Pressure Groups and Political Forces in Britain’s Privatisation Programme

Britain’s privatisation programme of the 1980s and early 1990s is regarded in most countries as an exemplar of economic reform. It was indeed a pioneering effort, drawing on the intellectual capital provided by a counter-revolution in economic thought which demonstrated the advantages of economic liberalism. Privatisation decisively changed the direction of British industrial policy away from state ownership and subsidisation, returning to private hands the industries which had been nationalised by the Attlee government in the immediate aftermath of World War Two. It resulted also in a regulatory regime for utilities which is a considerable improvement on the earlier US model. The British system – based on independent regulatory offices, RPI – x price control and pro-competition action – is much less prone to ‘gold-plating’ and to ‘capture’ by pressure groups. Nevertheless, there is an apparent paradox in Britain’s privatisation programme. It was carried out by an administration which proclaimed the virtues of market liberalisation. Yet liberalisation was not one of its main features: the emphasis was on ownership transfer. The theme of this brief paper is that the structures of privatisation schemes in Britain were determined primarily by the interplay between pressure groups and government – the latter being the most powerful group of all since it has unique powers of coercion, including the power to tax, and enjoys a monopoly (between lections) in the supply of policy. The paper assumes government is primarily a vote-seeker which treats citizens unequally, favouring those groups which appear able to deliver or influence large numbers of votes.