Eric Roll, the former president of SG Warburg (the Hamburgers), considers the ultimate sell-off and what went wrongby Eric Roll / November 20, 1996 / Leave a comment
Published in November 1996 issue of Prospect Magazine
On tuesday, the rumour started trickling between Westminster and the City. It was not known at which end of the great London axis it had started, but it was immediately greeted with disbelief. By Thursday, however, when it was known that it had begun as a lunchtime indiscretion by a junior minister, it had reached proportions which made irrelevant how it had begun. The prime minister, by arrangement, was asked a question in the House by a former Tory minister. He replied: “I am glad to be able to tell my Rt Hon friend that Her Majesty’s government has been in intensive discussions for some time about how to continue and perhaps complete the process of rolling back the frontiers of the state.” The prime minister’s answer was not enough to stem the tide of speculation, particularly in the financial markets; he was obliged to make a further statement to the House on Friday. By that time it had become known that not only had there been discussions within the cabinet, but that the government had appointed two financial advisers: Hamburgers and Frankfurters, the last two purely British investment banks in London, both of old German lineage, had been in touch with ministers for two months. Both banks were delighted at this most extraordinary mandate for they soon discovered that what ministers had in mind was nothing less than the privatisation of the British state. The banks searched in their archives for anything that would provide guidance for this transaction, but found little in their 19th century concerns with wheat and minerals. The prime minister’s statement on Friday did reveal something of the magnitude of the government’s plans and immediately caused a tempest. Among the government’s supporters, the idea that most of, if not all, the great institutions of the state might be offered for sale to private interests was at first anathema. However, they soon realised that this was indeed an adroit move to avoid an impending election. Among civil servants, those at the top were, as usual, content to leave things as they were. And Labour was sharply divided. The fact that the scheme might embrace the monarchy, the church, the judiciary as well as central government, attracted many MPs but on balance the party seemed to be turning against the proposals. On Europe, the proposals seemed to the government to be a brilliant way of abolishing the whole debate. Brussels might wish to determine the size and composition of our sausages, but if the present proposals were adopted, they would have to argue such matters not with ministers but with market forces. Privately, some Labour advisers were as relieved as the government at the prospect of not having to take a decision on the single currency. Among some of the government’s economic advisers there was even talk that at last this would enable the Hayekian dream of de-nationalising money to be realised. In the ancient universities the common rooms soon knew of no other subject. But the fiercest debate was in the City. There was clearly going to be sharp competition among investment banks for the role of global co-ordinator for this remarkable privatisation. Four houses were particularly keen. Two from New York: Silverstone W?rttemberg and Welsh Livingstone were making great efforts. One from Frankfurt: Teutonic, Welsh & Discoverer (although sailing under its London flag) was also in the running. And from London itself there was Helvetic Fortress, the most innovative of the locals. The debate turned not only on the feasibility of the project, but on whether one should attempt to market the whole of the state, or whether it should be broken up into its parts, something that appealed to many on the ground of the varying attractiveness of these parts. Frankfurters was in favour of the latter method, partly because it fancied advising on the privatisation of Buckingham & Sundry Estates plc as well as, despite certain theological constraints, on Lambeth & Bishopthorpe Limited. Hamburgers, on the other hand, was inclined to go for the whole lot given the difficulty in marketing what was known as the “riff-raff”-City Halls and Parish Councils, as well as Westminster and Whitehall Incorporated. As for method, there was some disagreement on whether to pursue the standard “book-building procedure” or whether an investment bank buy-out would be more appropriate. The latter would require enormous resources but Helvetic Fortress was thought to be looking closely at the large central banking reserves in southeast Asia. The advisers had already started discussions with some of the leading investment banks who might be involved as global co-ordinators, or managers of certain national tranches. Buckingham & Sundry Estates plc was thought likely to attract some private investors both at home and in North and South America, the Antipodes and possibly even some parts of southeast Asia. It did not seem to be of interest to the institutional investor. Westminster and Whitehall were considered only barely marketable, although some thought that they might appeal to the emerging markets and perhaps even some of those countries in Europe which have difficulty in forming governments. The City Halls and Parish Council Incorporated were going to be extremely difficult. Some believed that there were funds which could be mobilised, particularly in the middle east, which would be interested in the less obvious activities of these entities. As for the combined Inns of Court Corporation, it was thought that it might be necessary to break this up into two parts-the business element and the more dignified and theatrical element, including the use of special attire and the Lord Chancellor’s annual parade. It was thought there were a number of South American countries that would find the latter of interest. While the banks were debating these practical issues, the government suddenly realised that the initial attractiveness of the idea concealed difficult problems. Public opinion was sharply divided with a large number of “don’t knows.” The government was especially preoccupied with what to do with the law enforcement agencies. A don at Peterhouse wrote to The Times saying that while 19th century German liberals had extolled the virtues of the “night-watchman state,” the “night-watchman” function could now be provided by the large number of private security companies. Prison privatisation had already pointed that way. On the Thursday following the prime minister’s statement, the cabinet was made aware that the whole proposal had hit one immovable object. The secretary of state for defence, who despite his laissez-faire and anti-European inclinations had been kept out of the earlier discussions, had just returned from visiting British troops in Bosnia. He had to tell the cabinet that at a time when the UN was at last beginning to exercise its peace keeping role and when British troops were forming an important part of this process, it was quite unthinkable to consider abolishing the armed forces and the state to whose head they owed allegiance. He also said that he had to remind his colleagues (although none of them had known it before) that even Adam Smith had said that defence was more important than opulence. Furthermore, and to clinch the argument, irate messages were being received and indeed hotline telephone calls to the prime minister not only from Nato headquarters but also from the White House, the Elys?e and the Bundeskanzleramt, which made it clear that any domestic storm would be like a gentle breeze compared with the international repercussions. At the Thursday cabinet meeting, therefore, it was decided to backtrack and the entire government machine was now devoted to devising ways and means of making a virtue of this necessity.