Privatisation, Deregulation & Council-House Sales (AQA A Level History: Component 2: Depth study): Revision Note

Privatisation

Why did the Thatcher governments privatise?

• Privatisation, also called denationalisation, became central to Thatcherite economic policy

  • Thatcherites argued that private businesses were more efficient than state-owned industries

  • Firms competing in a market were expected to improve and innovate

    • State monopolies faced less pressure to do so

• Privatisation served several aims:

  • It raised money for the Treasury without increasing taxes

  • It reduced the size of the public sector

  • It reduced the role of the state in the economy

  • It widened share ownership

    • The government described this as 'popular capitalism'

    • Share offers were advertised to attract people who had not invested before

• The same principle was also applied to some local government services

  • Councils increasingly contracted private firms to provide services such as refuse collection

  • Financial pressures on councils made contracting out more attractive as a way of cutting costs

The privatisation programme, 1979–1990

• Privatisation developed gradually rather than beginning as a large-scale programme

  • Early sales were cautious and often involved firms that already operated in competitive markets

British Telecom, 1984

• The sale of British Telecom (BT) in 1984 changed the scale of privatisation

  • It was the largest share sale attempted anywhere in the world up to that point

  • Around 2 million people bought shares

    • Many were buying shares for the first time

• The success of the sale made larger privatisations politically easier

Larger sales after 1984

• British Gas was sold in December 1986

  • It became the biggest share offer in history at the time

  • The "Tell Sid" advertising campaign was aimed at people who had never owned shares

    • Around 4 million people applied

    • Roughly 1.5 million received shares in the first instance

• As a result, further large sales followed

  • British Airways in February 1987

  • Rolls-Royce in May 1987

  • British Airports Authority in July 1987

  • British Steel was sold in 1988

• National services were sold at the end of the decade:

  • Water was privatised in 1989

  • Electricity followed in 1990

• Some Thatcherites wanted privatisation to go much further

  • Plans were discussed for coal, the railways and parts of the National Health Service (NHS)

  • None of these were carried out during the 1980s

Approach: The source is useful for showing how the government justified privatisation. Jenkin presents private enterprise as more efficient than state monopoly and argues that wider share ownership would give ordinary people a direct stake in the economy

However, he was the minister responsible for taking the Bill through Parliament, so he was making the government’s case for the policy. The source is strongest for showing what ministers wanted privatisation to achieve, not whether those aims were actually met

Criticisms of privatisation

• Critics argued that some public assets were sold for less than their real value

  • Share prices were sometimes set low to make sure an issue was fully taken up

  • Large first-day profits, therefore, went to buyers rather than the Treasury

• Wider share ownership did not always last

  • Some small investors sold their shares quickly to take a profit

  • Critics argued that this weakened claims that a permanent share-owning democracy had been created

• Privatisation also changed conditions for employees

  • Private companies could reduce staff to increase profitability

  • Job security became less certain

  • Long-term pension arrangements could also become less secure

• Opponents argued that some state monopolies had simply become private monopolies

  • Regulators such as Oftel were created to control prices and enforce standards

  • Critics questioned whether regulation could replace genuine competition

Approach: The source is useful because it gives the Labour opposition’s case against privatisation. Orme argues that nationally owned assets would be transferred to a minority of shareholders and that profit would become more important than public service

He was speaking against the Bill, so his purpose was openly political. Used alongside Jenkin, the two sources are especially useful for comparing the arguments for and against privatisation at the time

Deregulation and the 'Big Bang', 1986

What did deregulation mean?

• Deregulation was an important part of supply-side economics

  • The aim was to remove rules that made it harder for businesses to trade, expand, and hire workers

• Controls on borrowing were reduced

  • This made credit easier to obtain for firms and households

• Bus and coach services were deregulated

  • Private operators could compete on routes that had previously been more tightly controlled

• The government also encouraged people to start their own businesses

  • The Loan Guarantee Scheme helped small firms borrow money

  • The Enterprise Allowance Scheme paid unemployed people £40 a week for up to a year while they established a business

• Some public institutions were also given greater control over their own finances

  • Later reforms (1988–1990) also gave schools and hospitals more control over their own budgets

The 'Big Bang', 27th October 1986

• The 'Big Bang' transformed the London Stock Exchange on 27th October 1986

• Several long-standing rules were removed at the same time

  • Fixed minimum commissions on share trades were abolished

    • Firms now had to compete on price

  • The old division between brokers and jobbers was ended

  • Foreign banks were allowed to buy British firms and operate as stockbrokers in London

• Trading also moved increasingly from the exchange floor to computer screens

  • Deals could be completed much more quickly

  • Larger volumes of shares could be traded

  • London could compete more directly with financial centres such as Wall Street in New York and Tokyo

• The reforms weakened the old closed network of City firms

  • Competition became more open

  • Nigel Lawson, as Chancellor, supported the changes despite resistance from some established City interests

The impact on the City

• The City of London strengthened its position as a major international financial centre

  • Foreign banks expanded their presence

  • Financial services became one of Britain's most important export industries

• A new culture developed in the City

  • Traders and dealers were encouraged to take greater risks in return for greater rewards

  • The 'yuppie' became one of the best-known images of the decade

    • The term was used for young urban professionals associated with high salaries, finance, and conspicuous consumption

Criticisms of deregulation

• Critics argued that lighter regulation encouraged greater financial risk-taking

  • Competition became more intense

  • Larger rewards encouraged more speculative behaviour

• The global stock market crash of October 1987 followed almost exactly a year after the Big Bang

  • However, the crash was international

    • It cannot be explained simply as a consequence of British deregulation

• Debate continued over whether the reforms made the financial system:

  • more competitive and efficient

  • or more exposed to instability

The sale of council houses

The Housing Act, 1980

• The Housing Act (1980) gave around 5 million council tenants in England and Wales a legal Right to Buy their homes

  • The right came into force on 3 October 1980

  • Tenants received a discount of between 33% and 50% of market value

    • The size of the discount depended on how long they had been tenants

  • Later legislation increased the discounts

    • The Housing and Building Control Act (1984) raised the maximum discount on houses to 60%

    • The Housing and Planning Act (1986) raised the maximum on flats to 70%

• Anyone who resold within five years had to repay some or all of the discount

• Selling council houses was not a new idea

  • Councils had always been able to sell homes to their tenants

  • Horace Cutler, leader of the Greater London Council (GLC), had promoted large-scale sales from the late 1960s when he was its housing chairman

• The important change in 1980 was that sale became a legal right

  • Councils could no longer choose whether to participate

  • Labour-controlled councils that delayed applications could be overruled by the Secretary of State

    • Within six months, seven authorities had been formally warned that the government might intervene

Approach: The source is useful for showing the government’s aims for the policy. Heseltine presents home ownership as a major social change rather than simply a housing reform

However, he was the minister responsible for promoting the Bill, so his description of a “social revolution” was designed to build support for the policy. It is stronger evidence for government intentions than for the results of Right to Buy

The scale of council house sales

• Sales began quickly and reached a very large scale

  • 167,123 homes were sold in England in 1982–83

  • More than 1 million council homes had been sold across the United Kingdom by 1987

• Home ownership increased alongside the sales

  • Owner-occupation rose from around 55% of households in 1980 to 64% by 1987

• The policy also raised money for the government

  • Sales produced roughly £18 billion

• Right to Buy became politically difficult for Labour to oppose

  • Labour initially rejected the policy

  • It later dropped its opposition

    • Continuing to oppose a policy that had benefited many of its own traditional voters became electorally costly

The consequences for council housing

• Right to Buy reduced the amount of housing available for rent

  • The most attractive properties tended to sell first

    • These were often houses with gardens rather than flats

  • Councils were left with a greater proportion of older and less desirable properties

• Councils could not simply replace the homes they had sold

  • Much of the money raised had to be used to repay existing council debt

  • New council house building fell sharply during the decade

• Waiting lists for council housing became longer

  • Temporary housing also became more common

  • Councils increasingly placed homeless families in bed-and-breakfast accommodation

    • This was often more expensive and provided poorer living conditions

• The effects were uneven across Britain

  • Take-up was highest in more affluent areas and in the south

  • It was lowest where household incomes were lower

  • Areas where a large number of tenants could afford to buy therefore lost more of their council housing stock

Approach: The source is useful because he predicted that wealthier tenants would be more able to buy the better council houses, leaving poorer tenants with the remaining stock. This can be tested against the later pattern of sales and the decline in the amount and quality of council housing available for rent

However, Hattersley was speaking as an opposition politician before the policy had taken effect. The source is therefore a prediction, not evidence of the results by itself

The 'property-owning democracy'

What is a 'property-owning democracy'?

• A property-owning democracy described a society in which more people owned their homes and held shares

  • The idea had roots in conservative thinking from the 1920s

  • Thatcher gave it a new economic and political importance

• Wider ownership was meant to give people a direct stake in the economy

  • Homeowners and shareholders were expected to value:

    • stability

    • independence

    • self-reliance

• There was also a political calculation

  • Owner-occupiers were thought more likely to vote Conservative than council tenants

  • Expanding ownership could, therefore, change voting behaviour as well as the economy

• Ministers also presented ownership as a change in attitude

  • Owning property and shares was linked to independence from the state

    • This fitted the wider Thatcherite emphasis on individual responsibility

Spreading share ownership

• Individual share ownership increased sharply during the 1980s

  • It rose from around 3 million people in 1979 to 9 million in 1988

• Privatisation was the main reason for the increase

  • Large share offers such as BT in 1984 and British Gas in 1986 attracted many first-time investors

  • Employee share schemes in privatised companies also widened ownership

• By the late 1980s, there were nearly as many individual shareholders as trade union members

  • Ministers used this comparison as evidence that Britain had changed socially as well as economically

• However, much of this new ownership was quite limited

  • Many new shareholders owned shares in only one or two privatised companies

  • Some sold their shares quickly to make an immediate profit

Approach: Edwina Currie was a Conservative MP and strong supporter of Thatcher. She published this account in 1989, looking back at how she believed the lives of her constituents had changed during the 1980s

The source is useful for showing how Thatcherite Conservatives wanted the idea of a property-owning democracy to be understood. Currie links home ownership, share ownership and small business with greater independence and a move away from traditional Labour loyalties

However, her example is deliberately constructed around one successful individual. It is therefore stronger evidence for the political message behind the policy than for how typical that experience was across Britain

The limits of the property-owning democracy

• Ownership widened, but it did not spread evenly

  • Many new shareholders held only small amounts of stock

  • A large number sold their shares soon after buying them

• Not everyone could benefit from Right to Buy

  • Around half of council tenants could not afford to purchase their homes even with the maximum discount

  • Tenants dependent on rate rebates or income support were effectively excluded

    • Those least able to buy were left in a shrinking rented sector

• The gains from home ownership also varied by region

  • People who bought in areas where house prices rose quickly gained the most

  • Buyers in weaker housing markets gained far less

• The policy, therefore, widened ownership without creating equal outcomes

  • Some households gained substantial assets

  • Others remained dependent on rented housing and had few opportunities to build wealth

How far did Thatcher reshape the British economy?

• This question weighs the scale of the changes made after 1979 against the argument that the economy was already moving in the same direction

  • Some key evidence for each side is set out below

Evidence that Thatcher reshaped the economy

• Ownership of major industries was permanently transferred out of state into private hands

  • Telecommunications, gas, airlines, and steel all moved to the private sector between 1984 and 1988

• The balance of the mixed economy shifted sharply

  • Employment in nationalised industries fell from around 9% of the workforce to under 2% by 1990

• Home ownership and share ownership both increased

  • Owner-occupation reached 64% by 1987

  • Individual share ownership tripled to 9 million by 1988

• The Big Bang restored London as a global financial centre

  • Financial services became a leading export industry, allowing the City to compete with Wall Street

• The post-war consensus on economic management was abandoned

  • No later government reversed the 1980s privatisations wholesale

• The policies changed the political landscape as well as the economic one

  • Skilled workers who bought homes and shares became a new part of the Conservative electorate

Evidence that the changes were limited and had already begun

• Britain was already shifting from manufacturing to services before 1979

  • Old labour-intensive industries were losing ground to foreign competition and new technology regardless of policy

• Council house sales were not a Thatcherite invention

  • Councils had held the power to sell since long before 1980, and the GLC had promoted large sales in the late 1960s

• Overall economic growth was not exceptional

  • Growth in GDP across the 1980s averaged 2.2%, no better than in the 1970s

    • Strong growth in the second half of the decade offset a severe recession in the first half

• State monopolies were often replaced by private ones

  • New regulators such as Oftel were needed precisely because competition did not automatically follow the sale

• The gains were spread unevenly by region and by class

  • Take-up of Right to Buy and of share offers was concentrated in more prosperous areas, widening existing divisions