Privatisation: a troubling legacy

Ken Jones; Fran Bennett
UK Coalition Against Poverty

Privatisation in the UK has left a troubling legacy. Multinational corporations now control many basic services, often requiring complex regulation to protect service provision. Workforces are often reduced. Many low-paid workers in privatised sectors, particularly women, earn less and have less job security. The sale of public housing has contributed to homelessness and housing difficulties for low-income and other vulnerable groups.

Conservativegovernments in the United Kingdom pioneered a highly active privatisation policybetween 1979 and 1997. This policy was driven by a belief in the superiorefficiency of private ownership and market mechanisms over state provision and aconviction that public expenditure ‘crowds out’ private enterprise. Itfollowed a history of under-investment in public services in the UK.

Manybasic services were privatised, including water, gas and electricitydistribution, telecommunications and transport(air, rail and bus), and supportand other functions throughout the public sector such as health,education, and central and local government administration. In addition, a largeproportion of local government housingwas transferred to individual owners or other, non-governmental, housingproviders. Privatisation was also extended into such areas as skills training,public health laboratories, and even the operation of prisons. The emphasis inpensions, long-term personal care and childcare increasingly shifted towardsprivate provision as well.

UnderLabour governments since 1997 the pace of outright privatisation has slowed, butthe emphasis has instead been on private financing and operation of statecapital projects such as new hospitals and schools, partly in order to keeppublic borrowing down.

Privatisationin the UK has left a troubling legacy. Multinational corporations now controlmany basic services, often requiring complex regulation to protect serviceprovision. Workforces are often reduced.  Manylow-paid workers in privatised sectors, particularly women, earn less and haveless job security. The sale of public housing has contributed to homelessnessand housing difficulties for low-income and other vulnerable groups. There isreduced potential for pooling of risks and redistribution towards low-incomegroups in private pensions.

Despitepublic opinion against this policy, governments in the UK for the last twodecades have allowed private corporations to acquire a key role in providingformerly government-run services. Restrictions on domestic regulation resultingfrom international treaty commitments, such as the World Trade Organisation’sGeneral Agreement on Trade in Services, may in future prevent UK governmentsfrom pursuing their own measures of social control over services which areessential to the daily lives of millions of citizens.

Basicutility services

Mostof the basic utility services -water and sewerage, energy supply, and telecommunications -were privatised during the 1980s. State enterprises were typically reconstitutedas private corporations, and shares were then sold to individuals.

Sinceprivatisation, ownership has in many cases been transferred and consolidated, sothat multinational companies (often based outside the UK) now hold controllinginterests in much of the water and energy supply industries. In addition,markets have frequently been opened to new private corporations that competewith former state-owned monopolies, further undermining the potential for socialcontrol over services.

Privatisationhas had significant effects on employment in affected service sectors. In theyears following privatisation, employment levels fell substantially in areassuch as water and sewerage.[1]In addition, those workers remaining in privatised industries often suffereddeteriorating employment conditions and loss of trade union rights.[2]

Stateregulators frequently imposed price limits on the new private corporations, butthey also had to take into account the interests of private shareholders inmaximising profits and dividends and the need to generate significant newinvestment capital as, for example, in the water and sewerage industry.[3] Consumer groups haveregularly challenged price levels for privatised services,[4]though some prices have decreased.   Therehave also been continuing concerns about the effectiveness of regulation inprotecting services to vulnerable groups such as elderly and disabled people[5] and the discriminatory effect of some pricing andbilling practices on low-income groups.[6]In the case of water supply, there have been general price reductions sinceprivatisation;[7] but there has also been an extension of water metering,which is often more expensive for low-income groups.[8]

Intransport, rail privatisation proved disastrous. A fragmented private ownership structure was imposed, furtherdiscouraging investment needed to compensate for decades of neglect. Small traincompanies lacked the same access to investment capital as larger ones, and alloperators suffered from the relatively short duration of initial franchises. Twomajor rail disasters heightened concerns about safety. The main infrastructurecompany (responsible for stations, track and signals) suffered repeatedfinancial crises before finally collapsing in 2001. Privatisation of busservices, on which low-income groups rely heavily, has led to concerns aboutprices, environmental damage, and loss of transport services to rural areas.[9]

Supportand administrative functions within public services

Some ofthe most damaging effects of privatisation on workers were caused by the'contracting out' of support and administrative functions within public servicesto private companies. Many of the affected workers were women and ethnicminorities.

Inthe civil service (providing central state functions), a workforce of around50,000 was employed in 1980 in various office support services such as cleaning,catering and security. During the following decade, these jobs were almostentirely contracted out to private companies. The central government laterimposed a similar contracting out policy on local governments and the healthservice.

Workerstransferred to private contractors frequently faced layoffs, wage cuts, poorerconditions, and the loss of trade union representation. Women workers suffereddisproportionately.[10]Research on privatisation in areas such as local government services has shownthat attempts to maximise profits can also pose significant risks to serviceusers.[11]The decline of cleaning standards in hospitals, for example, had reached such astate by 2001 that a special government initiative was required to improve them.In electronic data management there has been a string of failures by privatecontractors in such areas as child support payments, immigration records, theissuing of passports, and most recently criminal record checks, in some casesdamaging the quality of service for those on low incomes.


Duringthe 1980s, Conservative governments embarked on the ‘privatisation’ ofhousing that was owned by local state authorities and rented to those unable tobuy or rent housing on their own.  Properties were offered for sale to sitting tenants at pricessignificantly below their market value. Altogether, 2.4 million houses were soldbetween 1979 and 2001, either to their tenants or to other providers such ashousing associations, leaving 2.75 million under state ownership.[12]

This‘privatisation’ -- combined with inadequate investment in new public housingand a change from more general rent subsidy to means-tested income support onlyfor the poor -- has created an acute shortage of affordable housing forlow-income or other vulnerable groups such as unemployed and elderly people andlone parents.[13]Transfer of council housing (owned by local governments) to housing associations(not-for-profit organisations outsidethe state sector) was intended to allow borrowing on the open market, butwas resisted by many tenants, especially in Scotland. There are also chronicdifficulties in recruiting essential public services staff in areas where theserelatively low-income workers cannot afford to buy houses.

Somestate housing remains, but its tenants consist mainly of those at the lowest endof the income scale, who are unable to buy their houses even at discountedrates, or those in housing stock so poor, or in areas so deprived, thatpurchasing is undesirable.[14]


Conservativegovernments reduced the value of basic state pensions compared to earningslevels and halved future rights under the state earnings-related pension scheme,instead promoting private pension plans, under which individuals paycontributions to private insurance companies. The resulting mistrust of statepension provision has made it difficult to reverse the trend toward moreprivatisation.


TheLabour (centre-left) governments since 1997 have decreased outrightprivatisation, relaxed the compulsory contracting-out policies in central andlocal state services, and extended employment protection legislation.

Butthere has instead been a significant expansion in 'private finance' or'public-private partnership' schemes, under which capital projects are financedby, and the facilities often then managed by, private corporations; and in otherschemes designed to allow the private sector to take over the operation ofexisting public facilities, such as 'failing' schools.

Thecontinuing emphasis on private finance schemes poses some dangers for thelong-term future of public projects. Researchers examining hospital buildings,for example, have suggested that public sector capital projects are mostefficiently financed through state-issued loans: the additional financing costsof private schemes (which are always dearer because of the risk element) willtherefore have to be paid for by the next generation through higher taxes andcontributions.[15]Often there is not a real ‘transfer of risk’ to the private sector, as thestate remains the banker of last resort.

Inhousing, Labour has reduced discounts on local authority housing sales andallowed some of the resulting revenues to be spent on new housing, but hascontinued to encourage stock transfer to private housing associations. Inpensions, Labour has a specific policy aim of shifting the balance of provisionfurther towards the private sector. Redistribution between groups with differentincomes or levels of risk is likely to become more limited; state provision isincreasingly restricted to those on low incomes.

Despitecontinuing opposition from trade unions and other groups, the Labour governmentremains strongly committed to private finance schemes, which it regards asessential to reversing past under-investment in public services.[16]


TheUK is now bound by its obligations under European Union treaties (principallyMaastricht, 1992) that give legal form to a 'single European market' in goodsand services. These treaties are partly designed to prevent individual memberstates intervening in domestic industries or services in a way that infringesfree cross-border competition.

Inaddition, the Labour government is currently considering applying for UKmembership (subject to a referendum) of the European single currency, whichwould entail an obligation to abide by limits on public borrowing under theEuropean 'Stability and Growth Pact'. There is widespread concern, even amongsome supporters of membership, that this would restrict individualgovernments’ ability to invest sufficiently in the infrastructure necessaryfor public services.

Currentnegotiations to extend the General Agreement on Trade and Services (GATS) and toliberalise service provision at the international level also threaten to preventany UK government, now or in the future, taking action to remedy the effects ofdecades of neglect and under-funding in basic services that affect the lives ofall its citizens. A revised GATS threatens to limit domestic regulation and theability of the government to channel public funds to meet social need.[17] 

Popularopinion in the UK has consistently opposed the privatisation of public services.[18] Many groups, including trade unions, professionalassociations and consumer organisations, continue to campaign againstprivatisation. Yet action to restore social control and public accountabilityover basic services will in the future increasingly depend on co-ordinatedefforts at the European and global levels.[19]


[1] David Hall and Emanuele Lobina, Employment and Profit Margins in UK Water Companies, Public Service International Research Unit, 1999;

[2] David Hall, Impact of Electricity Privatisation on Industrial Relations - Lessons from the UK, Public Services International Research Unit, 2000.

[3] Joanne Green, The England and Wales Water Industry Privatisation, Water Aid, 2001;

[4] Prospects for Prices: Consumer Concerns, National Consumer Council, 1999;

[5] Regulating the Public Utilities, National Consumer Council, 1997;

[6] The Fuel Picture: CAB Clients' Experience of Dealing with Fuel Suppliers, National Association of Citizens Advice Bureaux, 2002;

[7] The Guardian, 16 October 2002.

[8] Water Debt and Disconnection, Policy Studies Institute, 1995;

[9] Making the Connections: Transport and Social Exclusion, Social Exclusion Unit, 2002;

[10] The Gender Impact of CCT in Local Government, Equal Opportunities Commission, 1995;

[11] Externalisation by Privatisation, UNISON, 1998;

[12] Housing Statistics Postcard, Office of the Deputy Prime Minister, June 2002;

[13] Time for a Change: Reforming the Right to Buy, Shelter, 2002;

[14] Anne Power and Katharine Mumford, The Slow Death of Great Cities? Urban Abandonment or Urban Renaissance, York Publishing Services for Joseph Rowntree Foundation, 1999;

[15] Allyson Pollock et al., ‘Private Finance and "Value for money" in NHS hospitals: a policy in search of a rationale?’, British Medical Journal, 18 May 2002;

[16] Tony Blair, The Courage of our Convictions: Why Reform of the Public Services is the Route to Social Justice, Fabian Society, 2002;

[17] Jessica Woodroffe, GATS: A Disservice to the Poor, World Development Movement, 2002;

[18] MORI poll, July 2001;

[19] Dexter Whitfield, Public Services or Corporate Welfare: Rethinking the Nation State in the Global Economy, Pluto Press, 2001;

On behalf of the UK Coalition Against Poverty, c/o OBAC, Gloucester House, 8 Camberwell New Road, London SE5 0RZ.