For much of the last forty years, Britain’s economic direction appeared settled.
Governments argued about tax rates, spending priorities and public services, but the broad framework changed little. Privatisation, deregulation, competition, independent regulation, free trade and globalisation became part of the political consensus. Even Labour governments largely accepted the settlement created during the Thatcher years.
Today that consensus is beginning to fracture.
Donald Trump has rediscovered tariffs. The European Union has embraced industrial policy and strategic autonomy. Britain has revived industrial strategy through Great British Energy, planning reform and increased state intervention. The emergency intervention to preserve British Steel, followed by growing calls to renationalise utilities, would have seemed politically improbable only a decade ago.
The question is no longer whether governments should intervene in the economy. It is how, where and to what extent.
The Thatcher revolution
The privatisation of Britain’s utilities was one of the defining features of the Thatcher governments.
British Telecom was privatised in 1984, followed by British Gas in 1986, British Airways in 1987, water in 1989, electricity between 1990 and 1991, rail during the mid-1990s and Royal Mail in 2013.
Alongside privatisation came a new regulatory system. Instead of ministers controlling industries directly, regulators such as Ofcom, Ofgem and Ofwat were expected to encourage competition, protect consumers and oversee private monopolies.
The underlying philosophy was straightforward. Private companies, disciplined by competition and shareholders, would allocate capital more efficiently than governments.
In some industries, they did.
Where privatisation succeeded
Telecommunications is probably the clearest success.
The old British Telecom was a state monopoly characterised by long waiting lists, expensive international calls and slow innovation. Today’s market is almost unrecognisable. Consumers can choose from dozens of providers, prices have fallen dramatically in real terms and Britain has built one of Europe’s fastest-growing full-fibre networks.
British Airways tells a similar story.
Operating in one of the world’s most competitive industries, the airline became a profitable international carrier without relying on taxpayers. Whatever criticisms may be made of today’s service, few would argue that a return to a state-owned national airline would improve matters.
But it was competition, rather than ownership, that transformed both industries.
Where privatisation struggled
Water has been very different.
Unlike airlines or telecommunications, there is no meaningful competition. Nobody chooses between two sets of water pipes.
Private companies have invested heavily since privatisation, but customer bills have risen, public confidence has fallen and sewage pollution has become politically toxic. At the same time, many companies have accumulated enormous debts.
The railways illustrate a different problem.
Passenger numbers increased dramatically after privatisation, but the system became fragmented, Railtrack collapsed, Network Rail returned to public ownership and successive governments found themselves taking increasing control of passenger services.
The lesson is not that public ownership always works better. It is that private monopolies remain monopolies.
Why renationalisation is harder than it sounds
Calls to renationalise utilities often assume the government can simply reverse decisions made forty years ago.
The reality is more complicated.
The water industry alone carries around £60–65 billion of debt, while the sector has an enterprise value of roughly £100 billion.
Nationalisation would not simply involve acquiring assets.
Government would also inherit debt, environmental liabilities and enormous future investment requirements.
Take Thames Water. Its financial difficulties have prompted understandable calls for public ownership. But buying the company outright would also mean assuming responsibility for ageing infrastructure, pension obligations, interest payments and billions of pounds of future investment. The state would take responsibility for the debt, while private investors would walk away with their profits.
If a company enters special administration, however, the economics change. Shareholders may be wiped out. Creditors forced to accept losses.
Government could acquire the assets far more cheaply before deciding whether to return them to private ownership or retain them in public hands. That is much closer to what happened after the collapse of Railtrack than to the post-war nationalisations.
But this takes time.
The real lesson
The debate is too often presented as a choice between state ownership and private ownership. But different industries require different institutional arrangements.
The experience of the last forty years suggests that competition matters more than ownership.
Where privatisation introduced genuine competition, as in airlines and telecommunications, consumers generally benefited.
Where public monopolies became private monopolies, success was much rarer. Ownership alone could not solve the underlying economic problem.
That lesson remains relevant today.
The world is moving away from the assumptions that dominated the 1980s. Globalisation is under pressure. Governments are once again talking about industrial strategy, strategic industries and economic resilience. The pandemic, Russia’s invasion of Ukraine and growing tensions between the United States and China have reminded politicians that efficiency is not the only objective. Security, resilience and domestic capability matter too. The incoming PM Andy Burnham has signalled his enthusiasm for going further with re-nationalisations.
That does not mean every privatisation should be reversed. Nor does it mean markets have failed. It means the simplistic certainties of the last forty years are disappearing.
The sensible debate is no longer whether everything should be privatised or everything should be nationalised. It is how different industries can best combine competition, investment, resilience and public accountability. Specifically how Governments can intervene in industries to ensure competitiveness, investment and resilience.
This takes time, and means pragmatism and gradualism have to triumph over quick fix solutions and simplistic slogans. Sadly the internet has made that harder. If we are to wait for utilities to go into special administration that will take years to bring the water industry back into public ownership. But it is the approach most likely to work.
The era of ideological economic policy that favours privatising everything is over. But that doesn’t mean that a new era of nationalising everything is going to work either.