This privatisation mania exchanges profit for loss

Repetitive sentences might seem to labour the point, but they have their uses. Profit is, after all, deemed a synonym for virtue in a market economy. So who exchanges profits for losses that are liable to be gigantic, or prefers short-term gain to permanent social and economic harm? Come to that, what sort of investor treats a profitable enterprise like a social disease?

It is hardly worth bothering the Coalition Government with such questions. Ministers are deaf to this kind of inquiry. The privatisation mania is upon them, for all the old, familiar reasons, and they are incapable of making a rational case even in terms of their own ideology. The fact that several of the items they have in mind for sale were on Gordon Brown's list might tell you something about Westminster.

So consider Royal Mail. In the six months to September 23 last year it recorded a profit of £144 million. That was £132m better than was achieved a year previously, thanks mostly to parcels, which now provide 47% of revenue. Anyone who has shopped online can see that this area of the business has vast potential, even as letters traffic diminishes.

What's important about Royal Mail? That would be something called the universal service obligation (USO). It means that this public institution guarantees delivery to anyone, anywhere, from John O'Groats to Land's End, for the same price. Thousands of the routes involved are unprofitable in themselves. Would a private company want to be stuck with that, delivering letters up hillsides at a loss when it could be making money running parcels around big cities?

The Government only says that it aims to "protect" the USO, but it does not specify the means, or guarantee how long any protection will last. The risk, therefore, is that small businesses and small communities, especially in rural areas, could end up with vastly inflated costs or no service at all. Royal Mail profits – but not its already nationalised pension obligations – would meanwhile go into private hands.

Modern British governments are obliging in that regard. RBS has just posted an £826m profit for the first quarter of the year. As you probably remember, it is 81% state-owned after an emergency transfusion of £45.5 billion from the taxpayer.

Ministers and bankers are now talking up a return to private hands, perhaps as soon as a year from now.

If you are not especially wedded to public ownership, that might not seem objectionable. If there was a chance of recouping £45.5bn in straitened times, after all, it might make sense to forego multi-billion profits. But there is no chance. The Labour Government bought RBS shares at 500p; as I write, they are trading at 301p, and that's a recent improvement. It still means a loss of about £19bn on any sale.

Those shares are not about to become commercially attractive. RBS is still in big trouble with the American authorities over past misdoings. New capital adequacy requirements are liable to make all bank shares less desirable than they once were. Yet in the face of all this, ministers can't wait to embrace a £19bn loss. Lloyds, in which we have a 39% share, just declared a £2.04bn profit. It too is going on the block. Apparently profit is a dirty word for this Government.

East Coast Main Line, the public company established when two private firms in succession failed to make a go of the Edinburgh-to-London route, makes an effective profit, once you sort out premiums and subsidies. In fact, the firm receives less subsidy than any of the 15 privately run rail franchises. East Coast also makes one of the highest payments to Government. It is the only route on which all retained profits are reinvested in services.

Clearly, this is an outrage to ministers devoted to the idea that private is always best. They plan to give a private operator another go at running the train set by February 2015. If you can stand the joke, one of the prospective bidders is a firm called Keolis. Its major shareholder is the French rail operator SNCF. That, in turn, is state owned.

Urenco is probably a name that is unfamiliar to anyone who doesn't mess around with enriched uranium for a living. Nevertheless, the British and Dutch governments each control one-third of the company, along with a couple of German energy suppliers. All in all, it seems to be doing very nicely.

Urenco UK, based in Cheshire, made a pre-tax profits of £212.7m last year; Urenco Ltd, the international division, made £455m. Since we know the Tories have no ethical problems with things nuclear, what would be the commercial justification for a sale? Where's the entrepreneurial spirit that will make Britain great again? Nowhere to be seen: Urenco has been earmarked.

Finally, there's the Student Loan Company. Gordon Brown never tired of attempting to flog off its loan book. Between 1997 and 2000 he raised £4.1bn by selling the "future revenue streams" from repayments made to this non-profit making "non-departmental body". Mr Brown's last attempted raid was in October 2009 as part of his ill-fated deficit reduction strategy. Then an election got in his way.

The Coalition has taken up the baton. Astoundingly, it doesn't expect to make much money from a sale, but merely hopes to get £28bn in outstanding loans – expected to rise to £40bn when tuition fees go up – off the state's balance sheet. What has not been explained, though you can probably guess the answer, is what will happen when private operators complain about the inadequate returns to be had from "cheap" student loans.

Selling off all of the above will earn investment bankers, brokers and the rest a bundle in fees, of course, come the glorious day. Future state revenues will meanwhile be forfeit in perpetuity. In the case of Royal Mail, the damage to local economies will not be measured until it is too late. More infrastructure, such as the east coast line, will pass into foreign hands.

All of this is happening, patently, simply because George Osborne wants to approach the next election armed with the claim that he has conquered the deficit. You can guarantee he will make no mention of the country's long-term interests. But will someone ask him how it is that a Tory can have such a contempt for the profit motive?