Selling the silver back to the family?

Yesterday I wrote about the scope to save billions on the capital budget. A few wrote in to say it was not enough. Of course it isn’t enough. I am writing another series of pieces on the actions a new government could take to get us out of huge deficit. Just read it day by day to build up the full picture of the billions needed to plug the gap.

Today we need to think about what assets we could sell – things the state owns that would be better owned by private individuals and companies. Selling assets off brings three benefits. Firstly, the state gets a receipt. In the next couple of years, whilst we are waiting for the benefits of efficiency gains, changed policies, staff freezes and pay freezes to come through, we need some help from asset sales. Secondly, selling the silver back to the family often will lead to it being better looked after and run. Thirdly, the state will start to benefit from more rax revenue once trading enterprises are returned to private hands and more profit is made.

We should start by selling the banks. Substantial sums can be raised from selling Northern Rock, RBS and Lloyds shares. First we need to restructure them, to create more competing banks to improve the flow of finance in the UK economy and the cut the risk of too large to fail. We may not make a profit ovcerall after allowing for the insurance of dodgy loans and the other aid granted, but current conditions are ideal for banks to make profits and this will enable the government to get better proceeds for the sharesales and the better results come through in the market.

We should move on to selling the Student Loan portfolio, whilst protecting the repayment terms. The government could sell Railtrack, offer the Queen Elizabeth Conference Centre, sell more surplus land and buildings from the central estates, and sell the minority shareholdings in companies Labour has already started to privatise.

Promoted by Christine Hill on behalf of John Redwood, both of 30 Rose Street Wokingham RG40 1XU

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36 Comments

  1. FatBigot
    Posted May 2, 2010 at 7:05 am | Permalink

    It should not be forgotten that selling the (quasi) nationalised banks at a loss is likely to be more beneficial to the Exchequer in the long run than keeping them in government hands.

    Once in the private sector as not-too-big-to-fail enterprises they will sink or swim. If they sink the loss is crystallised and is incurred by the voluntary investors rather than Mr Ordinary on the minimum wage. If they swim (as they have every incentive to do when they know the taxpayer will not bail them out) they will make profits which will result in tax revenue.

    Remaining in the public sector gives them no incentive to be efficient or profitable, the only guarantee is that any future losses will be borne by all taxpayers. What concerns me most is that taxpayers on low incomes are exposed to the risk of these banks making loses. That is obscene and should be ended as soon as possible.

    • no one
      Posted May 2, 2010 at 6:14 pm | Permalink

      only if they are forced to stay uk based, and potential tax is coming into the uk coffers

  2. Antisthenes
    Posted May 2, 2010 at 8:26 am | Permalink

    The idea is good but the timing is terrible, with the weakness of sterling the family silver will end up in the hands of foreign buyers. Coupled with which you are committing the same folly that Brown made when he sold off the family gold by selling at the bottom of the market.

    The public will not thank you for it even thought it is done from the best intentions or is it? You are looking for ways to postpone the inevitable that of tackling the problems that really are causing the deficit and debt and that is the size and structure of the public sector and over generosity of benefits and there unintended consequences.

    • simon
      Posted May 2, 2010 at 12:54 pm | Permalink

      Yep , this is my concern .

      Tha family silver will just move overseas as Tony says in a later thread citing electricity generation .

      This doesn't just apply to state owned assets .

      I don't usually argue for protectionism but think the time has come to restrict the right to acquire ownership of residential property below a certain price , say £1million , to British citizens .

      The Philipinos protect their citizens in this way .

  3. tony k
    Posted May 2, 2010 at 9:09 am | Permalink

    I'm no expert and I very rarely disagree with your diagnoses or prescriptions. However, having come this far with bank bailouts it does seem incongruous to sell off bank shares at a loss when the prospect of (geuine?) profit is close. Profits would go into the pockets of the bankers (whose fooled by their fake contrition,you cannot deal with high echelon sociopaths). The least that could happen is that they must take back the toxic assets that have been dumped into the public domain.
    It would be very good PR and politics.

  4. tony k
    Posted May 2, 2010 at 9:25 am | Permalink

    Just another thought. There are times when selling off the family silver can backfire, apart from that an asset sold is gone forever, I see that the electricity generation business is almost totally foreign by the French, Germans etc. Electricity bills are 3-4 times the level of France, some is due to destructive "green" tariffs imposed by socialist politicians (including the dangerous EU) and other products of long term neglect and eco-lunacy, but I bet in the accounts somewhere, money is being laundered back to base to prop up the home country company and subsidise their population at our expense.
    We're back to being contemptuously dismissed as "Treasure Island".

    • Martin
      Posted May 2, 2010 at 9:52 am | Permalink

      France has a fleet of nuclear power stations and is less dependent on ever more expensive oil and gas. Is this why its electricity bills are as you state?

      Re company ownership – if folk in Britain won't save and invest then there is less money to buy companies etc.

      • tony k
        Posted May 2, 2010 at 7:04 pm | Permalink

        Thanks. I realised as soon as I'd posted this that I should have mentioned nuclear. France very sensibly has, I think 80-85% nuclear. Although Labour sold off Westinghouse a few years ago, this country should be in a prime position to profit from new modular nuclear constructions and new materials eg thorium and the large amounts of stored nuclear waste to rapidly build future proof facilities.

        Tories will have to get real and ditch the Greenie and AGW nonsense PDQ. At least something good can be said about EU regulations – they are forcing sensible rethinks.

  5. Martin
    Posted May 2, 2010 at 9:45 am | Permalink

    Re selling the banks – timing is the key thing. Do we return them to health? Or are are we in a fire sale mode? Do we restructure the banks first? Do we get the new tax and regulatory regimes in place first.

  6. Mike Stallard
    Posted May 2, 2010 at 10:39 am | Permalink

    I was brought up in a huge cold vicarage. When I took a bath (the only way to get warm) I used to lie there as the tepid water grew colder and colder waiting for it to warm up. Eventually, shivering, I got out. I reckon waiting for the banks to "warm up" is rather like that.
    Flog 'em before the crisis hits Portugal and Spain, which, let me remind you, runs the Bank of Santander.
    Get out of the railways: free them to make a lot of money and close down all the lines that lose money.
    What about pensions? They might be privatised, despite Mr Brown stealing them early on in his ministry.
    And what about selling off the Culture Ministries? Let opera, film, the crazy people who know nothing running the art scene all have to opay for their disgusting brew?
    I could go on….
    How about getting out of farming and letting the farmers free to love their hereditary farms?
    The less the State does, the better. The less tax there is, the better. The more people have to club together the better.
    Do I honestly want Mr Brown and Auntie Harriet telling me what to believe?
    Oh, I'm so CROSS!

  7. waramess
    Posted May 2, 2010 at 10:56 am | Permalink

    How about making a start with our hospitals and if you feel more comfortable, retaining temporary ownership of the National Health Insurance system

    Eventually that could go as well but not before selling off our schools and replacing free education with a voucher system.

    Of course the great unwashed will react with horror until you point our how well private hospitalisation and education work in this country.

    It is always the dinosaurs in the room that are overlooked.

  8. alan jutson
    Posted May 2, 2010 at 11:12 am | Permalink

    John

    Whilst I agree that the State should sell of assets no longer used, or run inefficiently. A Fire Sale rarely gets value for money. Those who purchase usually make the killing.

    Sell off SOME of the family silver by all means, but do it in a controlled manner.

    The danger of selling the family silver is that we end up owning and controlling next to nothing in this Country, and as tony K has said above, much of the profits (and tax which would be due on those profits) can be filtered away in the accounts as management charges etc, to overseas Head Offices.

  9. JimF
    Posted May 2, 2010 at 11:29 am | Permalink

    Selling off assets like this should only be done if it is intended to replace them with fixed assets of more use to the taxpayer. If you sell them just to keep a few more civil servants in jobs i.e. to prop up current rather than capital spending, you might just as well call yourself New Labour.

    Reply: You sell assets to stop the build up of debt whilst the spending cuts and extra revenues from economic growth kick in.

  10. JimF
    Posted May 2, 2010 at 11:32 am | Permalink

    Oh dear, just read your second sentence again "I am writing another series of pieces on the actions a new government could take to get us out of huge deficit." So you are proposing selling state assets to avoid cutting elsewhere to reduce the deficit and keep on spending?
    Hello New New Labour.

    Reply: No, try reading what I write. We need asset sales and spending cuts. Watch this space.

    • JimF
      Posted May 2, 2010 at 6:43 pm | Permalink

      Sorry John but I would still like to hear that you will use the proceeds of asset sales to pay down DEBT, or purchase more favorable ASSETS, rather than fund big CURRENT ACCOUNT pay-offs and pension top-ups for soon to be ex-NHS Managers, Civil Servants, Quangocrats etc, whose contracts were drawn up by Labour luvvies and will soon be licking their lips ready for the next big lump sum.
      We are in danger of being seduced RBS style by the alleged need for Goodwin-esque deals from the tax payer for public sector workers "unfortunate" enough to lose their jobs, when those gold-plated severance terms hit the table. There is no money to do this, asset sales or no asset sales. The UK is effectively bankrupt due largely to the terms of these contracts, and employees in a bankrupt private sector Co. would receive minimum severance terms from HMG. Would like to hear your views. Cheers.

  11. Acorn
    Posted May 2, 2010 at 11:46 am | Permalink

    I was hoping you would come up with some actual numbers, but it is too dangerous politically at this point, me thinks. The media would not understand any of it; the voters even less.

    As you have been busy JR, you have probably not got around to reading the BIS paper; "The future of public debt: prospects and implications". It is frightening, and a bit complicated for a lay reader. But all future UK policy makers should read and understand it to three decimal places.
    http://www.bis.org/publ/work300.pdf?noframes=1

    If current editorial policy allows, there is a simpler version by John Mauldin. You can also learn what a Synthetic CDO is and how they came to be invented for pure speculation; short or long.
    http://www.investorsinsight.com/blogs/thoughts_fr

    When you have absorbed the above; those that have them; take a long look at you kids, and your grand kids and apologise for the legacy that our generation is going to leave them.

    Reply: Less cap ex could yield at least £25 billion – this government's own plan in due course . It might be possible through an urgent review to accelerate and increase these changes. Asset sales could yield an extra £5billion to £15 billion. (total from these two £30 to £40 billion plus or 20-25% of deficit) I agree with the BIS about the unsustainability of debt in the major western economies.

    • simon
      Posted May 2, 2010 at 7:58 pm | Permalink

      J.R.

      Surely savings generated from cancelling/postponing capital expenditure and asset sales should be compared with debt , not deficit .

      It may be 20-25% of deficit but £40 billion is only 5% of on balance sheet debt and the proceeds from asset sales less amount to less than 2% .

      This suggests that the mileage in this avenue is insignificant , we simply don't have anything left to sell .

  12. Ian Jones
    Posted May 2, 2010 at 12:51 pm | Permalink

    Sell the major motorway network and allow the private company to charge by the mile with the rate depending on the time. This could raise tens of billions immediately, but would not be popular.

    Sell off the BBC. Huge savings could be made there so should generate a lot of cash immediately. Will not be popular with BBC employees who earn mega bucks now and massive pensions.

    Sell off Royal Mail, why is this owned by the Govt? Use the funds to payy off the pension black hole. Once again the private sector could make massive savings.

    The UK Govt should own very little, they should buy in services from the private sector thus getting rid of hugely expensive public sector workers.

    We need a revolution.

    • Jonathan Tee
      Posted May 2, 2010 at 3:22 pm | Permalink

      Let me second the proposal to sell the BBC. Entertainment is a luxury – when you need to save cash on a household budget, the first things to go are expenditure on fancy TV equipment, etc. Why should it be any different for the State? With that in mind you could also take an axe to the Arts budget – if da Vinci had to sell his skills on the free market why should things be different today?

      The other one to go should be a good chunk of the overseas aid budget, and any thoughts of bailing out the likes of Greek civil servants. Again, when you are in the red on a household budget all those charity direct debits get pruned.

  13. Andrew Gately
    Posted May 2, 2010 at 1:33 pm | Permalink

    I am disgusted that an incoming conservative government would sell Northern Rock.

    The Labour government did not buy Northern Rock they stole it. In the process they wiped out some small shareholders such as Dennis Graingers life savings.

    They appointed an independent valuer and then insisted that he accepted artificial valuation terms that would lead to a valuation of zero.

    Had a proper valuation taken place then the lowest they could have valued NR was 1.7 billion, this was the value of shareholders capital immediately prior to nationalisation.

    If the Conservatives have any honour then they should return Northern Rock back to it's original and rightful owners.

    • Freddy
      Posted May 2, 2010 at 4:09 pm | Permalink

      "Had a proper valuation taken place then the lowest they could have valued NR was 1.7 billion, this was the value of shareholders capital immediately prior to nationalisation."

      Measured how ? By some daft accounting meaure ?
      When a company goes bust, its shares are worth nothing.

      • Andrew Gately
        Posted May 3, 2010 at 11:14 pm | Permalink

        NR would only be bust if the govt. had called in their loan.

        There is an episode of the Sopranos when Tony gives Artie a loan then calls it in straight away to claim Arties restaurant and that is exactly the same as has happened here. The govt. gave NR a loan repayable on demand, the loan was being repaid with interest then the govt. decided that as well as interest they wanted the shareholders capital as well.

        The thing is they never did call in the loan and the loan was being repaid by Northern Rock at a rate of noughts before the govt decided to change track and increase lending by Northern Rock.

        Further the liquidity problem that affected Northern Rock was systemic and the govt. through the Bank of England has had to provide liquidity to the entire system.

        As per the annual report of the Bank of England the liquidity provided to the banking system was 167 billion at 28 Feb 2009 and is likely to be much higher than that by now.

        The net assets figure for NR of 1.7 billion prior to nationalisation include the govt loan and had the valuation not been rigged would have been the minimum amount that a valuer could have valued Northern Rock.

  14. Bazman
    Posted May 2, 2010 at 1:45 pm | Permalink

    The utility companies are owed by state owned by by European companies. The British are subsidising French and German customers by rip off prices and no more efficiency than a British nationalised company who could take any profits, if there should be any profit in electricity generation, and use it to lower prices and force them to stop ripping of the poor to subsidise richer customers under the guise of choice.
    The banks need breaking up and selling off. to energise the economy and stop them from 'taxing' everyone. I have not read anything from John redwood as how this should be achieved.
    It would be interesting to know what John has to say about crony capitalism which is really what all this privatisation and banking is about. Certainly not for the benefit of the customers or the taxpayer.
    Lloyds TSB want to lend me £14500 at 8.5% APR for five years, which they say is a bargain. They also want to pay 1% on a cash ISA for the same amount on permanent loan to them.
    They pay you 725 quid to risk your money for five years, but charge you £3236 for theirs. Better to invest your money in bags of sand, gold, Black Cab spares and shares in a whelk stand, or just drink it away while its still worth anything.

    Reply: On the contrary, I have set out proposals to split the state owned banks up into 5-6 competing banks, and to alter regulation so they will and can lend more to get the UK economy growing again.

    • simon
      Posted May 2, 2010 at 7:14 pm | Permalink

      J.R. ,

      Are British consumers subsiding energy bills of French and German customers as Bazman says ?

      Or are the foreign energy companies being allowed to make excessive profits under some implicit understanding that they will reinvest them in new gen power stations ?

      Japan blocked sales of electricity generators to UK hedge funds on grounds of national security .

      I suicide being unilaterally free market when everyone else is being protectionist isn't it ?

  15. Neil Craig
    Posted May 2, 2010 at 2:21 pm | Permalink

    We could auiction a lease to aircraft landing slots. I would be opposed to selling them for all time but leasing them to the highest bidder would provide increased flexibility.

    We could perhaps sell rights to immediately build nuclear power stations on greenfield sites, sharing the take with local authorities. I think this would make many authorities supporters of new generation rather than opponents. In practice this has partially been done in the the French purchase of British Nuclear for £12 bn was essentially to get sites where nuclear already exists. However this does establish a base price at about £1 bn plus most of the enormous regulatory costs. That suggests such licences to start building immediately would be worth about £4 bn – the actual engineering cost being about £1 bn. 60 new generators would supply as much power as we currently use, at a much cheaper rate & raise £240 bn – which, on its own gets us out of the hole for a couple of years. Evidence of how destructive government regulationn has been.

  16. English Pensioner
    Posted May 2, 2010 at 2:50 pm | Permalink

    I'm not too sure.
    Our governments have always seemed to get a bad deal when selling assets.
    Look at QinitiQ, sold for peanuts and now making nice profits! And don't forget Gordon sold the family Gold!

  17. simon
    Posted May 2, 2010 at 3:25 pm | Permalink

    Political dogma of whatever variety is no substitute for proper long term planning .

    I see too much evidence of dogma in peoples comments .

    Suggestions like closing down loss leading railway lines are like allowing a postal service choose which addresses they deliver to .

  18. no one
    Posted May 2, 2010 at 6:22 pm | Permalink

    well we can cut spending by stopping wasting money on road humps, road thinning (when we need more capacity) and other anti car measures

    we can sell stuff off BUT not always for cash, some of the divisions of our newly nationalised banks could be swapped for other businesses, this would to some extent allow protection from selling at the bottom if done correctly

    railway tracks should be sold together with the corresponding rail franchise, so the west coast main line should be owned by the same people running the trains on the west coast, the east coast line should be owned by the same people running the east coast trains, and so on, this would allow owners to optimise track and train operations much better, and allow better competition over routes which have multiple potential tracks for customers

    sell large chunks of the bbc let them become private sector

    sell chequers let the prime minister say book up the whole of a travelodge when out of town or whatever

    royal train gotta go, sorry its just way too much money

  19. no one
    Posted May 2, 2010 at 6:33 pm | Permalink

    stop giving india half a billion a year as "aid" im sorry a country with a nuclear weapons and space programme shouldnt be getting that much money for nothing

  20. Pauper
    Posted May 2, 2010 at 6:36 pm | Permalink

    Stabilising the ship of state after the insane captaincy of Ahab obviously must take precedence over everything else; your list of the guns to be tossed overboard is useful and timely. I hope, though, that larger matters of seamanship will be eventually come under consideration.

    Mr Brown seems particularly proud of his tax credit scheme. However, as an historian he will know very well that this betise d'etat (I hardly know what else to call it) is just a Speenhamland System writ large, extended across not mere parishes but the entire country. The original 18th century scheme – part of the proto-welfare state of Georgian England – drove down wages, pauperised the peasantry and drove them off the land into the new industrial hells; and Mr Brown's is having the same effect without providing the same refuges.

    Mr Brown clearly loves tax credits because they generate paupers (in the Victorian sense of people who live on benefits), and paupers have no choice but to support statist parties such as his.

    But tax credits have driven down wages, extinguished the link between work and reward, demoralised and deracinated millions, and if continued will pauperise an entire generation. They are pernicious madness. For the good of those who get them and those who pay for them, they must be abolished as soon as possible, or they will become entrenched and irreversible.

    Forgive the rant, Mr Redwood. I do (for once) feel strongly about this.

  21. andy dan
    Posted May 2, 2010 at 8:09 pm | Permalink

    It would be difficult to estimate the savings, but how about getting rid of Bank Holidays? (I know that some companies work on them, and then have a shut-down over Christmas).
    They're nothing but a nuisance to a business. The slow down starts on the Friday before, and then the start up is pretty lethargic on the Tuesday. They probably cost billions a year.
    Let's go to work!

    • no one
      Posted May 3, 2010 at 7:24 pm | Permalink

      brits already work more hours than anyone else in europe

      share the work around more of the people, dont make the few actually working have to work even longer hours

  22. Mark
    Posted May 2, 2010 at 8:32 pm | Permalink

    Selling banks is an interesting issue in timing. At the moment, their mark-to-market and mark-to-fiction balance sheets don't look too bad. They will look horrendous if the Special Liquidity Scheme and the Credit Guarantee Scheme can't be re-financed. Even if that happens, the chances of a second major banking crisis must be well over 90%, since we still have unrealistic house prices relative to incomes, and massively overvalued bond markets. It will do more than wipe out the new shareholders' funding – but at least they will have made a contribution.

    I still think we should sell off (quasi) state owned housing. It can generate a serious sum of money. And rather than buying new housing for welfare recipients or paying Kensington rents to social landlords, how about renting some of the empty houses in Ireland that are otherwise threatened with demolition? 600,000 empty newbuild properties, I'm told (and proof that surplus property can co-exist with a mortgage fuelled house price bubble). More in Spain too. These are real potential benefits of being in EU – with gains to both sides.

  23. Sally C.
    Posted May 2, 2010 at 11:37 pm | Permalink

    'Any company facing a financial crisis brought on by borrowing too much and earning too little stops all but essential capital spending at an early stage in trying to control costs and cash outflow. So should any government. We should live with what we've got.'
    I completely agree, so I was surprised to read in today's Sunday Times that the Central Motorway Police Group, 'a centralised unit for the West Midlands, Staffordshire and West Mercia forces' has just taken delivery of a fleet of police-spec Jaguar XFs. Surely the police need functional vehicles not the latest stylish and quite expensive Jaguar! Why not Rolls Royces? This, in a small way, exemplifies the out of control spending of the public sector.

  24. ManicBeancounter
    Posted May 3, 2010 at 1:49 am | Permalink

    There are two other reasons for the state to shed itself of the banks quickly.
    First, there is neither the time nor the competancy to run these giants.
    Second, there is the distinct prospect of a second downturn triggered not by 6bn of cuts, by a southern European debt crisis and/or by a dip in the housing market.
    Sell while the going is good, unless one of the other commentators has perfect foresight.

  25. Lindsay McDougall
    Posted May 3, 2010 at 1:29 pm | Permalink

    I am told that RBS shares are now priced more highly than the government paid for them. So there is no need to delay restructuring and the sell off.

    If we sell off 'Railtrack', we must allow it to charge what it likes for track access, so that the revenue available for track maintenance is adequate.

    Regarding pre-school education, why is the governement involved at all? Private enterprise does this best, particularly as there is no need for a national curriculum at this age.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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