The Official History of Privatisation, Vol. II: Popular Capitalism, 1987-97

673 Pages·2012·3.608 MB·English

by  David Parker

THE OFFICIAL HISTORY OF
PRIVATISATION, VOLUME II
This is Volume II of Professor Parker’s authoritative Offi cial History of Privatisation,
covering the period from the re-election of Margaret Thatcher in 1987 to the election of
Tony Blair in 1997.
Volume II considers in detail several of the major privatisations, including those of
airports, steel, water, electricity, coal and the railways, as well as a number of smaller ones.
Each privatisation involved major challenges in terms of industrial restructuring, organising
successful sales and, in a number of cases, establishing effective regulatory regimes. The
policy evolved and new methods of selling and regulating were put in place that enabled
further disposals to occur. Monolithic nationalised industries with their emphasis on the
benefi ts of economies of scale, vertical integration and rationalisation, were replaced by
industrial structures rooted in the importance of commercial management, risk taking and
competition. In government departments and parts of the National Health Service, direct
employees were replaced by private contractors, and private investment became a
characteristic of public infrastructure in the form of PFI/PPP schemes.
This study draws heavily on the offi cial records of the British government, to which the
author was given full access, and on interviews with the leading fi gures involved in each of
the privatisations, including ex-Ministers, civil servants, business and City fi gures, as well
as academics that have studied the subject.
This book will be of great interest to students of privatisation, British political history and
of business and economics in general.
David Parker is Emeritus Professor at the School of Management, Cranfi eld University,
UK and was formerly Research Professor in Privatisation and Regulation. He has researched
privatisation for over 25 years and has acted as a consultant on privatisation internationally.
Previous publications include The International Handbook on Privatization (with D.Saal),
published in 2003, and Volume I of The Offi cial History of Privatisation (Routledge 2009).
WHITEHALL HISTORIES: GOVERNMENT OFFICIAL
HISTORY SERIES
ISSN: 1474–8398
The Government Offi cial History series began in 1919 with wartime histories, and the
peacetime series was inaugurated in 1966 by Harold Wilson. The aim of the series is to produce
major histories in their own right, compiled by historians eminent in the fi eld, who are afforded
free access to all relevant material in the offi cial archives. The Histories also provide a trusted
secondary source for other historians and researchers while the offi cial records are not in the
public domain. The main criteria for selection of topics are that the histories should record
important episodes or themes of British history while the offi cial records can still be
supplemented by the recollections of key players; and that they should be of general interest,
and, preferably, involve the records of more than one government department.
THE UNITED KINGDOM AND THE EUROPEAN COMMUNITY:
Vol. I: The Rise and Fall of a National Strategy, 1945–1963
Alan S. Milward
SECRET FLOTILLAS
Vol. I: Clandestine Sea Operations to Brittany, 1940–1944
Vol. II: Clandestine Sea Operations in the Mediterranean, North Africa and the Adriatic,
1940–1944
Sir Brooks Richards
SOE IN FRANCE
M. R. D. Foot
THE OFFICIAL HISTORY OF THE FALKLANDS CAMPAIGN:
Vol. I: The Origins of the Falklands War
Vol. II: War and Diplomacy
Sir Lawrence Freedman
THE OFFICIAL HISTORY OF BRITAIN AND THE CHANNEL TUNNEL
Terry Gourvish
CHURCHILL’S MYSTERY MAN: DESMOND MORTON AND THE WORLD OF
INTELLIGENCE
Gill Bennett
THE OFFICIAL HISTORY OF PRIVATISATION
Vol. I: The Formative Years 1970–1987
Vol. II: Popular Capitalism 1987–1997
David Parker
SECRECY AND THE MEDIA: THE OFFICIAL HISTORY OF THE D-NOTICE SYSTEM
Nicholas Wilkinson
THE OFFICIAL HISTORY OF THE CIVIL SERVICE:
REFORMING THE CIVIL SERVICE
Vol. I: The Fulton Years, 1966–1981
Rodney Lowe
THE OFFICIAL HISTORY OF NORTH SEA OIL AND GAS
Vol. I: The Growing Dominance of the State
Vol. II: Moderating the State’s Role
Alex Kemp
THE OFFICIAL HISTORY
OF PRIVATISATION
Volume II:
Popular capitalism, 1987–1997
David Parker
First published 2012
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
Simultaneously published in the USA and Canada
by Routledge
711 Third Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2012 Crown Copyright
The right of David Parker to be identifi ed as author of this work has been asserted
by him in accordance with sections 77 and 78 of the Copyright, Designs and
Patents Act 1988.
The author has been given full access to offi cial documents. He alone is
responsible for the statements made and the views expressed.
All rights reserved. No part of this book may be reprinted
or reproduced or utilised in any form or by any electronic,
mechanical, or other means, now known or hereafter invented,
including photocopying and recording, or in any information
storage or retrieval system, without permission in writing
from the publishers.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
A catalog record has been requested for this book
ISBN13: 978-0-415-69221-2 (hbk)
ISBN13: 978-0-203-12214-3 (ebk)
Typeset in Times by
Refi neCatch Limited, Bungay, Suffolk
CONTENTS
List of abbreviations ix
List of fi gures, tables and plates xv
Acknowledgements xvii
Preface xix
1 The Privatisation Programme by June 1987 1
2 On To The Next Stage – Privatisation and the 1987–92 Government 10
The economic and political context 11
The Community Charge, Thatcher’s resignation and Major’s election 15
Once more into recession 18
Deregulation and privatisation: the background 19
The BP share offer 23
The Next Steps initiative 26
Market testing 28
Public private partnerships 30
Smaller privatisations – property sales and government agencies 32
The national engineering laboratory 35
The Tote 38
James Mackie – a near nationalisation 39
The welfare state 41
3 Privatising The British Airports Authority 47
The decision to privatise 48
Rethinking the structure 51
Ministerial disagreements 53
The Airports White Paper and the Airports Act 60
The fl otation 63
4 Privatising British Steel 69
Manifest crisis 69
Disposals and joint ventures 75
Continuing problems and the future of Ravenscraig 80
v
CONTENTS
A diffi cult privatisation 82
The fl otation 93
And afterwards 96
5 Privatising British Leyland 98
Reluctant support 99
Jaguar 108
Commercial vehicles, Land Rover and Leyland Bus 113
Unipart 122
Austin Rover 124
No redemption 134
6 Privatising Girobank, The Trust Ports and Short Brothers 136
Girobank 136
The trust ports 148
Short Brothers 154
7 Privatising the Water Industry in England and Wales: Early Planning 161
The structure of the water industry under public ownership 162
The decision to privatise 167
Opposition to the White Paper 179
The plans resubmitted 181
Addressing remaining challenges 184
8 Regulating the Water Industry 193
The basic structure 193
The price cap 199
Setting the K factors 202
9 Water Privatisation Achieved 219
Arranging the fl otation 220
Settling outstanding issues 229
Marketing the sale 233
The fl otation 238
Post sale developments 246
10 Privatising the Electricity Industry: The Origins 250
The electricity industry pre-privatisation 250
Electricity privatisation: initial ideas 253
The decision to privatise 260
Fresh impetus and the White Papers 263
The Electricity Act 272
vi
CONTENTS
11 The Failure to Privatise Nuclear Generation 276
Protecting nuclear energy 277
The mounting back end costs 281
The privatisation unravels 284
Nuclear withdrawn 286
12 Creating Electricity Markets 293
Administering the process 294
The power pool 296
The distribution and transmission contract arrangements 299
Generation and supply contracts 301
Competition in supply and concluding the generation contracts 304
Regulation 307
The distribution and supply price caps 312
The transmission price cap 318
The European dimension 319
Employment relations and pensions 321
Green issues and the implications of privatisation for the coal industry 322
13 Privatising the Electricity Industry: Capital Restructuring,
the Sales and Later Developments 330
Capital restructuring 330
Organising the fl otations 337
Marketing the shares 339
The employee share incentives 344
Special shares 346
Concluding the sale of the RECs 347
Concluding the sale of National Power and PowerGen 355
The sale of Scottish Power and Scottish Hydro-Electric 364
Northern Ireland Electricity 366
Later developments 368
14 Completing the Circle: Privatisation and the 1992–97 Government 373
The citizen’s charter, deregulation and market testing 375
The private fi nance initiative 377
Miscellaneous small privatisations 383
The privatisation of British Energy 388
The one that got away – the Royal Mail 397
15 Privatising the Coal Industry 407
The perennial loss maker 407
The ultimate privatisation 411
The coal crisis 416
vii
CONTENTS
The coal review 419
Privatisation achieved 425
16 Privatising the Railways: From Rejection to Legislation 434
BR under the fi rst two Thatcher Governments 435
Full privatisation emerges 444
The White Paper and the Railways Bill 454
17 Privatising the Railways: A Privatisation too Far? 466
Franchising the TOCs 466
The ROSCOs and engineering 473
Freight and parcels 479
Railtrack 482
Regulation 492
The legacy 495
18 Reviving the Goose 501
Eighteen years of privatisation 504
The results 514
Appendix: Major Privatisations July 1987–April 1997:
A listing of the principal advisers 529
Notes 535
References 609
Index 620
viii
ABBREVIATIONS
A&L Alliance & Leicester Building Society
ACT Automatic Credit Transfer
ADAS Agricultural Development Advisory Service
ADR American Depository Receipts
AEA Atomic Energy Authority
AGM Annual General Meeting
AGR Advanced Gas Reactor
AMP Asset Management Plan
APS Assistant Private Secretary
ASI Adam Smith Institute
ASLEF Associated Society of Locomotive Engineers & Firemen
ATP Automatic Train Protection
AUEW Amalgamated Union of Engineering Workers
BA British Airways Corporation later PLC
BAA British Airports Authority later BAA PLC
BAe British Aerospace Corporation later PLC
BBC British Broadcasting Corporation
BCal British Caledonian airline
BE British Energy
BGC British Gas Corporation later British Gas PLC
BL British Leyland
BNFL British Nuclear Fuels Ltd
BP British Petroleum PLC
BR British Railways later British Rail
BRE Building Research Establishment
BREL British Rail Engineering Ltd
BRIL British Rail Investments Ltd
BRIS British Rail Infrastructure Services
BRML British Rail Maintenance Ltd
BSC British Steel Corporation later British Steel PLC
BT British Telecommunications Corporation later PLC
BTC British Transport Commission
BTDB British Transport Docks Board
BTG British Technology Group
BTH British Transport Hotels
ix