U.K. Prime Minister Gordon Brown yesterday presented proposals to reduce the mushrooming fiscal deficit through the sale of state-held assets. Under the proposals the government would create a "portfolio of non-financial assets" held by the state and local authorities, which it would then proceed to sell over two years in the hope of raising £16 billion (US$25.4 billion). According to Brown, the initial assets to go on sale would be the Tote bookmakers, the River Thames crossing at Dartford (east London), and the Student Loans Company, and these would raise £3 billion. In this first phase the government would also look at divesting its holding in the Channel Tunnel rail link. Most controversially, subsequent offerings would include the state's 33% stake in Urenco, a European consortium of firms supplying equipment for the enrichment of uranium for the nuclear industry. The administration is also planning to sell some of the £220 billion in real estate owned by government departments and agencies.

The aim of the "fire sale" is to help plug the United Kingdom's rapidly expanding fiscal deficit. The array of stimulus measures implemented by the government to help prop up the recession-hit economy has exacerbated the problem, as has the recession itself via falling tax revenues and greater demands for welfare spending. Even before the recession and fiscal stimulus measures, the U.K. public finances had been in a poor state. This situation has pushed public borrowing to record highs, with Chancellor Alistair Darling forecasting that it will reach £175 billion over the next two years. Brown's fire sale is an attempt to win votes ahead of the 2010 election by limiting public spending cuts in the immediate term.

Outlook and Implications

The prime minister's announcement has raised a number of questions about Labour's policy to pull the country out of recession and return it to a path towards recovery. Brown is planning the biggest privatisation since the 1980s with the aim of raising funds to plug the fiscal deficit, but his policy to sell state assets instead of focusing on difficult spending cuts is a dubious one and does not address the basic problem. Furthermore, it could prove difficult to sell some of these assets, with interest in real estate and the student loan book likely to be relatively weak given the depressed state of the markets. This has led to accusations that Brown is basically giving the assets away instead of waiting a couple of years and potentially getting a much higher price. Indeed, the estimate that the fire sale will raise £16 billion is highly optimistic. Brown is attempting to regain the economic initiative in his attempts to reduce the huge public debt. The sale of the assets will no doubt help raise funds, but given the size of public borrowing it is unlikely to make a serious impact. The opposition Conservative Party, which holds a comfortable lead over ruling Labour in the opinion polls, last week presented its plans for extensive public spending cuts in order to restore fiscal balance and reduce debt levels (see United Kingdom: 7 October 2009: Opposition Conservatives Outline Vision for U.K.). Brown has belittled these plans, accusing the Conservatives of jeopardising economic recovery with their proposals for spending cuts. Irrespective of the government's fire sale, public spending reductions will be unavoidable given the massive deficit and debt levels, and these plans are simply a stop-gap measure to win over the public and gather votes. The plans to sell these assets would leave future U.K. administrations asset and cash poor. As a result, Brown's policy is somewhat short-sighted and fails to address the bigger issue—namely, that the United Kingdom has lived outside of its means for the past 13 years. The economy will undoubtedly be at the top of the agenda during campaigning for the 2010 election; however, there is a risk that as the two main parties pursue policies designed to win votes, they will lose sight of the economic realities. This could result in the British economy suffering even more than it is already.

Global Insight (Reino Unido)