With the initial public offering of Royal Mail still fresh in our memories, and the sell-off of the government’s stake in RBS just around the corner, it’s easy to forget just how revolutionary the idea of privatisation was at the end of the 1970s and the beginning of the 1980s. According to the Institute for Government, the word ‘privatisation’ was invented by David Howell, a minister in Margaret Thatcher’s cabinet, because the government thought ‘denationalisation’ sounded too negative.
Thatcher was flushed with election victory in 1979 when she set about deregulating markets and making public corporations more competitive. But British Telecom (BT) was massive. Nobody was quite sure how privatising a business of that size would work. As BT puts it, the sale “was revolutionary in its scale and experimental in its marketing. Ultimately, it was not just British Telecom that was being sold, but the whole concept of privatisation.”
In 1981, the British Telecommunications Act split off BT from the Post Office, and the telecoms sector was opened up to competition. Then in July 1982, the government announced it intended to sell over half its stake in the company.
After a second election victory the following year, the government pressed on with its plans. The sale, it was hoped, would promote share ownership among the general public. But, as BT explains, “it had the added benefit of positively contributing to the Public Sector Borrowing Requirement (PSBR)”. So long as the government had a less than 50% stake in BT, “any future capital borrowed is exempt from the PSBR, a figure the Conservatives were keen to reduce”.
In November 1984, over three million shares were offered – 50.2% of the business – with 34.3% earmarked for the general public. By the time the deadline expired, the shares had been oversubscribed by 3.2 times. Trading began on 3 December, raising £3.9bn for the Exchequer.
Not everybody was happy. The Labour party was opposed to privatisation, and former Conservative prime minister Harold Macmillan compared it to selling off the family silver. As with the Royal Mail sell-off, the media complained the shares had been priced too low at 130p. The government explained this had been done intentionally in the interests of promoting share ownership. Either way, the genie was out of the bottle. Privatisation came to be seen as one of the defining policies of the Thatcher era.
Also on this day
Twenty two years ago, a developer working in Newbury, Berkshire, sent a two-word text message, marking the start of a whole new way of communicating. Read more here.