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Thatcher's Economic Policy
Selling the state
Eight steps, about twelve minutes, a question at each. You need no economics and no preparation, only a willingness to guess before you are told.
Step 1 of 8
The government had spent its first years bringing prices down and changing the law on strikes. Britain's biggest industries, among them telephones and gas, were owned by the state and answered to ministers.
The question
In 1979 the state owned the companies that ran daily life: the telephones, the gas, the electricity, the water and the railways. No shares in them existed, so there was nothing in them for the public to own.
Margaret Thatcher's government sold them, starting small and then, in 1984, selling half the telephone company in one go, the biggest sale the state had ever attempted. The public asked for three times the shares on offer. A former Conservative Prime Minister watched, and his speech is remembered as the charge that the government was selling the family silver.
The steps cover what was sold and why, who bought it, who came out ahead, and whether the record calls it a good idea.
What this module covers
Written for every level. Tap any underlined word for what it means, and open the boxes below for the economics behind each decision. If you already know the theory, skip both and the history reads straight through.
First of all the Georgian silver goes. And then all that nice furniture that used to be in the salon. Then the Canalettos go.
The phone in the hall, the gas in the cooker, the water in the tap: the government owned all of it, and then it did not.
In 1979 the state owned the companies that ran daily life: the telephones, the gas, the electricity, the water, steel, coal and the railways.
The state's companies were : no s in them existed for anybody to buy, they answered to ministers, and their losses fell to the taxpayer.
51.6 per cent of British Aerospace, the aircraft maker, raised 43 million pounds. Just over half of Britoil, the state oil company, raised 627 million, and those were the small beginnings of the programme.
Households bought their telephone line, their gas and their train tickets from the state, and no share in any of it existed for anyone to own.
Take a guess. You are not expected to know the answers, and being wrong is what makes a number stick.
Put these four sales in the order they happened.
For scaleBy the 1992 election, around two thirds of those industries, employing some 900,000 people, had been sold.
British Telecom, the state telephone company known as BT, could not raise the billions its network needed, and that is a large part of why it was sold.
The block was an accounting rule. A nationalised company's borrowing counted as , so every pound BT borrowed would have raised the government's borrowing total, the same total that paid for hospitals and roads.
In the early 1980s hundreds of thousands of households were waiting for an ordinary telephone line. BT could not raise the money to connect them while the state owned it.
Selling BT meant it could borrow for itself, and ministers believed private owners would also cut waste. Margaret Thatcher's own argument went further: selling would cut the state's power and hand power to the people.
BT needed billions to rebuild its network. Why could it not simply borrow the money itself, as any private company would?
For scaleThe push came from the top: Geoffrey Howe, Nigel Lawson and Keith Joseph, the government's economics ministers, drove the policy, and Kenneth Baker, the telecoms minister, made the public case for it.
It is November 1984 and the government is about to sell half of British Telecom, the state telephone company.
Nothing close to this size has ever been offered to the public, so you must set the price of every share before you know whether anybody will come.
Nothing this size had been sold to the public before. Set the price too high and buyers stay away, and the sale fails in front of the whole country. No minister sells the next company after the first one flops. A lower price means every share finds a buyer. It also leaves the first buyers with a quick gain, and their example is what brings the next million people to the next sale.
The biggest sale so far, Britoil in 1982, raised 627 million pounds. This one is meant to raise six times that.
You are the government. Price the shares high, and the sale may fail in public. Price them low, and you are accused of selling cheap. What do you do?
The government priced BT at 130p a share, paid in stages starting at 50p, and sold 50.2 per cent of the company in November 1984. The public asked for more than three times the shares on offer, the sale raised 3,916 million pounds, and had its working model.
What followedThe press said the price had been set below what the market would pay, and the government answered that spreading ownership was worth the difference. The model was repeated for a decade: sale after sale until the money peaked at 11.8 billion pounds in 1991, the year after Thatcher left office.
By the 1992 election around two thirds of the state's industries, employing some 900,000 people, had been sold.
Module 7 of 13 in Thatcher's Economic Policy
[1] The BT sale, and the regulator that came first: Institute for Government, The Privatisation of British Telecom (1984).
[2] The whole programme, sale by sale: House of Commons Library, Privatisation, Research Paper 14/61.
[3] What actually raised performance: Nicholas Crafts, The economic legacy of Mrs Thatcher, CEPR.
[4] The family silver: Harold Macmillan to the Tory Reform Group, 8 November 1985.
Country data from the World Bank (CC BY 4.0) and the UNDP Human Development Report (CC BY 3.0 IGO)
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