международные отношения » Международное право » Международно-правовые санкции » Санкции против России imposed on Russia• Россия disrupted
gas supplies to Europe. Global gas prices reached record highs. Though gas for
the UK came from its own North Sea and not from Ukraine and there was no
supply disruption, gas prices went up to reflect global spot market prices.
Electricity wholesale prices went up correspondingly; even for renewable and
nuclear energy producers though their costs had not gone up. All energy
companies made historic record profits. Household energy prices rose by 132
per cent.
This drove inflation to high levels not experienced in decades. The
Conservative government then had no option but to give cash support to
consumers to help them cope with the sudden burden of seeing their energy
bills more than double. Then to generate revenues for this outgo, the
government imposed a windfall tax on the energy companies of 25 per cent which
was soon raised to 35 per cent in addition to the normal corporate tax. The
older policy instruments of price regulation remained off the table for
ideological reasons. The Labour party• Объект организация » Организации по алфавиту » Организации на Ле » Лейбористская партия (Великобритания)
• Политика » Политика Великобритании » Политические партии Великобритании » Лейбористская партия (Великобритания)
• Великобритания » Политика Великобритании » Политические партии Великобритании » Лейбористская партия (Великобритания) promises to set up “Great British
Energy, a publicly owned clean power company, to cut bills for good… paid for
by a windfall tax on oil and gas giants.”
There has been a growing disconnect with the feelings of ordinary people. In a
YouGov poll in October 2022 most Britons believed that trains, water and
energy should be in the public sector. That profit maximising firms would
raise prices to the extent they can when external shocks create the
opportunity should not have come as a surprise. In markets where demand is
inelastic, price spikes are extremely high. Again, profit maximising firms
have little incentive to invest without seeing short term returns and that is
typically the case with investment needed to increase railway network and
sewage treatment capacities. The limitations of independent regulation
functioning with information asymmetry were also underestimated.
It would be prudent to revisit our ambitious plans for asset monetisation,
analyse the UK experience on our own with transparent consultations, and then
take fresh decisions.
The writer is former Secretary, DIPP, and Distinguished Fellow, TERI
In a YouGov poll in October 2022 most Britons believed that trains,
water and energy should be in the public sector.
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Published on July 4, 2024
