pounds 60bn gerrymander eclipses Dame Shirley

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The Independent Online
Much was heard last week about a grocer's daughter flogging off publicly owned assets cheaply for electoral advantage. I refer, of course, to Dame Shirley Porter, the Tesco heiress and former leader of Westminster City Council. She was found guilty of wilful misconduct in selling off council flats cheaply in marginal wards, the idea being that owner-occupiers were more likely to vote Tory than the homeless families they were displacing.

I can think of another grocer's daughter who went in for selling state- owned assets in a big way. It might not have been called "gerrymandering", but the Conservatives' wholesale privatisation policy since 1979 undoubtedly gave them huge electoral appeal. Millions of newly created shareholders have seen their holdings leap in value. Some flotations have proved little short of giveaways. Investors who took the plunge in Cable & Wireless in 1981 have seen their shares multiply in value 19-fold. Associated British Ports has produced a spectacular 21-fold return. The airports group BAA and British Airways have quadrupled their investors' money. And most of the more recently sold-off electricity and water companies have produced two-, three- or four-fold returns.

Flogging off state assets cheaply has been a feature of the political scene for 17 years. But whereas Lady Porter and her coterie are said to have cost the residents of Westminster pounds 31m, the loss to national taxpayers has been on a different scale entirely. I calculate - and this is very much back-of-envelope stuff - that state assets sold over the past 17 years are now worth pounds 60bn more than the Exchequer received for them.

Of course, much of the increase in the privatised companies' value is due to efficiency gains made in the private sector and the natural growth in reserves that would be achieved by any half-decent company. But a lot of the shortfall is indubitably because the assets were priced too cheaply to start with. Deliberately or not, it looks very much like the Government is going to make the same "mistake" with Railtrack. Small investors have flocked to register for the flotation, attracted by the host of perks and a probable giveaway price. Details of how to apply for shares are on page 18. Institutional investors are also showing strong interest.

As we reported, the Treasury believes Railtrack is being sold too cheaply and last week was fighting a rearguard action with the Department of Transport to have the price range lifted. It appears to have failed. Upping the range at this late stage - after applications have started to come in - would be political suicide.

Two million small investors have registered with share shops. Probably up to a million will actually take the plunge, lured by perks paid out of the public purse. All of them will have one reason to vote against Labour, which threatens to clamp down on Railtrack. Now that's what I call gerrymandering.

Safe as houses

EXCUSE me while I proceed to be smug. I wrote in this column a year ago that the worries about the collapse in house prices were overdone and that I, for one, intended to gear up and buy a house. At the time, things looked bleak indeed. House prices were plunging, and the Government was about to remove income support for home owners who lost their jobs. The number of house transactions was at its lowest since Inland Revenue records began. And one academic, Professor Douglas Wood of Manchester Business School, was predicting virtual Armageddon - that real house prices would fall by 20 to 30 per cent over the next two decades.

In fact last summer proved to be a turning point. House prices have risen every month for the past nine months, according to the Halifax Building Society's seasonally adjusted house price index. The housing market gurus at stockbroker UBS last week doubled their forecast for the rise in house prices this year to 5 per cent.

Of course things are still grim in many parts of the country. But tens of thousands of home owners every month are being released from negative equity - the trap where their homes are worth less than their mortgages. UBS predicts the numbers in negative equity will fall from 960,000 in March to 590,000 by the end of the year.

It is impossible to overstress the importance of house prices in the economy. While changes to taxes and benefits matter, it is the almost imperceptible changes in the value of our homes that act as the real throttle and brake on spending. Homes account for 60 per cent of personal wealth. The recovery in house prices is certain to boost both consumption and investment in small businesses, which are largely financed by loans secured on homes.

In his Budget last November, Chancellor Ken Clarke was scoffed at when he predicted consumption growth as high as 3 per cent this year. Now he may very well be right. It never does to underestimate the British obsession with bricks and mortar.

Beef over the tunnel

PRESIDENT Jacques Chirac pays a state visit to Britain this week and there will be jokers a-plenty to note his arrival at Waterloo (ho ho!). The more interesting point is how he will have got there - via the Channel tunnel. As we report on page 3, he is expected to take the opportunity during the visit to press for extra concessions for the Anglo-French company that runs the world's costliest hole in the ground, Eurotunnel.

Now that the tunnel is built and running, Britain's interest in the financial predicament of Eurotunnel has become rather academic. But in France Eurotunnel's predic-ament is still a live issue. The great majority of shareholders are French, and voluble in their demands to be compensated for their 'orrible losses. The shares are now one-tenth of their value of seven years ago.

Desperate for allies to overturn the beef ban. Mr Major may well be tempted to agree to an extension of Eurotunnel's licence to operate the tunnel. Such horse- trading - or should that be mad cow trading? - is only to be expected. But he should resist it. Eurotunnel's shareholders and bankers put money into the project with their eyes wide open, fully aware that the British and French taxpayers would not bail them out if things went wrong. And any weakening would send all the wrong signals to banks and companies eyeing up projects in the Private Finance Initiative.