Public Benefit Company to replace Public Limited Company

Three-quarters of British voters want our rail, gas and water renationalised but it’s expensive – there is a business model that offers the best of both worlds


Will Hutton in The Guardian

Public ownership is fashionable again. Turning over Britain’s public assets, lock, stock and barrel into private ownership and relying only on light-touch regulation to ensure they were managed to deliver a wider public interest was always a risky bet. And that bet has not paid off.

Recent polls show an astonishing 83% in favour of nationalising water, 77% in favour of electricity and gas and 76% in favour of rail. It is not just that this represents a general fall in trust in business. The privatised utilities are felt to be in a different category: they are public services. But there is a widespread view that demanding profit targets have overridden public service obligations. And the public is right. 

Thames Water, under private equity ownership, has been the most egregious example, building up sky-high debts as it distributed excessive dividends to its private-equity owners via a holding company in Luxembourg, a move designed to minimise UK tax obligations. As the Cuttill report highlighted, at current rates of investment it will take Thames 357 years to renew the London’s water mains: it takes 10 years in Japan.

Equally, BT’s investment in universal national high-speed broadband coverage has been slow and inadequate, while few would argue that the first target of the rail operators has been quality passenger service – culminating in the most recent scandal of Stagecoach and Virgin escaping their contractual commitments. Most commuters, crowded into expensive trains, have become increasing fans of public ownership. Jeremy Corbyn’s commitment to renationalisation surprised everyone with its popularity.

The trouble is, it’s expensive: at least £170bn on most estimates. Of course the proposed increase in public debt by around 10% of GDP will be matched by the state owning assets of 10% of GDP, but British public accounting is not so rational. The emphasis will be on the debt, not the assets, and in any case there are better causes – infrastructure spending – for which to raise public debt levels.

And once owned publicly, the newly nationalised industries will once again be subject to the Treasury’s borrowing limits. If there are spending cuts, their capital investment programmes will be cut. What voters want is the best of both worlds. Public services run as public services, but with all the dynamism and autonomy of being in the private sector, not least being able to borrow for vital investment. It seems impossible, but building on the proposals of the Big Innovation Centre’s Purposeful Company Taskforce, there is a way to pull off these apparently irreconcilable objectives – and without spending any money.

The government should create a new category of company – the public benefit company (PBC) – which would write into its constitution that its purpose is the delivery of public benefit to which profit-making is subordinate. For instance, a water company’s purpose would be to deliver the best water as cheaply as possible and not siphon off excessive dividends through a tax haven. The next step would be to take a foundation share in each privatised utility as a condition of its licence to operate, requiring the utility to reincorporate as a public-benefit company.


Regulators, however good their intentions, too easily see the world from the view of the industry they regulate

The foundation share would give the government the right to appoint independent non-executive directors whose role would be see that the public interest purposes of the PBC were being discharged as promised.

This would include ensuring the company remained domiciled in the UK for tax purposes and guaranteeing that consumers, social and public benefit interests came first.

The non-executive directors would engage directly with consumer challenge groups whose mandate is to be a sounding board for consumer interests but at present are little more than talking shops, and deliver an independent report to an office of public services each year, giving an account of how the public interest was being achieved. It is important to have an independent third party: regulators, however good their intentions, too easily see the world from the view of the industry they regulate.

Because the companies would remain owned by private shareholders, their borrowing would not be classed as public debt. The existing shareholders in the utility would remain shareholders, and their rights to votes and dividends would remain unimpaired. So there would be no need to compensate them – no need, in short to pay £170bn buying the assets back. Indeed, the scope to borrow could be used to fund a wave of new investment in our utilities.

But the new company’s obligation would be to its users first and foremost, and would be free to borrow free from any Treasury constraint. Nor would any secretary of state get drawn into the operational running of the industries – one of the major reasons Attlee-style nationalisation failed. Inevitably decisions get politicised. 

The aim would be to combine the best of both the public and private sectors. If companies do not deliver what they have promised, there should be a well-defined system of escalating penalties, starting with the right to sue companies and ending with taking all the assets into public ownership if a company persistently neglected its obligations. But the cost would be very much lower, because the share price would fall as it became clear it was operating illegally.

Britain would have created a new class of company. Indeed, there is the opportunity to start now. If Virgin and Stagecoach are unable to fulfil their contractual obligations on the East Coast line, the company should be reincorporated as a public benefit company. The shareholders would remain, but the newly constituted board would take every decision in the interests of the travelling public guaranteed by the independent directors, empowered consumer challenge groups and the office of public services – so that the taxpayer can trust her or his money is spent properly. Corbyn and John McDonnell have a way of delivering what the electorate want – and still keeping the industries off the public balance sheet. The circle can be squared.

Britain is over-tolerant of monopolies

Jonathan Ford in The Financial Times


The old joke that asks why there is only one Monopolies Commission may no longer work now the watchdog has rechristened itself the Competition and Markets Authority. 

But perhaps it’s no coincidence that the UK’s trustbusters have dropped the word “monopoly” from their name. 

Contemporary Britain can seem oddly complacent in the face of declining competition. True, it is not the only country to face the uncomfortable concentrations of market power that new technology and global capital make possible. 

Many advanced economies struggle with the “winner takes all” nature of the internet. 

Large parts of the UK’s competition mechanism are in any case delegated to Brussels. But even so, the country often contrives to drop the trustbusting ball. 

Take the ongoing dispute between Transport for London and Uber over whether the car-booking service should retain its taxi licence. 

TfL is up in arms about safety standards. But the real scandal here is the way Uber has been allowed to hoover up the London taxi market.  

Almost unseen, the US company has been able to turn a price-regulated black cab monopoly into an unregulated one where it increasingly dominates the capital’s streets. 

Facts on market shares are hard to obtain, in part because of Uber’s un-transparent structure. 

Fares for its services are paid not to a UK company, but to a Netherlands vehicle, which remits only sufficient money to the UK subsidiary to cover its costs and pay vestigial amounts of tax. 

Nonetheless, it is clear that Uber has built a very substantial position in the five years since it received a licence, the only app-based service yet to do so. 

The service has 40,000 drivers on its network, four times the number of black cab drivers. The second largest non-black cab private hire operator in London, Addison Lee, has just 4,800 drivers on its books. 

Compare that, for instance, to supposedly highly regulated Paris. There, customers have a choice of numerous app-based services, including Uber, Taxify, Allocab and Le Cab, as well as traditional regulated taxis. 

Travis Kalanick, Uber’s founder, may talk about London as the “Champion’s League of transportation”. But it is also one of the company’s top three cities worldwide in terms of profitability. Unsurprisingly, perhaps, given that in this “competition”, the authorities have excluded its main rivals. 

Other app-based services such as Taxify have been unable so far to obtain licences. Perhaps Uber has been treated as a guinea pig by the regulators. But if so, that careless decision may have allowed it to steal an uncatchable head start. 

Taxis are not the only area where competition has been allowed to take a back seat. Take the concentration of market power that occurred in the banking sector after the financial crisis, largely prompted by the merger of Lloyds TSB and HBOS. 

The CMA has placed its faith in limp behavioural remedies and backed away from any muscular changes such as break-ups. 

Or the telecoms sector, where the regulator allowed BT, the old national network, to buy EE and create a preponderant mobile operator without proposing any material steps to redress its evident market power. 

A recent study by the Social Market Foundation shows how the cumulative effect of market concentration increasingly threatens consumers’ interests. 

Out of 10 key markets accounting for 40 per cent of consumer spending, it found that eight — including groceries, mobile phones, gas and current accounts — were concentrated, meaning they were dominated by a small number of large companies. 

Only the car industry and the mortgage market were genuinely open, with no single operator in the former sector controlling more than 15 per cent of the market. Meanwhile, in telephone landlines, BT has about 80 per cent. 

Concentration and competition are not the same thing. In some sectors, such as groceries, it can be possible to have both because of the ease of switching. 

But in many sectors the concentrated market power erodes competition to the detriment of consumers. 

The lack of competition in banking, for instance, costs customers £6bn a year, or £116 each, according to a competition inquiry in 2016. In the energy sector, another inquiry found that Britons are paying £1.7bn too much each year for their power. Despite official investigations galore, neither has been addressed. 

Like the famous line about empire, Britain appears to be acquiring oligopolies in a fit of absence of mind. It is a dangerous inattention. 

For these concentrations do not just hit consumers in the wallet. They exact a cost in terms of public loss of confidence in private business and free markets. A state that believed in either would bust more trusts.

A short history of privatisation in the UK: 1979-2012

 From the first experiments with British Aerospace through British Telecom, water and electricity to the NHS and Royal Mail


 

Richard Seymour

guardian.co.uk, Thursday 29 March 2012 11.03 BST larger
 

Royal Mail is being auctioned, and not necessarily to the highest bidder (and stamp prices are going up). The London fire brigade is outsourcing 999 calls to a firm called Capita, at the behest of the oleaginous chair of the capital's fire authority, Brian Coleman. Multinationals are circling hungrily around NHS hospitals. Schools are already beginning to turn a profit. In the technocratic nomenclature of the IMF, this would be called a "structural adjustment programme", but that doesn't really capture the sweeping scale of the transformation. We can see this through a potted history of privatisation in the UK.



• 1979-81: Experimentation



 

The Tories had long been committed to some policy of de-nationalisation. In response to the prolonged crisis of the 1970s, in which the Tories had struggled to maintain their parliamentary dominance, the Ridley report devised for the Thatcher shadow cabinet recommended a policy of breaking up the public sector and dismembering unions. Privatisation was at first subordinate to other policy themes, above all wage suppression to control inflation. But the first Thatcher administration did successfully introduce a degree of privatisation in some large public sector companies, above all British Aerospace and Cable & Wireless. At this stage, however, the focus was on privatising already profitable entities to raise revenues and thus reduce public-sector borrowing.



• 1982-86: Lift-off




Amid the early 80s recession, the Tories had begun to propose privatisation as a potential panacea. Conservative MP Geoffrey Howe extolled the "discipline" of the marketplace. The emerging doctrine was that privatisation would make the large utilities more efficient and productive, and thus make British capitalism competitive relative to its continental rivals. In this period, the government sold off Jaguar, British Telecom, the remainder of Cable & Wireless and British Aerospace, Britoil and British Gas. The focus had shifted to privatising core utilities.



This policy did not emerge out of nowhere; it was fully embedded in the Hayekian ideas that had guided Thatcher and her cohort in opposition. But it did develop in relation to specific policy objectives. It was not just a question of stimulating private sector investment, but also of culture war intended to re-engineer the electorate along the lines of the "popular capitalism" vaunted by Thatcher, and announced in the infamous "Tell Sid" campaign.



• 1987-91: Leaps and bounds




Following the Tories' third election victory, they were sufficiently confident to roll out their most aggressive privatisation programme yet. British Steel, British Petroleum, Rolls Royce, British Airways, water and electricity were among the major utilities for sale. These privatisations provoked serious opposition, perhaps sufficient to curb any tendency toward privatisation in the NHS. Nonetheless, market-driven measures continued to be imposed in the public sector, from the "internal market" in the health service to Major's ill-fated citizen's charter.



• 1992-96: Weakness and retreat




The fourth consecutive Tory administration was weak, and quickly divided over a range of policies, above all European monetary union. But the neoliberal premises of policy embedded by Thatcher remained intact, and the government continued to push privatisations in those areas where it felt able to. Inflicting a second defeat on the miners, the government proceeded with the final sell-off of British Coal, as well as electricity generating companies Powergen and National Power, and British Rail. Michael Heseltine's attempt to privatise the Post Office was abandoned, however, due to public opposition and resistance from a backbench fearful of electoral wipeout.



• 1997-2001: New Labour's compromise




New Labour had made electoral capital out of the Tories' unpopularity over privatisation, but only pledged to stop the sell-off of air traffic control. Even this minor promise was betrayed. For, if Thatcherism had not won the argument on public services, it had so comprehensively demolished the militant left and trade unions that there was nothing to prevent Labour from adapting to neoliberalism. The major privatisation policy introduced in this period was thus an awkward compromise between a managerial leadership and Labour's electoral base, known as the Private Finance Initiative (PFI) – a fudge originally pioneered by Norman Lamont. Introduced into the London Underground, the NHS and schools, these policies raised money in the short-term without the need for higher taxes. But there was also a streak of pro-market evangelising involved. Both Peter Mandelson and his successor at the department of trade and industry believed it was the role of government to foster entrepreneurial culture.



• 2002-8: Aggressive PFI



 

The second and third New Labour administrations pressed aggressively for further state down-sizing and privatisation. Blair had based his 2001 re-election campaign on the extremely unpopular PFI. The calculation was that even if the measure wasn't popular, his victory would prove that there was no realistic alternative. Though there were few major sell-offs, the government's policies on the Royal Mail and the NHS had, as their logical conclusion, the privatisation of these services. Even the fiscal crisis in the NHS, resulting from the high costs of PFI initiatives, did not dampen the ardour. It was not until the credit crunch and the ensuing crisis that the pendulum began to swing, if only temporarily, in the opposite direction when Brown was forced to belatedly nationalise a string of failing banks. But even then, it was clear that the intention was to restore these companies to private ownership as quickly as possible.



• 2009-: Thatcherism Mark II?




The Tories took office without a mandate, but with no lack of confidence. Their agenda, which had emerged since 2008, was to represent the crisis of global capitalism as a crisis of public sector spending. Having already privatised the Tote and announced the sell-off of Northern Rock, with other nationalised banks to follow, they have indicated that Royal Mail will be sold off, along with probation services, roads, large sectors of education and the NHS. Even sections of the police, traditionally an ally of the right, will be privatised. Outsourcing will be extended into every possible area.



But, as in the 1980s, the aim is not primarily to reduce public-sector borrowing. The Tories know that ongoing economic crisis is not just a fiscal or financial problem. The private sector is utterly stagnant. Globally, there are trillions of pounds being retained by corporations who see no viable avenue for profitable investment. US companies are holding on to $1.7 trillion, eurozone firms sit on 2 trillion euros, and British firms have £750bn doing nothing. Accumulation-by-dispossession is one way to get that money into circulation as capital. And while the Conservatives are not as ideologically confident as in the 1980s, the scale of their proposed privatisations suggests they expect to over-ride any opposition.



In historical context, privatisation seems to answer a number of dilemmas for the Tories. By spreading market incentives, it erodes the public sector basis for Labourist politics. By opening the public sector to profit, it gets a lot of capital into circulation. And by reducing the power of public sector workers, it suppresses wage pressures, thus in theory making investment more appealing. Above all, perhaps, in shifting the democratic to market-based principles of allocation, it favours those who are strongest in their control of the market, and who also happen to represent the social basis of Conservatism.