Privatisation is an example of a market-based supply-side policy. Selling off public sector assets helps to raise funds to reduce the national debt and increases efficiency as firms respond to the profit motive. However, the record of privatisation has been rather patchy. The government has been accused of selling public assets at too low a price, reducing potential benefits to the taxpayers that funded their creation. In addition, the efficiency gains have been rather tepid. Instead, we have seen the growth of monopolistic and oligopolistic firms who deliver poor quality and charge high prices, enriching directors and shareholders in the process.
This article by the FT explores the dismal record of water companies and the regulator, OFWAT, in recent years. Households and firms often have no choice in who they buy from, directors know this, investors know this, and, as a result, consumers are exploited. Until the regulator takes a harder line or the industry is nationalised, a recent Labour party proposal, we can expect to see a lack of investment, high prices, ‘fat cat’ pay, and more “crappucinos”.