Economic history · Thatcher's Economic Policy
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.
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.
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.
Step 1 of 8
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 scale. By 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 scale. The 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.
British Gas went on sale in 1986, in one piece, behind an advertising campaign aimed at people who had never owned a share in their lives.
Its slogan, 'Tell Sid', treated buying shares as news you pass to a neighbour.
The campaign brought in an estimated 2 million people buying shares for the first time.
In 1979, 3 million people in Britain owned any share at all. The sales were changing that number fast.
3 million people held shares in 1979. How many did by 1987, after the BT and gas sales?
For scale. Nearly 96 per cent of BT's own eligible employees bought shares in their company.
Every utility sold got its own brand-new : Oftel for the telephones in 1984, Ofgas for gas in 1986, Offer for electricity and Ofwat for water in 1989.
The regulator answered an obvious objection. BT and British Gas had no real rivals, and a company without rivals cannot be kept honest by customers walking away.
BT sold telephone service that most people could not buy from anybody else. A company without a rival cannot be kept honest by customers walking away, and there was nowhere to walk to. While the state owned BT, BT answered to ministers. After a sale it would answer only to its shareholders. The law filled that gap first: a regulator with the power to cap the company's prices, created before the company was sold.
Oftel came before the BT sale itself. It was created in April 1984, and its first head, Bryan Carsberg, was in post from July, months before the shares went on sale.
The state had stopped owning the industries. It had not stepped back from them: through the new regulators it still set the prices the companies could charge.
The state no longer owned the phone or gas companies. Who now set the limits on what they could charge?
For scale. Oftel was set up as a regulator independent of ministers, a new kind of public body at the time.
From December 1984 the new telephone regulator capped BT's main prices: each year they had to rise 3 per cent less than prices in general.
The cap was the promise that private ownership would not mean higher bills. The formula was published in advance, so a customer with no other phone company to turn to could read it.
The first cap ran for five years. The regulator then tightened the formula as the years went on, and by 1993 the required gap below was more than twice the original.
The telephone regulator's own verdict was that the capped phone service got cheaper for the customer.
The cap worked like this: if prices in general rose 5 per cent, BT's prices could rise by at most 2, a gap of 3. How wide had the formula made that gap by 1993?
For scale. The first cap ran unchanged for five years before the regulator began tightening it.
British Telecom's prices fell after the sale, and the quality of its service got worse. Bryan Carsberg, the first head of the telephone regulator, gave that verdict himself.
The taxpayer gained and lost at the same time. The sales raised billions for the government. But the shares were sold cheaply, so part of what the companies were worth went to the buyers instead of the public.
Selling a profitable company brought money in once, while its profits would have come in every year. Harold Macmillan, Prime Minister from 1957 to 1963, made that charge in 1985.
Competition arrived last of all: for years BT still had almost no real rival, so it was the regulator's cap rather than competition that kept prices down.
Both were sold at the height of the programme. Which sale raised more?
A tie counts as correct either way.
For scale. The regional electricity companies together raised 11.2 billion pounds in 1990-91.
Thirty years of studies of the sales since 1984 find that performance rose where a sale brought rivals or a regulator, and changed little where it did not.
Swapping a minister for shareholders leaves a company's old habits in place. Two things shift them: the risk of losing customers to a rival, and a regulator with the power to cap prices.
Subsidies to industry fell from 5 billion pounds in 1979 to 0.3 billion in 1990. Companies had to earn their keep from customers rather than from the government.
Privatisation succeeded only where real competition or real regulation arrived with the sale, and that is what the economists who have studied the programme conclude.
Thirty years of evidence later, what does the record say made the sold industries perform better?
For scale. Subsidies to industry fell from 5 billion pounds in 1979 to 0.3 billion in 1990, at 1980 prices.
Module 7 of 13 in Thatcher's Economic Policy
Why BT could not borrow as a state company
its borrowing counted as government borrowingWhat the BT sale raised, November 1984
3,916 million pounds, for 50.2%Demand for the BT shares
over three times the offerPeople holding shares, 1979 and 1987
3 million, then 8 millionThe regulators, and their years
Oftel 1984, Ofgas 1986, Offer and Ofwat 1989The first price cap on BT
3% below inflation each yearThe largest single sale
British Gas, 7,731 million pounds, 1986Sold by the 1992 election
two thirds of the industries, employing 900,000You met five terms in this module
, , , ,
The companies could now invest for themselves, and the state gave up their profits for good; which of those mattered more is still argued.
[1] The BT sale, and the regulator that came first: Institute for Government, The Privatisation of British Telecom (1984). 50.2% of BT sold in November 1984, raising 3,916 million pounds; dealing began on 3 December 1984 at 130p, paid in stages from 50p; the offer was 3.2 times oversubscribed. The press criticised the shares as priced below what the market would pay, and the government justified the price as promoting wider share ownership. Nearly 96 per cent of eligible BT employees bought shares. Oftel was established on 12 April 1984 under the Telecommunications Act, months before the sale, with Bryan Carsberg appointed the first Director General in July 1984, and BT's main prices were capped at RPI minus 3 per cent for five years; the content model records the cap tightened to RPI minus 7.5 per cent by 1993. By the 1992 election 'around two-thirds of public industries, employing some 900,000 people, had been transferred to the private sector'.
[2] The whole programme, sale by sale: House of Commons Library, Privatisation, Research Paper 14/61. The early sales: 17% of BP for 560 million pounds in 1977, under the Labour government; British Aerospace, 43 million for 51.6% in 1981; Britoil, 627 million for 51% in 1982; Cable and Wireless in stages from 1981. British Telecom 1984: 3,916 million. British Gas 1986: 7,731 million, the largest single sale. The regional electricity companies, 1990-91: 11.2 billion combined. Net proceeds peaked in 1991 at 11.8 billion. Individual share ownership rose from 3 million people in 1979 to 8 million by 1987. The British Gas sale ran the widely publicised 'Tell Sid' advertising campaign, with an estimated 2 million first-time share buyers. In 1979 the state owned the utilities (water, gas, electricity, telecommunications), heavy industry (steel, shipbuilding, coal) and the railways. Quoting David Parker: privatisation is only successful when accompanied by appropriate changes in the competitive or regulatory environments. Section 4 gives the motives: raising money, which Lawson called 'a second-order question'; making industry more efficient, with less ministerial interference and weaker unions; and spreading share ownership, with the revenue-versus-affordability trade-off named.
[3] What actually raised performance: Nicholas Crafts, The economic legacy of Mrs Thatcher, CEPR. Crafts argues increased competition, rather than the change of ownership itself, did the work: the average effective rate of protection for British industry fell from 9.3% in 1968 to 1.2% in 1986, and subsidies to industry fell from 5 billion pounds in 1979 to 0.3 billion in 1990 at 1980 prices.
[4] The family silver: Harold Macmillan to the Tory Reform Group, 8 November 1985. Macmillan, Prime Minister 1957 to 1963, spoke at the Royal Overseas League on 8 November 1985. His words: '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 phrase everyone remembers, 'selling the family silver', is a paraphrase rather than his wording, which is why the module quotes what he said and gives the popular phrase as what it is remembered as. ATTRIBUTION-LADDER ENTRY: a reported speech with a named speaker, date and audience, not a record-of-Parliament fact.
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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