Downing Street Years - Margaret Thatcher [423]
At the same time, a system of regulation was established under the control of an Office of Telecommunications (OFTEL) with the result that BT had to keep its price increases at a fixed level below the rate of inflation for a number of years. This was a quite new and — as it has turned out — influential departure. Not only did the ‘RPI minus x’ formula become the model for dealing with public utility privatizations in Britain: it has since been adopted overseas, for example in the United States.
The consequences of privatization for BT were seen in a doubling of its level of investment, now no longer constrained by the Treasury rules applying in the public sector. The consequences for customers were just as good. Prices fell sharply in real terms, the waiting list for telephones shrank and the number of telephone boxes in operation at any particular time increased. It was a convincing demonstration that utilities were better run in the private sector.
Many of the same issues arose in the privatization of British Gas, which had been a nationalized industry for nearly forty years. BGC had five main businesses. These were: the purchase of gas from the oil companies which produced it; the supply of gas, involving the transmission and distribution of gas from the beach-head landing points to the customer; its own exploration for and production of gas, mostly from offshore fields; the sale of gas appliances through its showrooms; and the installation and servicing of those appliances. Of these functions only the second — the supply of gas to consumers — could be described as a natural monopoly. But there were a number of considerations which argued against fundamentally restructuring or breaking up the business. The most important of these, curiously enough, was lack of parliamentary time. Consideration of privatization had inevitably been held up by the miners’ strike of 1984–5. Both the BGC and Energy Secretary, Peter Walker, were determined to privatize BGC as a whole and their full co-operation was essential if it were to be achieved as I wanted during our second term. There was much to be said for using the model of British Telecom rather than trying to come up with a fundamentally different one under these conditions.
Accordingly, at a meeting I held with Peter Walker, Nigel Lawson and John Moore on Tuesday 26 March 1985 I agreed that we should go for a sale of the whole business. The formula for regulation and the issue of liberalizing imports and exports of gas became the focus of much argument between Peter Walker who was prepared to accept a degree of monopoly as the price of early privatization on the one hand, and the Treasury and the DTI on the other who would have preferred stronger competition from the first. We were able to liberalize gas exports but I went along with most of Peter Walker’s arguments in order to achieve privatization in the available timescale. I still think I was right to do so because the privatization was a resounding success. (The problems of the monopoly power of British Gas are now being investigated by the Monopolies and Mergers Commission.) Four and a half million people invested in the shares, including almost all of the company’s 130,000 employees.
The privatization of the water industry was a more politically sensitive issue. Much emotive nonsense was talked along the lines of, ‘look, she’s even privatizing the rain which falls from the heavens.’ I used to retort that the rain may come from the Almighty but he did not send the pipes, plumbing and engineering to go with it. The Opposition’s case was even weaker than this, for about a quarter of the water industry in England and Wales had long been in the private sector. Of more significance was the fact that the water authorities did not just supply water: they