Chapter 11: Privatization in Britain (Peter Young)

Privatization has played a key part in economic reforms in Britain since 1979. More than 800,00 jobs in state sector have been transferred to the private sector. More than 1.2 million public housing units have been sold to their tenants. In addition, many public services have been contracted out to the private sector.

Mandatory competitive bidding for local services went in effect in 1988. Six services were to be subjected to competitive bidding: refuse collection, street cleaning, cleaning of public buildings, vehicle maintenance, ground maintenance, and catering services. Further services are being added. Local authorities and the private sector were required to compete fairly and equitably to provide their services. As a result, by 1990, after two years of contracting out services to the private sector through competitive bidding, savings were 42 million pounds a year. One interesting change has been management and employee buyouts in local government. A management buyout frees local managers from the major constraints on public organizations, such as capital control and the restriction on trading with private customers.

Bus services, which were largely state-owned and monopolized, took the first step to privatization in 1980. The deregulation of local bus services allowed maximum competition and satisfied various interest groups. Those routes that were thought to be unprofitable but socially necessary became profitable. The amounts of subsidies were decreased, compared with the previous publicly operated system.

Before 1987, airports in Britain were owned by the national government. They were privatized by the creation of the BAA (British Airport Authority), through a public stock offering. BAA as a private sector organization could access private capital markets. Therefore it enabled the company to construct a new airport and to develop new lines needed for business travelers.

Private funding of transport infrastructure is a well-established and expanding practice in the UK. The first privately funded scheme was the Dartford Bridge over the river Thames. The largest such project is the Channel tunnel which is 32 miles in length and cost over 7 billion pounds. The project was financed by individual investors and investment institutions from various countries. Such projects can be undertaken more speedily and efficiently by the private sector than the public sector.

Privatization in Britain started twelve years ago in a hostile political and ideological climate. As the policy went from success to success, opposition decreased gradually, the possibilities expanded, and proponents multiplied. The experience shows the broad range of public services that can be privatized for better service and lower cost.