Briefly explain the economic arguments, which have supported the continued privatisation of the transport sector in the UK since 1979

The first argument is that privatisation will expose the different industries within transport, to market forces, from which will flow the benefits of greater efficiency, faster growth and greater responsiveness to the needs of the consumer. There are three parts to this argument. Firstly there will be greater competition in the goods market. If privatisation involves the splitting of an industry, the resulting competition may drive costs down and prices down. There will be greater competition for finance. After privatisation a company has to finance investment through the market; it must share issues or borrow from financial institutions. In doing so it will be competing with other firms for funds, and thus must be seen capable of using the funds profitably.  Lastly it will have accountability to shareholders. Shareholders will want a good return on their shares and thus will put pressure on the company to perform well. The market has corporate control and thus provides incentives for private firms to be efficient.

In nationalised industries managers may frequently be required to adjust their targets for political reasons. At one time they may keep prices low as part of a government drive against inflation. Privatisation frees the company from these constraints and allows it to make more rational economic decisions and plan future investments with greater certainty.

The PBBR is the amount of money that the public sector has to borrow each year to make up for the shortfall between public-sector expenditure and public-sector receipts. Selling shares in the privatised industries directly earns money for the government ands thus reduced the amount it needs to borrow. Effectively the government can use the proceeds of privatisation to finance tax cuts. Cuts in taxation are not only popular politically, but also are seen as a means of increasing incentives to work invest and therefore stimulate increased output in the economy.

Finally there is the argument of increased share ownership. This is a largely political and ideological argument. The Conservative party believes that the ‘true’ public ownership is not state ownership. Although in theory everyone in the UK owned the nationalised industries, people did not feel a sense of ownership or participation. Instead the industries were run by ‘bureaucrats’. This was not so after privatisation, shares are now owned by members of the public who feel a much greater sense of involvement. In this sense the Conservatives argued that privatisation is really a return of the industries to the public and a form of ‘popular capitalism’.