Has the UK sold off the family silver?

Getting a day out of the office nowadays that doesn’t involve a 6.30 flight to Zurich is a rare occurrence, but last week I had the chance to enjoy a Christmas present from my wife. A day’s off-road driving experience in a Land Rover defender in the wilds of Bedfordshire. As I marvelled at the vehicle’s ability to effortlessly traverse a 45 degree muddy terrain, I was informed by our instructor that the basic Land Rover still bore resemblance to the original 1948 model, and was probably the most instantly recognised vehicle all over the world.

British engineering – you can’t beat it.  Now, of course, Land Rover is not British, but Indian, bought by Tata Motors in March 2008.

 

As is BAA, the British Airports Authority, bought by the Spanish company Ferrovial; and British Energy, sold to EDF of France in 2008; and Arriva, the transport company, bought by Germany’s Deutsche Bahn; as well as Thames Water, owned by a Macquarie holding company, which is Australian.

 

The list is large and growing.

 

Since Margaret Thatcher embarked on privatisation two decades ago, we have steadily sold off most of our core assets. Whether it is transport, energy, communications or water, the UK is essentially foreign owned. It is not only the private entities that are gobbling up UK companies. The Office of National Statistics released a report earlier this year which shows the clear trend of increasing ownership of listed UK shares.

 

 

The proportion of UK quoted shares (in terms of value) owned by the rest of the world has increased substantially since 1963. By 1998 holdings had increased to 30%. The 21st century continued to see increases, with holdings highest in 2008 at 41%.  The large increase since 1994 partly reflects the growth in international mergers and acquisitions, and the ease with which overseas residents can invest in UK shares. Since 2006 the holdings have levelled out at around 40%.

 

The perception of the UK as a safe haven and the decline of sterling over the last few years can only have added to foreign investors’ holdings of UK-listed companies towards the 50% level. Imagine 50% of a country’s assets being held in foreign hands.

 

I am all in favour of globalisation. The UK has benefitted from access to the world capital markets. Of course, there have been UK jobs saved by finding an overseas buyer for ailing home companies with different capital and time horizons, but at what cost?  When I see reservoirs being sold off by water companies to profit from valuable new-build property potential, followed by UK residents having to face hose pipe bans due to a shortage of water, I do wonder.  Also if we have 50% of our productive assets being foreign owned, what are our risks of not receiving much of the tax that is due to the state. If you truly believe that we are obtaining our fair share of tax revenue, you are also probably a believer in Elvis Presley reappearing for the opening ceremony at the London Olympics this summer.

 

The UK has generally benefitted from the low tax and lighter regulation.  This has especially helped the City of London to become one of the world’s leading financial centres, and a crucial contributor to UK tax revenues.  But we do not have such strategic asset laws which restrict foreign ownership, such as “Danone’s Law” in France. We pride ourselves on our “open for business” mentality, but it is possible to have too much of a good thing.

 

I can’t help worrying that, in the future, people will not only question how we have indebted our children and our childrens’ children up to the eyeballs, but that we have sold off our entire asset productive asset base in the process.

 

Comments are closed.