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Paper 1 Economics > Privatisation > Flashcards

Privatisation Flashcards

1
Q

Definition and Objectives of Privatisation

What is privatisation?

A

Privatisation is the process of transferring ownership and control of assets, industries, or services from the public sector to private entities.

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2
Q

Definition and Objectives of Privatisation

What are the main objectives of privatisation?

A

The main objectives of privatisation include:

  1. Improving efficiency
  2. Encouraging competition
  3. Reducing government financial burdens
  4. Shifting accountability to private stakeholders
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3
Q

Key Developments in UK Privatisation (1981-2025)

How many major industries were privatised in the UK between 1981 and 2015?

A

Over 16 major industries were privatised, significantly reducing state ownership.

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4
Q

Key Developments in UK Privatisation (1981-2025)

What were the key developments in privatisation from 2015 onwards?

A
  • Royal Mail (2013-2015): Final 30% stake sold in 2015, generating £3.3 billion.
  • NatWest Bank (2008-present): Originally nationalised post-2008 crisis (84% stake). As of 2024, only 11% remains government-owned, with full privatisation expected by 2025.
  • NHS Involvement (2015-2019): Private contracts worth £15 billion awarded.
  • Sale of Public Assets:
    1. Military Housing to Annington (1996-2023): 55,000 homes sold in 1996 for £1.7 billion; partial repurchase in 2023.
    2. Surplus Public Land and Buildings (2015-2020): Raised £5.2 billion from over 2,100 sales
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5
Q

Historical Overview of UK Privatisation

How was privatisation ideologically driven under Thatcher?

A

The government was committed to free-market capitalism, aiming to reduce state ownership and increase private sector efficiency.

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6
Q

Historical Overview of UK Privatisation

What were the major industries privatised under Thatcher?

A
  • British Airways (1987): Sold for £1.3 billion.
  • British Telecom (1984): 50% stake sold for £4.3 billion.
  • British Gas (1986): Sold via share offering (£5.4 billion raised).
  • British Petroleum (1979-1987): Gradual sale of government shares.
  • Jaguar (1984): Privatised after separation from British Leyland.
  • Water Industry (1989): Ten regional authorities privatised (£6 billion raised).
  • Electricity Sector (1990): Raised £14 billion through regional electricity and power generator sales.
  • Rolls-Royce (1987): Aerospace and defence firm privatised.
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7
Q

Historical Overview of UK Privatisation

What were the key privatisation policies under John Major (1990-1997)?

A
  • British Rail (1994-1997): Split into infrastructure, rolling stock, and operators; later re-nationalised.
  • British Energy (1996): Privatised nuclear power.
  • British Coal (1994): Mining operations sold to private firms
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8
Q

Historical Overview of UK Privatisation

What were the significant privatisations from 2010 onwards?

A
  • Royal Mail (2013-2015): Fully privatised, raising £3.3 billion.
  • National Grid (2022): Sold a controlling stake in Britain’s gas network (£4.2 billion).
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9
Q

Vertical Disintegration in Privatisation

What structural changes occurred in the electricity and gas sectors post-privatisation?

A
  • Generation: Private competition introduced.
  • Transmission: National Grid separated for fair access.
  • Distribution: Regional networks privatised.
  • Supply: Competing private firms
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10
Q

Vertical Disintegration in Privatisation

What were the mixed outcomes of electricity and gas privatisation?

A
  • Initially: Increased competition lowered prices.
  • Post-2008: Price increases led to calls for price controls
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11
Q

Vertical Disintegration in Privatisation

How was British Rail privatised (1994-1997)?

A

It was split into separate companies:

  • Infrastructure: Managed by Railtrack (later renationalised as Network Rail).
  • Train Operators: Private franchises introduced.
  • Rolling Stock Leasing: Privatised.
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12
Q

Vertical Disintegration in Privatisation

What were the criticisms of railway privatisation?

A

It led to service fragmentation and increased costs.

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13
Q

The Debate Over NHS Privatisation

What changes did Thatcher introduce in the NHS?

A

The 1990 NHS internal market split the NHS into purchasers (health authorities) and providers (hospitals and trusts), allowing competition for contracts

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14
Q

The Debate Over NHS Privatisation

What was John Major’s role in NHS privatisation?

A

He introduced the Private Finance Initiative (PFI) in 1992, allowing private financing of NHS infrastructure.

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15
Q

The Debate Over NHS Privatisation

How did New Labour expand private involvement in the NHS?

A
  • Foundation Trusts: Hospitals given more financial autonomy.
  • Independent Sector Treatment Centres (ISTCs): Private firms performed NHS procedures.
  • Private Sector Contracting: Increased outsourcing for diagnostics and elective surgeries.
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16
Q

The Debate Over NHS Privatisation

How did the 2012 Health and Social Care Act impact NHS privatisation?

A

It increased competition for NHS contracts, requiring commissioners to put services out to tender, leading to more contracts for private firms.

17
Q

The Debate Over NHS Privatisation

How much NHS spending went to private contracts by 2019?

A

£15 billion.

18
Q

The Debate Over NHS Privatisation

How did COVID-19 (2020-2022) impact NHS privatisation debates?

A

The outsourcing of Test and Trace to private firms (e.g., Serco, Deloitte) was criticised for inefficiency and cost.

19
Q

The Debate Over NHS Privatisation

What NHS privatisation developments occurred in January 2025?

A
  • Expansion of private hospital use for NHS patients.
  • 1 million additional appointments, scans, and operations per year.
  • 20% increase in private sector involvement.
20
Q

The Debate Over NHS Privatisation

What are Community Diagnostic Centres (CDCs)?

A
  • August 2024: Government announced 13 new CDCs in England.
  • Expected additional capacity: 742,000 scans, checks, and tests annually.
  • Private sector role: 8 out of 13 centres operated by private companies, but services remain free for NHS patients.
  • Purpose: Shift routine diagnostic tests out of hospitals to ease pressure on NHS services.
21
Q

Difference between Wes Streeting and John Swinney on NHS privitisation

A

Labour Health Secretary (Wes Streeting):
* Supports private sector involvement to cut waiting lists. Stresses that private sector use should not take resources from the NHS.

Scottish Government’s Approach
* Deputy First Minister John Swinney opposes privatisation.
* Preference for increasing NHS capacity internally rather than outsourcing.
* Criticism: Some argue Scotland’s NHS reform lags behind England’s, which has a clearer strategy involving private sector support.

22
Q

What are the ongoing Controversies and the likely future of NHS Privatisation?

A
  • Funding and waiting lists: Rising waiting times and NHS backlogs have led to more self-pay private healthcare—a form of de facto privatisation.
  • Staffing shortages: There have been concerns about the government allowing private providers to fill NHS gaps, rather than expanding NHS capacity
23
Q

What is the overall conclusion about NHS privitisation?

A

The NHS remains publicly funded, but private sector involvement has steadily increased, particularly in infrastructure, diagnostics, and elective care. Every major reform—whether by Thatcher, Blair, Cameron, or Johnson—has stirred debate about the creeping influence of privatisation. While outright privatisation remains politically toxic, the boundary between public and private healthcare continues to blur, raising ongoing questions about the future of universal healthcare in Britain.

24
Q

Evaluation of Privatisation

What are the benefits of privatisation?

A
  1. Increased efficiency due to profit motivation.
  2. Lower costs due to competition (in some cases).
  3. Reduced public sector debt burden.
  4. Increased innovation and investment.
25
Q

Evaluation of Privatisation

What are the drawbacks of privatisation?

A
  1. Can lead to monopoly power (e.g., water, rail, energy prices rising).
  2. Higher consumer costs due to profit maximisation.
  3. Service fragmentation (e.g., rail industry inefficiencies).
  4. Accountability issues (private firms prioritising shareholders over public service).
26
Q

Key Theoretical Models & Concepts

What is the Principal-Agent Problem in privatisation?

A

Private managers may prioritise profit over social welfare, unlike government ownership.

27
Q

Key Theoretical Models & Concepts

What does Natural Monopoly Theory suggest in relation to privitisation?

A

Some industries (e.g., water, rail) may be better managed as monopolies due to high infrastructure costs.

28
Q

Key Theoretical Models & Concepts

What is X-Inefficiency in relation to privatisation?

A

State-owned enterprises often lack competitive incentives, leading to inefficiencies; privatisation reduces X-inefficiency.

29
Q

Key Theoretical Models & Concepts

What is the Coase Theorem in privatisation?

A

Private ownership can lead to better resource allocation if transaction costs are low.

30
Q

Key Theoretical Models & Concepts

What is the Contestable Markets Theory in privatisation?

A

If barriers to entry are low, even a privatised monopoly can face competitive pressures.

Paper 1 Economics (30 decks)

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