Potential privatisations worth more than £6bn have stalled or been ruled out by the government because of difficult markets, regulatory concerns or political problems, analysis by the Financial Times has shown.
Plans for a £2bn partial privatisation of CDC, the government-owned fund that pioneered venture capital investment in Britain’s former colonies, have been shelved. Morgan Stanley advised ministers on a potential sale this autumn but the government has decided privatisation is “off the table”, according to insiders.
The lack of revenue from privatisations could not have come at a worse time for the Treasury as evidence mounted on Thursday that public finances are in a tailspin.
Economists on Thursday described figures showing the worst-ever budget deficit for this point in the financial year as “ugly” and “shocking”. They predicted Alistair Darling, the chancellor, would have no chance of hitting his public finance forecasts.
With other figures showing a record deficit on the balance of payments current account, weak mortgage lending and the credit squeeze halting the growth of money deposited in banks, economists disputed the chancellor’s assertion that the economy was “fundamentally strong”.
The hiatus in privatisations leaves the government with no major cash-raising deals in the pipeline.
The Scottish elections in May sounded the death-knell for an estimated £3bn flotation of Scottish Water after the victorious SNP ruled out any privatisation. Ministers this month scrapped plans to sell the Tote betting agency to a racing consortium after being advised the £320m offered undercut the value of the business. They will put the business on the open market next year.
The government’s main cash-raising focus is now on selling land and property, rather than businesses. Gordon Brown, as chancellor, set a goal of raising £30bn between 2004 and 2011 by selling off fixed assets. A further £6bn is due to be raised by selling off student loans, once legislation now going through Parliament allows this.
Opposition politicians are warning the government to beware of the rapidly deteriorating state of the commercial property market.
The Liberal Democrats said ministers must not be tempted by the mounting pressure on government finances into repeating the mistakes of the contentious 2003 privatisation of Qinetiq, the defence research group, and selling assets at the wrong time.
“It would be damaging and foolish if the government were to be selling in a slow market, simply to release cash in the short term,” Vince Cable, the Lib Dem deputy leader, told the FT. “Look at Qinetiq – the Ministry of Defence was under pressure to release cash and sold at the bottom of the market. It wouldn’t surprise me if the same thing happened now.”
Philip Dunne, a Conservative member of the public accounts select committee, warned that property sell-offs “could be a gold sale mark two” – a reference to the alleged £2bn loss to taxpayers accrued by Mr Brown’s decision to sell gold reserves between 1999 and 2001, since when the price has trebled.
The Treasury told the FT the “very varied” nature of the property being sold and the “very good” progress to date in raising more than £18bn from fixed-asset sales meant the government did “not see any need to change the target based on the market conditions”.