Privatising Nationalised Industries: Constitutional Issues And New Legal Techniques

Date01 January 1987
DOIhttp://doi.org/10.1111/j.1468-2230.1987.tb02558.x
Published date01 January 1987
PRIVATISING NATIONALISED INDUSTRIES:
CONSTITUTIONAL ISSUES AND NEW LEGAL
TECHNIQUES
PERHAPS the dominant theme in Government policy since
1979
has
been reduction in the extent
of
the public sector, in particular by
the sale of nationalised industries to private buyers. In this article
we will attempt an assessment of some
of
the legal issues raised by
this process. Previous work has in general concentrated on the
economic issues surrounding privatisation. However, we share the
view of an economist’ that no economic case for privatisation of
state enterprises has been firmly established, and that the process is
best interpreted in terms of changes in the institutional regimes for
dealing with failures of the market mechanism. This raises many
issues
of
importance for legal scholars.
Our background concern is essentially constitutional.
A
constitu-
tion serves to define the public sphere and to legitimate state
action. Privatisation is claimed to represent a substantial shift in
the boundaries between the state and private interests. It also
carries with it implicit claims as to the legitimate role
of
the state.
There is thus an inevitable constitutional dimension to privatisation,
and this is a sufficiently fundamental innovation to deserve open
and public debate
of
its implications. We shall describe the new
legal techniques adopted and will attempt some assessment
of
the
degree of openness and debate which has accompanied them.
Moreover, justifications for privatisation have stressed the claim
that, once sold, enterprises will be free from state intervention and
subject only to the discipline of market forces as is allegedly the
case with other privately-owned concerns. We will examine this
claim sceptically, and point to a variety
of
techniques
of
company
and contract law which may permit continued close governmental
involvement. We will also examine critically claims that the limited
political accountability of nationalised industries will be replaced by
more effective shareholder accountability.
A
further aspect
of
privatisation of the greatest legal importance
will not
be
discussed here: the arrangements adopted for regulation
after disposal to the private sector. This is omitted both for reasons
of
space and because an adequate assessment must await the fuller
development
of
the new regulatory machinery.*
A
word is also necessary on the meaning of “privatisation”
which we shall adopt. We shall limit
it
to
the sale
of
state
enterprises, in whole
or
in part. This is, of course, only a
I
Rees,
“Is
There an Economic Case
for
Privatisation?”
(1986)
Public
Money
(March),
19.
*
See
T.
Prosser,
Nationalised Industries
and
Public Control
(1986), %97,
225-230,
and
D.
Thompson,
J.
A.
Kay, and
C.
Mayer (eds.),
Privnfisafiori arid Regulafiori.’
The
U.K.
Experience
(1986).
16
JAN.
19871
PRIVATISING
NATIONALISED
INDUSTRIES
17
very particular aspect
of
the general privatisation process, for
“privatisation” is in current usage a portmanteau term also covering
the removal of restrictions on competition (liberalisation) and
various changes affecting local authorities and health authorities;
these will be outside the scope
of
this article, although reference to
liberalisation will sometimes become necessary.
THE
PRIVATISATION PROGRAMME
In the absence of overarching and explicit constitutional principles,
in modern Britain the election manifesto has to a large extent
become the central means
of
political legitimation. With this in
mind it is surprising to find how little stress was placed on the sale
of
nationalised industries in the Conservative Party Manifestos
of
1979
and
1983,
and many
of
the most important examples were not
referred to, for example the sale of the British Gas Corporation.
One can, in fact, discern three stages in the privatisation
programme. The first was under the
1979-83
Government and in
the early period after
1983.
During this period there were extensive
disposals, but it would be an exaggeration to talk of a “programme”
in the sense of anything thought out coherently in advance; motives
appeared mixed, with the short-term effect on the Public Sector
Borrowing Requirement dominant. Most of the industries sold
were in some sense competitive, and disposals did not include the
major public utilities.
The second stage came with the development of a programme,
initially for the disposal of
f2
billion worth
of
state assets in each
year
of
the Government’s life, a plan incorporated in the
1984
Public Expenditure White Paper.3 In the Chancellor’s Autumn
Statement
of
November
1985,
the target for net proceeds from
asset sales was raised to
24.75
billion for each of the following
three years.4 It is
to
this phase that the sale
of
the major non-
competitive public utilities of gas and water belongs, and it remains
prominent in ministerial rhetoric; thus as late as April
1986
the
Financial Secretary to the Treasury, who was responsible for
preparing the programme, said “the programme will continue until
all state-owned commercial industries are returned to where they
belong-to the private ~ector.”~
One can also detect, however, a third phase, that
of
confusion.
The beginning of this was signalled by the Westland affair in the
winter of
1984-85.
Although this did not directly concern
privatisation, one of the leading actors was the recently-sold British
Aerospace, and the eventual outcome served to throw considerable
doubt on claims
of
shareholder accountability used to justify
Cmnd.
9143,
The Government’s Expenditure Plans
1984-5
to
1986-87.
H.C.
22,
1985-6.
Moore,
Britain’s Privarisation Programme Sets World Example,
H.M.
Treasury Press
Release
51/86,
also
published
by
Aims
of
Industry
as
Privarisarion
in
the United Kingdom
(1986).
18
THE
MODERN
LAW
REVIEW
[Vol.
50
privatisation; we shall consider this aspect
of
the affair below. It
also cast some doubt on the competence
of
the Government in
matters
of
trade and industry, which was reinforced soon afterwards
in its ineffective attempts to dispose
of
British Leyland. Other
major problems included the indefinite postponement of the sale
of
British Airways,6 the postponement
of
the sale of the water
authorities until after the next election,’ and the abandonment of
the plan for a flotation
of
the Royal Ordnance factories.8 Legal
difficulties over the proprietary rights
of
depositors also delayed
flotation
of
the Trustee Savings Bank,9 and indeed one of the
reasons for the postponement of sale of the water authorities
appears to have been a judicial review action brought by the trade
unions, for which leave had been obtained. This sought to challenge
the
vires
of
the preparations for sale undertaken by the authorities
before the relevant legislation had been passed.
lo
As
we shall see
further test cases challenging inadequate consultation
of
the
workforce before other sales are in prospect. In Summer
1986
the
will
to privatise clearly remains (and indeed much criticism has
been made
of
an apparent determination to push through sales
regardless
of
the consequences), but the
practice
appears
ill
thought
out.
Privatisation has been presented by ministers as more than a set
of individual sales, however: it is claimed to be a coherent
programme marking out a new and clear divide between the
legitimate public and private domains. Thus the Financial Secretary
to
the Treasury, who was largely responsible for drawing up the
programme, has asserted that the “privatisation programme
is
coherent, and well thought-out’’ and that “our approach
to
competition and privatisation is pervading all aspects
of
the
government and the public sector. Attitudes and perceptions have
been changed irreversibly.”” Despite such claims, when one
examines the arguments used to justify particular examples of
privatisation one finds not the overarching and coherent programme
suggested in ministerial speeches but a variety of themes often with
conflicting implications as
to
how they should be implemented.”
H.C.Deb., Vol. 93, cols.
482-483
(Written Answers) (March 12, 1986).
HCDeb.,
Vol.
100, cols.
594-595
(Written Answers) (July
3,
1986), and cols. 1261-
1270 (July
3,
1986).
*
H.C.Deb., Vol. 99, col. 492 (June 17, 1986),
cols.
1034-1039 (June
18,
1986) and
H.C.Deb.,
Vol.
102, cols. 618-628 (July 24, 1986).
T.S.B. Central Board and Another
v.
Vincent and Another, The Times,
April 29,
1986, and
Ross
v.
Lord Advocate and Another, Trustee Savings Banks Central Board and
Others
v.
Vincent and Others. The Times,
August 2, 1986.
lo
Financial Times,
June
28,
1986. and see Nicholas Ridley at H.C.Deb.,
Vol.
100,
col.
1262 (July
3,
1986).
II
Moore,
The Financial Secretary Speaks Out
on
Privafisafion,
H.M.
Treasury Press
Release 190/83,
The Financial Secrefary Reviews Privafisafion Achievements,
H.M.
Treasury Press Release 122184, and the work cited in note
5
above.
For excellent coverage see Steel and Heald, “Privatising Public Enterprises-An
Analysis
of
the Government’s Case” (1982)
53
Political Quarterly
333, Heald,
“Will
the
Privatisation
of
Public Enterprises Solve the Problem
of
Control?” (1985) 63
Public
Administration
7, and Rees,
op.
cit.
note
1
above.

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