Privatisation was one of the great achievements of the Thatcher era. But it is becoming increasingly evident that the transfer of monopolies into the hands of regulated companies that own, run and develop the assets is flawed. This is excessively costly to consumers. It is also an obstacle to investment in risky long-term assets such as airports, nuclear power , electricity and gas networks.

This is not to argue that privatisation is devoid of benefits. Where competition could be introduced into the newly privatised industry, as in the case of telecommunications, the gains were huge. Elsewhere, privatisation was the way to allow essential activities to escape from the dead hand of Treasury curbs on public investment. Private finance was more expensive, but investments were at least made.

Yet, as recent work by Oxford University’s Dieter Helm makes clear, it is time to review the model. The bundling together of different functions in one regulated entity, and the rules on costs, particularly of capital, need rethinking.

A regulated utility consists of a set of assets, an operating function and a co-ordinating function. The second, in turn, consists of two activities: running the business day to day and planning and implementing investment projects. Professor Helm argues, persuasively, that lumping all these together has led to inefficiency and a rip-off of consumers*.

The remainder of this column can be read here. Click through to read the debate from our expert panel.

Tags: UK economy

June 13, 2008 2:07pm in Uncategorized | Comment