Learning to sell the family silver

I WAS amused to see the headline in this newspaper and others concerning Labour's Damscus like conversion to the cause of privatisation. Roughly paraphrased they read: "Brown to sell remaining family silver". This is a reference to Harold Macmillan's famous speech in the mid-1980s as the Earl of Stockton in which he criticised Margaret Thatcher's pioneering privatisation programme as tantamount to selling the family silver. The Tory grandee characterised the process as like some tragic tale of aristocratic decline. First the fine French period furniture disappears from the drawing room, then the Canalettos go, and finally the family silver.

Lord Stockton's punishment for such a politically incorrect utterance was to have his portrait summarily removed from the walls of Number 10 Downing Street. I've no idea whether it has since been reinstated but given that Downing Street's new inhabitants seem as wedded to the idea of privatisation as Mrs Thatcher and Nigel Lawson even at their most gungho, perhaps not.

The point about the latest clearout, however, is that such choice assets as the Newport Pagnell motorway service station, Belfast port, a further tranche of student loans, and the remaining government debt in British Energy, can hardly be described as family silver. That's all long since gone. To extend Lord Stockton's analogy even further; first the fine French furniture, then the Canalettos, then the family silver and now the battered old pewter mugs.

Somewhere along the line the great government clearout shifted out of the sales room and into car boot sale territory.

To be fair, some of the assets on Mr Brown's hit list aren't too bad. The Royal Mint and the Tote should find plenty of takers, as too should the National Air Traffic Services, despite the fiasco of its inoperable new computer system. The last two of these would appear to be prime candidates for "securitisation", the process by which value is multiplied in the hands of the vendor by using a company's secure income stream to support the sale of high yield, junk bonds.

And if a Government which still quaintly prefers to call privatisation "private partnership" finds the idea of junk bonds beyond the pale, ministers shouldn't forget the recent National Audit Office report, which criticised the last government and its advisers for failing to spot that this way of privatising the train leasing companies would have yielded a great deal more for the Exchequer than the more traditional route used.

Even so, the Government has had to dredge the bottom of the barrel to find anything remotely saleable, as well as perform a nifty U-turn on its traditional opposition to privatisation of air traffic control. The Government is hoping to raise pounds 4bn annually for the next three years from privatisations to help fund its spending plans - or pounds 12bn in total. The assets earmarked should just about meet this target. However, once privatisation has been accepted as a legitimate way to fund spending, the public finances tend to come to rely on it. Mr Brown's pounds 4bn a year is a level of proceeds not so far removed from what the previous government used to raise by this method. When the last of the pewter mugs is sold, what's he going to do for an encore?

Actually there are still some quite big businesses which, curiously, continue to languish in state ownership. These are the sacred cows which even the previous Government had difficulty in touching, notably the Post Office, Channel 4 and the BBC. The last of these will presumably for ever remain sacrosanct, certainly as long as Labour is in power. But a Government that can reverse its policy on air traffic control would presumably have little difficulty coming to terms with flogging off the other two. Fast forward to the other side of the next election, and whoever is then in power, it seems likely these companies will be on the menu. Privatisation is just too tempting a way of squaring the circle between the demands of the spending departments and the demands of the markets for strict financial prudence in the public finances for them long to be off it.

There was a lot of talk from the Chancellor about prudence in delivering his spending review this week. So much so that it made you suspect he protests too much. If the Chancellor goes on and on about how prudent he is, it must mean he thinks we'll think he's not being prudent, must it not? Quite a few people, particularly in the City, took precisely that view. And to some extent they were right to smell a rat. Alone in the press, the Financial Times drew attention to a clever little slight of hand which I have to confess I failed to notice when reading the documents.

The Chancellor would have us believe that growth in public spending is to be limited to 2.25 per cent a year in real terms for the next three years, which as he rightly pointed out, would be in line with Treasury forecasts for the growth in the economy. However, the Chancellor also promised to double the amount spent on capital projects, which is apparently a separate and distinct category of Government spending. If you thought that bit of extra spending formed a part of the 2.25 per cent headline increase, as I did, you would be wrong. In fact it is additional spending which takes the total annualised increase to 2.75 per cent, considerably more than anyone expected and certainly well above Treasury forecasts for growth.

But we should perhaps not be too harsh on the Chancellor. His predecessors promised real cuts in public spending and comprehensively failed to achieve them. Mr Brown's is a kinder message; affordable increases. Provided the economy behaves as the Treasury forecasts, then it is indeed possible to have these increases and start paying down the national debt at the same time. But if the economy moves back into recession then all bets are off, as they always are in such circumstances.

Even so, to have expected the Chancellor to make the public finances recession proof too would have been prudence too far. And because to do so would have implied a freeze on spending increases, then the consequences might themselves have been recessionary. In any case, it seems to me the Chancellor has the balance about right. The public finances are in a far healthier state than anything demanded by the Maastricht treaty and it would be Scrooge like in the extreme to deny public spending a little of that cream, particularly if Mr Brown is as good as his word and the extra spending goes on priority projects in education, health and transport.