Changing the unacceptable face of privatisation

The Government is facing an uphill slog in its campaign to rekindle public enthusiasm for state sell-offs, writes Peter Rodgers

After the worst press for privatisation in at least a decade, government ministers are quietly encouraging the former state companies to fight back.

The utilities are planning to step up campaigns in the coming months to persuade their millions of customers that privatisation was not just for the benefit of shareholders and fat-cat directors. The public is likely to be bombarded with claims of improved service and lower prices.

Ministers also plan to give fewer speeches about popular capitalism, wider share-ownership and the theoretical efficiency gains from privatisation, which, as often as not, come down to job losses. Instead, they will focus on the basic issues of prices and services, because these are what directly affect most voters.

Treasury and Department of Trade and Industry ministers are, for example, determined to wring every ounce of goodwill out of the pounds 90 cut in electricity bills due this year - made up of a pounds 50 rebate from the sale of the National Grid, pounds 20 from a cut in the nuclear levy and pounds 20 from price cuts ordered by the electricity regulator.

They are putting just as much political capital into a pilot scheme to introduce competition in domestic gas supply in Devon and Cornwall, which they hope will prove that gas prices can be cut by at least 15 per cent nationally over the next three years.

In electricity and gas, the priority is to convince customers that the gains more than offset the imposition of VAT on fuel. But getting the message across to the population at large will be an uphill struggle to a tight timetable. Ministers are uncomfortably aware that, well before the election, they must convince voters that privatisation is not a dirty word.

That means getting the good news across over the next few months - a tall order, given that it means erasing the memory of a year that has seen pounds 14bn worth of unseemly bid fever in electricity.

Distribution companies have been changing hands at four times the valuations put on them at the time of privatisation in December 1990.

There was also the pillorying of gas, electricity and water company executives for creaming off huge pay increases, the row over the flotation of the National Grid and the embarrassment of leaky Yorkshire Water, which could still be facing a supply crisis well into next year, after years of under- investment in new pipes.

Meanwhile the whole system of regulation has come under fire, initially because of a lenient price review in 1994 by Professor Stephen Littlechild, the electricity regulator, most recently because of the free flights taken by Peter Davis, regulator of the privatised lottery.

The usual advice to people who have got themselves into a hole is to stop digging. But the Government, far from letting the dust settle on the rows that have occupied most of 1995, has decided to keep privatisation at the forefront of the political agenda in 1996.

It is insisting on proceeding next summer with the pounds 2.5bn sale of British Energy, the nuclear power company, and the pounds 1.5bn sale of Railtrack, probably the two most unpopular privatisations of all, at least since the sale of the Post Office was dropped.

Some Tories describe this as a highly principled strategy, with the Government sticking to its beliefs regardless of the unpopularity of the plans.

"We should be given credit for bravery in recognising that maybe there are better ways of doing things," said one. But those with marginal seats are probably wondering whether the tax cuts the sales will bring are worth the pain.

Government ministers do not deny that the strategy could backfire. One said: "I accept that it may be high risk," and agreed that the railway sale could get in the way of promoting the benefits of 15 years of privatisation. But he added: "There are signs the quality of service in the utilities and in the railways is already improving in a way the public can see."

Next year's nuclear sale will have the advantage that it has already drawn the teeth of Greenpeace and other environmental groups, who are happy that the planned transfer to the private sector seems to have killed off any hope of investment in new nuclear power stations.

But where the railways are concerned, if anything goes wrong with customer service, prices or safety during the immensely complex sale, the Government, rather than the new owners, is bound to be blamed.

The Department of Transport and the Treasury claim to be pleasantly surprised by the quality of the rail sales achieved so far - the first three franchises, which will be up and running during the spring, the pounds 1.8bn rolling stock leasing companies and a variety of engineering support services.

Ministers also believe the tide of popular dislike of rail privatisation could begin to turn now that the first franchisees such as Stagecoach, the bus operator, are out in the open and can promote their plans. But there is a long way to go, with 22 franchises still unsold and Railtrack not due to be floated until late spring.

Nevertheless, the Government seems to believe it can win the political argument if the privatisations of telecommunications, gas, water and electricity are judged next year on what they deliver for consumers, rather than for shareholders.

Total returns to shareholders from privatisations

Miscellaneous

Company % increase Sale date

1995 from sale

Amersham Int'l 4 798 24 Feb 82

Ass B Ports 6 2910 14 Feb 83

BAA 6 423 27 Nov 87

BP* 31 1225 12 Nov 79

B Airways 37 517 10 Feb 87

B Gas -13 231 5 Dec 86

B Steel 9 92 2 Dec 88

B Telecom -4 363 30 Nov 84

C & Wireless 24 2235 4 Nov 81

Enterprise Oil 7 294 29 Jun 84

Rolls-Royce 8 71 14 May 87

*from date of first Thatcher government sale

Water

Company % increase Sale date

1995 from sale

Anglian 26 270 11 Dec 89

N Westr 19 272 11 Dec 89

Northumbrian 64 591 11 Dec 89

S West 10 236 11 Dec 89

Severn Trent 34 313 11 Dec 89

Southern 25 313 11 Dec 89

Thames 22 239 11 Dec 89

Welsh 19 355 11 Dec 89

Wessex 20 298 11 Dec 89

Assumes dividends reinvested. Return for 1995 is for the year to 22 Dec

Source: Datastream

Electricity

Company % increase Sale date

1995 from sale

PowerGen 4 277 11 Mar 91

Nat'l Power -4 222 11 Mar 91

N I Electric 26 118 18 Jun 93

Scots Hydro 14 78 17 Jun 91

Scots Power 10 83 17 Jun 91

E Midlands 4 361 10 Dec 90

Eastern 32 428 10 Dec 90

London 21 373 10 Dec 90

Manweb 23 447 10 Dec 90

Midlands 18 390 10 Dec 90

Northern 12 481 10 Dec 90

Norweb 46 547 10 Dec 90

S Wales 32 507 10 Dec 90

S West 6 382 10 Dec 90

Seeboard 34 570 10 Dec 90

Southern 19 392 10 Dec 90

Yorks 4 349 10 Dec 90