Big G and Little G
- The British Electricity Experiment edited by John Surrey
Earthscan, 329 pp, £40.00, July 1996, ISBN 1 85383 370 3
The new government of 1979 had no grand plans for privatisation. It was intended that a number of small, state-owned enterprises would be sold off, but even the Tory radicals did not contemplate taking the utilities – natural monopolies providing essential services – out of the public sector. An increasingly peremptory Prime Minister, however, came to see privatisation as a ‘central means of reversing the corrosive and corrupting effects of socialism’ and ‘reclaiming territory for freedom’. By the mid-Eighties, the Government had reached the conclusion that even the utilities were better off in private hands. Electricity privatisation was introduced after the flotation of telephones, gas and water because it was, according to Thatcher, ‘the most technically and politically difficult privatisation’. The Government’s audacity in embarking on the electricity sell-off should not be underemphasised: this kind of project had not been tried in any other major industrialised country. Now the ‘British electricity experiment’ is being copied all over the developed world.
The nationalised electricity industry had a reputation for competence but not efficiency. The privatisers accused it of overestimating demand, of being chronically overmanned and of paying too much for fuel and equipment because it was obliged to buy British. They pointed out that the public had to pay for this inefficiency in inflated prices – absence of competition meant that the industry was free to pass on whatever costs it incurred. Despite this, the Government had to accept a low rate of return on its investment.
Because, when BT and British Gas were privatised, the preservation of their monopolies had provoked criticism, electricity was to be broken up before sale, with the intention of introducing internal competition. Generation was to be separated from the National Grid and restructured into competing companies selling electricity through a ‘pool’ on a day-to-day basis. The regional boards were to become supply companies buying the cheapest electricity and selling it to consumers. Eventually, domestic consumers would be able to shop around for the cheapest deal rather than be subjected to the old regional monopolies. Transmission via the National Grid could not be made internally competitive, so would have to be permanently regulated to prevent the exploitation of its customers. Regulation of generation and supply, on the other hand, was envisaged merely as temporary: once competition had been established, the natural working of the market would produce low prices. The result of privatisation would be a lean, efficient, consumer-friendly industry.
In his 1978 party report on the nationalised industries, Nicholas Ridley had deplored the fact that certain unions could hold the Government to ransom by striking or threatening to strike. The outstanding example, of course, was Heath’s acceptance in 1974 of a 35 per cent pay increase for the miners after their strike had caused prolonged electricity shortages. The electricity industry consumed three-quarters of the coal mined in Britain, and its re-organisation had a special appeal as the means to crush the NUM – particularly in the wake of Thatcher’s own showdown with the miners. This, as Steve Jones points out in one of the essays here, is what the Government had in mind when referring to the advantages of ‘diversifying’ fuel supply.
Timing was also crucial. At an exploratory meeting to discuss electricity privatisation held at Chequers in 1987, Thatcher, as she has told us, ‘insisted that all legislation must be enacted before the end of that Parliament’. She was in a rush to make Britain ‘the first country to reverse the onwards march of socialism’. Privatisation also promised revenue to finance tax cuts before the next election: the sale of electricity in 1990 was especially lucrative, raising£14.8 billion, £11.1 billion of which was available for immediate use. The attractive underpricing of the shares of the new companies marked a further stage in the creation of an electorate with a vested interest in keeping the Conservatives in power.
These two objectives – a speedy completion before the election and the destruction of the NUM – shaped the whole process of electricity privatisation. One corollary of Thatcher’s attitude towards the miners was her infatuation with nuclear power, shared by the minister organising privatisation, Cecil Parkinson. The Conservatives reiterated their commitment to nuclear power in their 1987 manifesto, announcing plans for several new pressurised water reactors. The incumbent chairman of the Central Electricity Generating Board, Walter Marshall, was a former chairman of the Atomic Energy Authority and second to none in his support for nuclear power. ‘Dear Walter’, as Thatcher referred to him, was ‘owed a great debt’ by the Prime Minister for keeping the electricity industry at full capacity during the 1984-5 strike. Marshall was opposed to any break-up of the CEGB because only a powerful generating sector could cope with the financial burdens of nuclear power – among them, the out-of-date Magnox stations. He was, however, ‘willing to go along with a two-way split’ in generation, with one much larger company owning and running the nuclear stations. Effective competition required generation to be split up into a number of smaller companies, but the nuclear imperative called for a duopoly.
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