Customers can expect more
Tuesday 20 July 1993
Private investors have made paper profits of about pounds 115 on 600 shares, which might be less than in previous privatisations but is still substantial, for the level of risk.
SG Warburg, the merchant bank that organised the sale, can take pride in the fact that the BT share price held up during the offer. Its tactics were criticised as too tough but they proved effective.
Large investors, even those who did not get all the shares they applied for, were also happy as most of them reckon that share prices generally will go higher now that BT3 is out of the way. There is one less thing to worry about.
Meanwhile, the Government could breathe a sigh of relief, knowing it had realised much-needed funds at lower costs than in previous BT sales.
It is now left with few more candidates for stock market privatisation, other than its remaining shares in PowerGen and National Power. This makes the completion of BT3 a good time to assess the long-term results of the 12-year-old privatisation programme.
The first, and most painful, consequence of privatisation has been felt by the workforces. While shareholders on the whole have enjoyed rising share prices and big dividends, employees have been suffering overdue rationalisation.
The BT workforce, for example, peaked at 253,000 in 1981, three years before it was floated on the stock market. Rationalisation continued slowly until 1990, when it speeded up with a vengeance. More than 30,000 jobs were lost last year.
The company has shed nearly a third of its employees - or 76,000 people - since it was first privatised and a further 15,000 jobs are due to disappear in the next two years.
One of the aims of privatisation was to replace bureaucratic sloth with entrepreneurial efficiency. But the timing of cuts at BT suggests this switch may have more to do with regulatory controls on prices than with flotation itself. At any rate it has been very delayed.
Many recently privatised companies have yet to tackle the size of their workforces.
Take electricity. Some of the regional companies - including Seeboard and Northern - employ as many people now as they did when they joined the stock market in 1990. Others have made substantial reductions, for example Manweb, down from 5,500 to 4,600.
A straw poll of water companies, privatised a year earlier, suggests that many have yet to cut their workforces at all. Indeed, some have taken on extra manpower. For example, Anglian has increased its staff by 450 to 5,550 and at Welsh Water the number of employees has risen from 3,755 to 4,696.
Some of the increases may reflect diversification into new businesses but it may also be possible that rising water prices - designed to cover the costs of vast capital spending programmes - have allowed these companies to maintain their cost bases at pre-privatisation levels. Ofwat take note.
Other privatised companies to have made cuts include British Gas (down from 90,000 in 1986 to 76,000 last year), the electricity generators (PowerGen's workforce has fallen by 900 to 7,800 and National Power by 1,900 to 13,300) and British Steel (down by 2,400 to 51,600 at the last count). However others, including British Airways, BAA and Amersham, have taken on more employees.
The job losses may sound dramatic. But compare them with what is going on in British industry as a whole. Nearly every large company has had to make cuts in recent years - GEC recently disclosed it had reduced its staff by 9,600 last year.
Against this background it looks as if the privatised companies - with the exception of BT - have yet to grasp the nettle of extra efficiency. Expect more job losses, especially if the regulators tighten the screw.
While former employees have paid a high price, customers on the whole have benefited from privatisation, not just in lower prices - British Gas says they have fallen by 20 per cent in real terms since privatisation - but also in better service. Seeboard, for example, says it reduced the number of appointments it failed to keep - which left customers stuck at home waiting for an engineer - by 70 per cent last year. But much more needs to be done if the benefits to customers of lower costs are to equal those to shareholders and the City.
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