Britain’s Chancellor George Osborne dropped a pretty incredible statistic in Wednesday’s Budget in a throwaway line that hardly anyone has picked up on.
Early on in his speech to Parliament Osborne said: “Indeed, the sale of government assets this year will deliver the largest privatisation proceeds of all time, higher than the previous record in 1987.”
The Conservative Party plans to raise £31 billion ($US47.7 billion) this year by selling off publicly owned assets, the most ever raised from privatisation in a single year.
Even when adjusted for inflation it beats the previous record by £10 billion ($US15.4 billion). The record was set in 1987 at the height of Margaret Thatcher’s privatisation boom. Back then the centrepiece sell-off was the £7.2 billion ($US11 billion) privatisation of BP.
£31 billion is a colossal amount of money to raise but what’s craziest is the fact that nobody seems to notice. When Royal Mail was privatised in 2013 it dominated the headlines. But the amount raised then is trivial compared to the total the government is planning to raise this year, as the chart below shows.
The main reason all this is flying under the radar is because most of the money is coming from selling things we shouldn’t own anyway. The Office for Budget Responsibility (OBR) is forecasting that the government will raise £13 billion ($US20 billion) of the total selling off shares in Lloyds this year.
A similar amount is expected to be raised selling off mortgages the government bought when it bailed out Northern Rock and Bradford & Bingley.
These, combined with a sell-off of Royal Bank of Scotland shares, make up the bulk of the cash being raised this year, as the chart below shows. (UKAR owns the mortgage assets.)
Other more controversial privatisation schemes include selling off the student loan book. The government is also mulling plans to privatize the Green Investment Bank, which was set up under the coalition to finance environmental businesses.
The Conservatives are rushing to get all these assets off their books not only because they believe in small government (although they may well do), but because they have committed to reducing the country’s public debt burden. But here’s the kicker from the OBR: “Financial asset sales typically bring forward cash that would otherwise have been received later in mortgage repayments and dividends, so they only reduce net debt temporarily.”
Lloyds and Royal Bank of Scotland would have offered a steady income flow to the government, as would the mortgages.
Instead, the Conservatives are spending future cash now to pay down debt. That doesn’t look like a sustainable solution to solving the country’s fiscal problem and could come back to haunt them — or, if they’re lucky, future governments.
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