David Prosser: The great government firesale
Outlook: £16bn represents a tiny proportion of the total deficit
Tuesday 13 October 2009
Ever since Margaret Thatcher began her famous programme of privatisations, the metaphor of choice for critics of public asset sales has been that they are akin to "selling the family silver". But it is time we found a more appropriate comparison, for the latest disposals – the £16bn of sales that were formally unveiled by Gordon Brown yesterday – are hardly of assets the nation will miss. In most stakes, they're more like the family copper.
If only this was the worst of the criticism one might level at the Prime Minister's jumble sale. In fact, there is quite a contest for that accolade.
The business world has a word for this kind of disposal programme: it's called a firesale. It's what you do when you're desperate for cash: you sell off any asset you can lay your hands on at whatever price a buyer will offer, as you scrabble together the pennies before the bailiffs arrive. Naturally enough, your buyers know you're in a tight spot and tend not to feel inclined to overpay.
Of the assets we know Mr Brown intends to sell, only the Dartford Crossing, with its strong and more-or-less guaranteed income stream, is worth paying top dollar for. The Tote – this will be at least the fourth time the Government has tried to sell it – the student loan portfolio and Urenco all come with so much baggage attached that their price tags will be lower than the Prime Minister hopes.
No wonder that local authorities are already panicking at the prospect of making good the shortfall on Mr Brown's projected £16bn worth of disposals: once central government has had a go at selling its assets, councils are going to find themselves forced to flog anything that isn't nailed down.
Still, at least the Treasury is now doing something to tackle the budget deficit. Well, that's what Mr Brown's supporters would have you believe. The problem is that there are at least three good reasons why this sell-off won't help the UK to get back on top of the public finances.
The most obvious of these is that the sell-offs are not new. This is a classic example of one of Labour's favourite tricks: reannouncing old news. If that figure of £16bn sounds familiar, it's because you've heard it before. Alistair Darling announced it in April's Budget, when the Government first unveiled these privatisations. And if the sale proceeds have already been factored into the Treasury's projections, the Prime Minister's claim that he is now addressing the budget deficit looks a little hollow.
The second problem is that these sell-offs don't do much for the deficit except on a one-off basis. Think about your household finances: if you're spending more than you earn, selling a bit of silver (or copper) might get you out of trouble in the month when you make the sale, but the underlying problem remains. Unless you cut your spending, or find a way to earn more, your personal budget deficit will continue to grow.
This is one reason why bodies such as the National Audit Office and the Office for National Statistics have strict accounting rules about how the Government classifies all the money it raises. Reason number three for these sales doing little to reduce debt is that for various technical factors, a good deal of the money raised won't actually count against the deficit.
Mr Brown was at pains again yesterday to insist that cutting back on borrowing too quickly might plunge the UK back into recession (assuming that it is about to come out), this being one of his chief lines of attack against the Conservatives.
Well, the good news is that we certainly have nothing to fear on that front from the disposal programme. Even if we were to ignore all of the problems with the sell-offs, £16bn represents a tiny proportion of the total deficit, which will be £175bn this year alone on the Government's optimistic projections.
Every little helps, you might counter. Well, for all of the reasons above, in this case it doesn't. These disposals won't raise the money Mr Brown is hoping for, the cash has already been accounted for in any case, and it can't be used to reduce the deficit. It's not the best way to proceed if you want to convince people – including the international money markets from which we borrow all that cash and the credit ratings agencies that advise those investors – that you're serious about tacking the public finances.
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