Governments appease corporations and the super-rich by following the old policies which benefit a few.
Prem Sikka is an Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labour member of the House of Lords, and Contributing Editor at Left Foot Forward.
A new rentier economy has been constructed and the UK remains trapped in low economic growth. The government must adopt alternative policies.
An often-told story is that Albert Einstein once set an exam paper for his graduate class, and one of his colleagues noticed that the questions were exactly the same as the ones on the last year’s exam paper. How could he set the same exam again, s/he asked? Einstein smiled and admitted that the questions were the same, and added “but the answers have changed”.
Thomas Kuhn in his The Structure of Scientific Revolutions explained that normal science advances by assessing the usefulness of theories in solving puzzles. Unresolved anomalies pave the way for emergence of rival paradigms with better ability to understand and address puzzles.
In contrast, politics isn’t a rational science and is driven by power, appeasement and subservience. The recurring questions about economic stagnation, low investment, faltering public services and poverty are answered with privatisation, arbitrary fiscal rules, real cuts to wages and benefits, and unchecked profiteering as governments feel comfortable with defunct theories.
Here are a few examples of the defunct thinking.
The Private Finance Initiative (PFI) was launched by the Conservative government in 1992 and greatly expanded by the Labour administration of Tony Blair and Gordon Brown. Under PFI, the government contracts with the private sector to design, build, finance and maintain long-life public assets, such as schools, hospitals, roads, prisons, office buildings bridges and tunnels. Since its inception, around £60bn of private money has gone into 700 PFI projects. In return, the government will pay £306bn. For just £13bn of investment, the National Health Service (NHS) has been landed with an £80bn bill. The escalating costs eat into the NHS budget and leave less for frontline services. Around 6.23m people in England are waiting for 7.37m hospital appointments.
It is always cheaper for governments to borrow and build, but they chose the PFI route which ultimately required even more borrowing. Undeterred, the government has revived PFI in guise of Public Private Partnerships (PPPs). This will guarantee corporate profits, constrain the ability of future governments to borrow and put public services under strain.
Privatisation of utilities and public services was supposed to unleash investment and lower bills for customers. That hasn’t been the case. In 1989, water industry in England and Wales was privatised at a price of around £7.6bn. The government wrote-off its debt of £5bn and handed a dowry of £1.5bn to new corporate owners. Thereafter, shareholders invested little in productive assets. Instead, capital has been raised from customers through inflation-busting rise in bills with a promise of investment in infrastructure. No new reservoirs have been built. Over a trillion litres of water a year is lost to leaks. In 2024, raw sewage was dumped in rivers, seas and lakes for 3.61m hours. Since privatisation, companies have paid around £85.2bn in dividends, and have financial liabilities of around £91bn. The government is still looking for a ‘market-based solution’ for an industry with captive customers, no substitute products, no competition and over 1,135 criminal convictions.
Energy is another sector at the heart of the rentier economy. Gas, oil, electricity and the national grid were privatised in the decade to 1990, leading to exploitation. In the 1960s and 1970s, the UK found large quantities of oil and gas in the North Sea. Soon they were privatised and production was subjected to comparatively low rates of tax. Norway also found oil and gas deposits at around the same time but did not privatise. It retained majority equity stake in most oil/gas fields. Since the 1970s, due to privatisation, lower royalty and tax rates, the UK government has collected around $11 a barrel. Norway collected $30 a barrel. Norway ring-fenced the oil/gas revenues whilst the UK squandered them in tax cuts for corporations and the rich. Today, Norway has a sovereign fund of nearly $2 trillion, which funds government spending, whilst the UK faces a public finance crisis and real cuts in public services.
Relatively few companies dominate the UK energy sector. Since the pandemic electricity generation companies have increased their profit margins by 198%, and electricity and gas supply companies have increased their margins by 363%. The fossil fuel industry receives £17.5bn in subsidy and support a year. Since 2002, the government has provided some £22bn of support for electricity produced from biomass. Since 2020, twenty biggest energy companies have made operating profits of over £514bn, a major source of inflation and poverty. The UK has the most expensive household electricity in the world.
To soothe public anxieties, companies promise to spend on infrastructure but then quietly renege. Companies responsible for Britain’s electricity and gas infrastructure have spent £490m a year less than promised on replacing and refurbishing existing assets. The creaking infrastructure is unfit for purpose.
During periods of high wind, the government pays companies up to £180,000 an hour to switch-off wind turbines. At the same time gas plants are paid extra sums to produce more electricity to balance the system and meet demand. For the period September 2021 to April 2025, the cost of balancing the electricity grid came to £11.8bn, and is expected to hit £8bn a year by 2030. Since privatisation, National Grid has returned £27.8bn to shareholders in dividends and another £600m in share buybacks.
Social care has been privatised since the 1980s. On average, 61% of local authority budgets are spent on social care. Private sector, mostly corporations, controls 96.5% of the adult social care market and over 85% of children’s homes. Profitability among the largest care home chains ranges from 11% to 42% of revenues. A 2022 report by the Competition and Markets Authority found the 15 largest children’s home providers made average annual profit of 23% per year. Between 2011 and 2023, 804 out of 816 adult care homes forcibly closed by regulators were run for profit. In the period 2014-2023, 48 of the 53 children’s homes forcibly closed were operated by corporations.
Corporate sector gets easy ride elsewhere too. The NHS is doling out cataract surgery contracts to the private sector, operating on profit margins of between 32% and 43%. Cash extraction reduces resources for other NHS services, and endangers people’s lives. Governments could expand the NHS capacity by building new facilities or by buying out private sector clinics, but they haven’t. They could support local authorities and not-for-profit organisations to take over social care, but haven’t. The government has promised to “develop a business case for the use of Public Private Partnership (PPP) for Neighbourhood Health Centres” i.e. further parts of the NHS will be handed to the private sector with guaranteed profits. Cash extraction would ensure that money buys less.
Exploitation and lack of investment isn’t confined to monopolies, oligopolies and the privatised sector. BHS was a major high street clothing, home furnishings and electrical goods retailer. In 2005, its parent company paid a dividend of £1.3bn, equivalent to next five year’s profits. The necessary distributable reserves were manufactured through a series of intragroup transactions. £1.2bn went to the CEO’s wife and was funded by borrowing of about £1bn. As a result, the company was unable to make sufficient investment. In 2015, BHS was sold for £1, and collapsed in 2016. It owed around £1.3bn to creditors. Its pension scheme had a deficit of £571m. The company always received a clean bill of health from its auditors PricewaterhouseCoopers. For the 2015 audit, the firm had programmed its audit partner to spend just two hours on the audit of BHS and its parent company. No government wants to upset giant corporations and the City of London by imposing meaningful reform of company law, corporate governance, or auditing requirements.
A major reason for low economic growth is that a large proportion of the population lacks money to buy goods and services. This is compounded by transfer of what was once pubic debt to household debt. Unlike many other European countries, England charges university tuition fees and there are no general maintenance grants. At the end of March 2025 students and their families were hobbled by debt of £267bn, depleting the spending power of households.
Governments ritually transfer wealth from poor to the rich. Successive governments manage inflation by hiking interest rates, which forces people to handover a larger portion of their money to banks. This boosts bank profits, enriches shareholders and widens inequalities. Millions struggle to pay mortgages, rents and other bills, and cut consumption. Faced with lower demand many businesses reduce investment in productive assets, the very thing that governments lament. An alternative would be to remove cash through selective higher taxes from those with bulging wallets. But governments continue with failed policies, and the UK economy continues to stutter.
The above are a handful of examples to show that major political parties are locked in a silo of neoliberal policies. Regardless of the crisis and circumstances, same dose of policy prescriptions is repeated; privatisation, PFI, unchecked profiteering and reduction is purchasing power of the masses. This has not delivered investment or economic rejuvenation. A new rentier economy has been constructed and the UK remains trapped in low economic growth, deepening inequalities and rising public discontent. Rival paradigms exist but governments appease corporations and the super-rich by following the old policies which benefit a few.
Image credit: Lauren Hurley / Number 10 – Creative Commons
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