Privatisation – Good or Bad?

Privatisation (also known as denationalisation) is a policy undertaken by a government, whereby an industry owned by the government (thus the nation) is placed into the hands of the private sector. This is often done through an Initial Public Offering on a stock market, but could be also done through a sale to a single entity. There are a number of reasons why a government may decide to privatise a holding:

  • Sell off loss making enterprises – if the government is making a loss on a firm it owns it may wish to sell it. By doing this it reduces the amount it has to pay for the loss, and a private firm may be able to turn its fortunes around, and turn it into a profit making firm, potentially increasing government tax revenue and reducing unemployment (and thus unemployment benefit spending).

Pension Deficit Falls

The article above shows the effect that the BoEs Quantitative Easing (QE) policy has had for pension funds. By undertaking QE the yield on government bonds (Guilts) has fallen. This is because the Bank of England purchases Guilts off of financial institutions (banks, insurance firms, pension funds, hedge funds, private investors, equity funds etc) which then go and buy other assets, which may include more Guilts (the reason institutions like buying government debt, despite the yield being so low, is because they are considered very safe, the UK Government currently has an AAA credit rating, and because if necessary it can print money, as it has its own central bank, the risk of it defaulting is considered low). [...]