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Privatisation in the UK

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Introduction

Privatisation in the UK It is the belief of some economists that free market is a superior method of allocating economic resources and that large scale involvement by Government in business activities would hinder economic progress. The UK Conservative Government under Mrs Margaret Thatcher therefore felt that the central control of many industries was no real benefit to the economy, it was therefore decided that it would be better to privatise the public sector as far as possible. Privatisation is the sale of nationalised industries to the private sector of the economy. This was a major element in the economic strategies of the Government. Other elements of the strategies included giving the right to buy to tenants of houses and flats owned by the local authorities, inviting tenders for the performance of a wide range of services which were within the public sector and contracting over these services to private firms. Privatisation therefore had two main aims, these were to promote efficiency, especially through competition and to widen share ownership. Competition ensures that goods and services desired by the customers are provided at the lowest economic cost, increased efficiency is achieved as a result of sustained pressures on companies coming from market forces. ...read more.

Middle

the efficiency and general performance of these companies, would give rise to increased competition that would broaden the consumer choice and would help the growth of the economy. Customers benefits when greater efficiency that can be achieved through privatisation is passed on to them. Under state control, it was argued that these organisations had no incentive to strive for efficiency or to respond to the preference of the consumer because many of them did not have direct competitors, and they could also turn to the Government for financial assistance if their revenue was not sufficient to meet their operating costs. Becoming privately owned companies would compel them to satisfy both the consumer and the shareholders if they were to survive or to avoid being taken over by more efficient and competitive companies. As privatised companies, they are more likely to respond to changes in customer demands and produce better return on capital invested. Employees also see privatisation as working in a company that has clear objectives, the means to achieve these and therefore rewards for success. ...read more.

Conclusion

By the early 1990's private share ownership in the UK had increased to 25 per cent from 7 per cent in 1979. In view of the fact that many of these companies' share prices were cheaper than their Net Asset Value (NAV) at the time of floatation these guaranteed quick profits for people who bought and sold straight away as prices rose. Many shareholders who invested for longer term capital gains have also benefited from under pricing issues and in some cases received free additional shares and other additional benefits (including annual dividends) by holding on to their investment. The share prices of many of these companies have increased significantly since floatation and investors who hold onto them since would have had substantial increases in their investments portfolio. For example Cable & Wireless shares were issued at an average price of 56p in the early 1080's and were trading at 588p by august 1991. In addition to privatisation, the sale of council houses to private tenants has encouraged the growth of a "property-owning democracy", in which an increasing number of citizens have a stake in the success of the economy and therefore in the performance of the private sector. ...read more.

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