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Margaret Thatcher's mixed legacy for investors

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Baroness Thatcher will be best remembered for the Falklands War, the miners’ strike and her role in the fall of the Berlin Wall, but she also presided over a revolution in Britain’s industrial landscape through her privatisation programme.

Equally momentous for millions were her moves to give people the freedom to save, invest, buy a home and start a business. The world of today is indelibly stamped with the imprint of her era, but the Thatcher legacy is a mixed one.

Former nationalised industries such as Centrica, BP and BT are now vastly different from the inefficient bureaucracies of the 1970s.

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But the foreign ownership of UK industries, and the rise of excessive pay for lacklustre performance are perversions of the Thatcherite ideology that would have horrified the former Prime Minister.

Mrs Thatcher, as she then was, had the vision of the British as a nation of share owners. Her privatisations became national events that spawned their own vocabulary.

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Small shareholders were known as ‘Sids’ after the British Gas ad; those who sold for a quick profit were ‘stags’; people who put £100 in a building society savings account to get free shares were dubbed ‘carpet-baggers’.

Charlotte Black, from Brewin Dolphin, says the performance of many privatised stocks is impressive, considering the underinvestment and high staffing levels whilst they were under state control.

‘In the majority of cases returns were good with significant out-performance. Investments from six out of nine privatisations out-performed the FTSE 100,’ she said.

Unforeseen consequences: Lady Thatcher thought privatisations would create greater competition and efficiency, along with more choice and better value for consumers, not an invasion of foreign owners

The most profitable is British Gas. An investment of £100 would now be worth £1,246, an increase of 1,146pc, not including dividends.

Investments in Severn Trent, Powergen and National Power would have outperformed the market. BA and BT were less impressive. But the privatisations ushered in a wave of foreign ownership. Only three out of ten water suppliers are still listed on the UK stock market. The rest are owned by the likes of Hong Kong’s Li Ka Shing and Australian group Macquarie. And four out of the big six electricity suppliers are foreign owned.

Lady Thatcher thought privatisations would create greater competition and efficiency, along with more choice and better value for consumers, not an overseas invasion.

The privatised utilities were also pioneers in the high pay controversy. Cedric Brown was dubbed the original ‘fat cat’ chief executive in the mid-1990s, when he took home £475,000. This year, British Gas owner Centrica was in the spotlight for paying five top bosses £16.4m between them.

The building society floats inspired by privatisations were disastrous. Not one that demutualised survives and Halifax Bank of Scotland and Northern Rock had starring roles in the credit meltdown.

 

A more benign legacy of the Thatcher years was the Personal Equity Plan, that mutated into the ISA and lets people invest in shares tax efficiently. According to Killik, an investor who put the maximum into a plan every year since 1987 – when the maximum was £2,400, to 2012 – when it was £11,280, would have paid in £203,760. Assuming it was invested in the FTSE All Share, with dividends reinvested, that would have produced £542,739.

Margaret Thatcher’s dream of a nation of shareholders has not come to pass. The percentage of the UK stock market owned by individuals has fallen sharply since 1981, when it stood at around 28 per centc, to just 11.5 per cent in 2010. Sid may have made a profit, but her vision of a shareholder democracy is receding further into the distance.

The Great British sell-off - but how did former state-owned giants fare in private hands?

British Gas: Tell Sid – or to be accurate: ‘If you see Sid tell him.’ The words from the campaign to get people to buy British Gas shares are memorable more than a quarter of a century later.

When shares came up for sale at 135p in December 1986, around 1.5m people snapped up stock – although many sold up in the first few weeks to bag a quick profit.

In 1997 the company – then valued at 250p a share – was split in two, with Centrica holding customer energy accounts and British Gas plc owning the infrastructure.

In October 2000 British Gas plc was split into Lattice, which owned the national grid network, and British Gas Group, which runs global oil and gas exploration.

Those who held onto shares are now investors in three of the biggest companies in Britain – Centrica, now trading at 370p, BG Group at 1120.51p and National Grid at 785.5p.

British Airways: British Airways soared from the start of the privatisation rush. Run by Lord King, one of Baroness Thatcher’s favourite businessmen, it was floated on the London Stock Exchange in 1987, proving hugely popular with the British public.

Unamused: Lady Thatcher showed her disapproval for the new BA livery by covering the tail of a model plane with her handkerchief

Over 1m people applied for shares at 125p, and the issue was 11 times oversubscribed. On the first day of trading, investors were rewarded with an 80pc surge in the share price.

The airline expanded, snapping up British Caledonian and Dan-Air in the five years that followed.

Like its peers, it has struggled against the headwinds of terrorism and rising oil prices, but its size and global reach has kept it airborne while many rivals have collapsed.

In 2010, BA sought safety in numbers, merging with Iberia to create International Airlines Group, where shares are trading at 235p.

Unfortunately its Spanish sister company is weighing heavily on IAG’s profitability.

British Petroleum: It was Jim Callaghan who began to privatise British Petroleum in 1977, selling 17pc of the oil company to help meet conditions of the International Monetary Fund.

Baroness Thatcher offloaded 30pc in 1987 at 330p. Unfortunately, the float coincided with the stock market crash, and the shares fell to £2.50.

Investor appetite proved lower than forecast and the stock’s early performance was dismal. The final 1.8pc government stake was sold in 1995.

BP’s difficult debut was soon consigned to memory. Its global reach placed it among stock-pickers’ top oil ‘supermajors’.

Small investors lapped up shares in the firm, now renamed BP. Before the Gulf of Mexico oil spill in 2010, BP accounted for £1 in every £7 paid as dividends to UK shareholders.

On the day of the disaster its shares were £6.54, but are now worth £4.50.

British Telecom: The first of the major state-owned businesses to be privatised, British Telecom saw its shares rise to the giddy heights of 1060p at the peak of the technology bubble in 1999.

First brought under the control of the Post Office in 1912, the telephone service remained under government control until 1981, when the British Telecommunications Act started privatisation.

In November 1984, 50.2pc of the shares were offered for sale at 83p each. In 1991 a further 1,598m shares were offloaded, raising £5bn for the government.

British history: BT has been transformed since Lady Thatcher's heyday by a technology revolution

Virtually all the remaining shares were sold in 1993. The state gave up its ‘special share’ in 1997, relinquishing its right to block future takeovers.

A generous dividend payer, shareholders also received a further £2 a piece when its mobile phone arm Cellnet, which was renamed O2, was offloaded in 2004. Shares are now at 267p. 

British Steel: Any view of British Steel’s privatisation is likely to be coloured by whether you come from once great steel-producing regions such as Teesside or South Wales.

The popular December 1988 float at 125p gained interest from 600,000 people. It suffered mixed fortunes in the 1990s, rising and falling with Britain’s economic strength.

In 1999, the firm merged with Dutch outfit Hoogovens to form Corus. But the emergence of cheaper steel producers abroad hit Corus hard and it fired more than 10,000, leaving Teesside devastated.

Corus was taken over in 2007 by India’s Tata Steel, meaning it lasted less than 20 years between privatisation and complete foreign ownership.

Tata has cut jobs but secured the survival of steel in South Wales. They mothballed the huge blast furnace in Redcar, Teesside, but it has now been relit by new Thai owner SSI.

No one expects the UK steel industry to return to its glory days.

BAA: The British Airports Authority fell into private hands in July 1987, at the height of the privatisation wave.

Everything but a ‘golden share’ was sold, allowing Britain to block a foreign takeover. However, the ‘golden share’ was ruled illegal under EU law in 2003.

Just three years later, BAA was sold in a £10.3bn deal to Spanish construction giant Ferrovial. The deal was heavily leveraged and BAA continues to operate with a giant debt pile.

The firm has also been hit by regulation, forced to sell Gatwick, Edinburgh and Stansted. Last year the Qataris took a 20pc stake, signalling that Ferrovial might be heading for the departure lounge.

Despite high debt interest payments, BAA has invested heavily in airports such as Heathrow, including the new Terminal 5, which won plaudits from around the world after initial teething problems.




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