Of course it is easy to be cynical about the Railtrack share sale. One can say, with justification, that the punters only lined up because the issue was priced to fly: that when British people are offered something worth a tenner for, say, eight quid, a lot of them are going to accept. The experience of previous privatisations is that quite a large proportion of buyers do sell their shares once they can see a clear profit from the transaction.
But not all of them sell. And some of those that do will reinvest the money in some other savings scheme or other shares. This is not the euphoric spirit of Eighties popular capitalism, when millions subscribed to British Gas. This is not a Sid. But it is a force to be reckoned with, a force that actually fits just as neatly into new Labour plans for increasing individual savings as it did into old Tory plans to boost personal holdings of shares.
The other lesson of the week, still tentative at this stage, follows the challenge to British Gas prices from the regulator, Ofgas, which proposed on Monday that the charges it imposes on other suppliers to carry their gas through its pipes should be cut by between 20 and 28 per cent. The shares plunged, which will hardly delight the people who have stuck with Sid, but the prospect of cuts of pounds 30 a year in average bills has naturally drawn praise from consumer organisations. Do not expect British Gas (which is preparing to divide itself into a gas supplier and a pipeline company) suddenly to become popular, for it will take a long time for the ill-feeling of recent years to pass. But if the opening up of competition in gas really does cut household bills, then it will be recognised that privatisation made this possible.
It was always clear that a new Labour government would have to acknowledge that many people in the country wanted to own the shares of privatised companies; what was less clear was the possibility that these companies might have a groundswell of support not just from shareholders, large and small, but also from consumers. The idea of a windfall tax on the utilities' profits (the one new tax so far proposed by Labour) seemed a clever way of gathering money without pain: indeed, better than that, of gathering money and bashing greedy giants at the same time. But the more the utilities are forced by regulators to cut their charges the smaller the windfall profits to tax.
Result: the supposed windfall tax would not be without pain, or pain inflicted principally on anonymous financial institutions; it would have to be paid for in higher bills. The notion of a stakeholder society would have to recognise that consumers are stakeholders too.
It is already easy to see some of the implications on Labour policy of popular share ownership. Not only has the Labour leadership pledged not to do away with Personal Equity Plans, but it has proposed an extension to the principle of tax incentives for long-term savers in the Individual Savings Account. Last November, Gordon Brown pointed out that if the country was to have more investment it would have to have higher savings. "We wish to find new ways of making saving more long-term, widening savings to more people and linking the need for savings for investment to the need for people to save for their retirement."
Absolutely right. But, you see, the natural and appropriate vehicle for most of these additional savings is equities. Any decent financial adviser, helping people on a long-term savings scheme, would suggest that they should put at least half their savings into a broad spread of equities. If you are going to have a broad spread of equities, you are likely to include the shares of capital-hungry privatised companies like, er, Railtrack.
Thus it is just as important to Labour to extend share ownership as it has been to the Tories. The motives may be completely different, but the objective has to be the same. The fact that there are 650,000 people out there willing to buy Railtrack shares is supportive of Gordon Brown's stated intention two paragraphs above.
So, ultimately, is the idea that the privatised utilities might become popular. At the moment many Labour politicians feel the need to attack them: for the quality of their service, the salaries of senior management, the share options, the pay-offs and so on. That is almost certainly right in political terms: while they remain unpopular, often with very good reason, they remain a soft target. For Labour they will also remain a convenient target, since a future Labour government could not carry the privatisation programme much further: the cupboard is almost bare.
But if regulators are successful and competition does its stuff, the politics will change. There would be no more political mileage in attacking British Gas than there would be in attacking British Airways. Such a shift would be really welcome. After all, these companies will need to invest. And to pay for this investment they will need, from time to time, to raise additional capital by issuing more shares. The growing ranks of people with Individual Savings Accounts will need to acquire more shares, for if they are to save more they need assets into which to put the savings. The privatised utilities are an important part of the economy and it will be in the interests of any future Labour government which wants increased investment that they should be able to raise money on reasonable terms. The more popular the utilities become, the better the terms on which they can raise the cash.
In the short term there is a conflict between the interests of the shareholders and those of consumers, but in the long run the reverse is true. You do not build a successful business with disgruntled customers. Politicians always attack short-termism in business. I often feel short-termism is even more rife in politics: when Labour starts praising privatisation we will know it has become truly long-term, but I guess we may have to wait awhile yet.Reuse content