Public ownership saves us money
One of the myths about privatisation is that it drives down prices by introducing competition. But in reality, you pay more for public services when they’re run by private companies. In fact, a report we ran found that the average total you spend on train fares, water bills, and energy bills every year is £248 more than you would pay under public ownership!
So, why does public ownership save money? There are three main reasons:
1. Profit costs
Unlike publicly owned organisations, private companies have to make money for their shareholders. So when public services are privatised, profits which could be reinvested into those services disappear into private pockets. The need to make a profit provides an incentive for private companies to overcharge and cut their outgoings, resulting in more expensive but lower quality services.
2. Government borrowing is cheaper
The interest rates on government borrowing are lower than those in the private sector. The savings made by cheaper loans can be passed on to you and me, meaning we pay less for the public services we use.
3. Markets have to be created
Public services are natural monopolies: it makes sense that there isn’t much competition in energy, for instance, when the assets involved are already owned by a small group. This means that if the government wants to establish competition, it has to create an artificial market – and this doesn’t come cheap. The cost of maintaining competition in the NHS ‘internal market’, for instance, are estimated to be between £4.5 and £10 billion a year.
Selling off services is a way for the government to make quick cash. But in the long-run, the public loses out. Many public assets provide an ongoing source of income, such as those publicly owned under Network Rail.
When our service are sold off, the loss of future revenue far outweighs the short-term gain. The sale of Royal Mail in 2015, for instance, will end up costing the public purse within just 10 years’ of the sell-off. Check out our report on the long-term costs of privatisation here.