Expert view: What have they done to our building societies, buses and pubs?

Dec 9 2008 by Our Correspondent, Huddersfield Daily Examiner

The legacy of deregulation is not what we expected. COLIN BAMFORD, head of Department of Logistics and Hospitality Management and Associate Dean of the School of Applied Sciences at Huddersfield University reports

IN the mid-1980s, the UK economy experienced a series of dramatic changes, one of which was the so-called deregulation of markets.

In some cases, deregulation was accompanied by the sale of state-owned businesses to new private owners (privatisation).

The objective was to provide a better deal for consumers through increasing competition. As the Examiner’s ‘Save our Pubs’ campaign and recent letters from readers have shown, the reality is somewhat different.

This is particularly so in the case of financial services, local bus transport and the licensed retail sector.

Deregulation was at the heart of Thatcherism. By the mid to late 1980s radical Conservative policies like this were progressing at full throttle … and the majority of us loved it! Popular capitalism was very popular indeed.

Building society account holders and the customers of state-owned gas, electricity and telephone companies received windfall handouts once market restrictions were lifted. Twenty years or so on, the legacy we face is not what had been expected and in certain respects, has turned sour. So why is this?

Look at our building societies. What we are left with today is a market dominated by a small number of large players whose image of respectability has been badly tarnished.

Take the case of Northern Rock, the Halifax or the Bradford and Bingley. Twenty years ago, these were solidly funded institutions whose objective was to provide mortgages for their so-called shareholders and a decent return for savers.

Their undoing, with hindsight, came with the opportunity to become banks. As a result they were able to provide more loans and mortgages, often to high risk borrowers, in a way that they would not have considered when they had mutual status.

In B and B’s case, it is well documented that substantial funds were made available for ‘buy to let’ mortgages. These can be high risk with speculative borrowers gambling on making a good return in a strong market.

As we know, this is now seen as a case of an irresponsible bank encouraging irresponsible borrowing, leaving the Government to bale them out rather than face collapse. Like Northern Rock, it is tax payers who, over time, will be picking up the costs.

A second controversial example, one that is frequently in the Examiner’s news and letters columns, is that of our local bus services. This market was deregulated in 1986. A little later the former West Yorkshire PTE’s services were sold off through a worker management buy out. Good news at the time … or so we thought.

This deregulation was designed to make the market more competitive – new routes, lower fares and better services were all promised.

Since then, major changes have taken place, with First Group dominating local provision. Some people do have better services but the commercial reality is that new routes and lower, competitive fares have not come about. And for many, services have been withdrawn and frequencies reduced.

What some people still fail to grasp is that companies like First Group, and the Huddersfield Bus Company (formerly Stagecoach) are private sector commercial businesses. Their aim is to generate a good return to their shareholders. (In early November, for example, First Group announced profits of £105m, a 40% rise on the previous year). Granted, both have invested in new vehicles but unless they can get a subsidy, they are not in the business of operating loss-making routes.

It can also be argued that fares are not competitive … and there has been no rush to reduce fares now world oil prices have tumbled.

In some ways, it can be argued that they are no longer providing public transport in the sense that Huddersfield Corporation and West Yorkshire PTE were. Deregulation has put paid to this. A more apt description is that they are private companies putting on services, which are best described as ‘transport for the public’.

Another example is the pub business. Nationally and locally, pubs are closing at an unprecedented rate. In other cases, leases are up for sale or the premises are to let. Queensgate is particularly depressing. Not even proximity to thousands of our students can entice new owners to take on the former Blob Shop, College Arms or Bar Amour.

All have been closed and boarded up for at least six months. In the current economic climate, no-one in their right mind would consider sinking many thousands of pounds into one of these premises.

The deregulation of this market is rather different. It has come about in two different ways. First, in 1989, the so-called Beer Orders required breweries to sell off the majority of their ‘tied’ houses to new owners. This is the origin of companies such as Enterprise Inns and Punch Taverns which lease pubs to tenants. Other companies like JD Wetherspoon employ salaried managers.

Secondly, there has been a relaxation in where and for how long alcoholic drink can be sold to the public. This is why many local stores sell alcohol and why some licensed premises can now stay open until 6am.

This second form of deregulation, making drink more widely available, was designed to control consumption and reduce the incidence of binge drinking.

Has it worked? Seemingly not, with many publicans facing difficulty times due to:

The high taxes on alcoholic drink

The effects of the smoking ban

Excessive cut-price competition from supermarkets who buy in bulk

Ever-increasing business rates and fuel bills.

Some pubs are successful and do survive. They usually have at least one good real ale, regular events and entertainment or good food at sensible prices. Without these, business prospects are likely to be poor.

Hindsight is a wonderful thing. Perhaps if what has happened had been fully anticipated, the deregulation of these particular markets might not have been promoted with the same enthusiasm that was displayed at that time.

IF you would like to hear more about the pub business, then come along to the next of our public lectures tomorrow. Rita Carmouche, Head of Hospitality Management and an expert in the licensed sector, is giving a talk entitled ‘From Newcastle Brown to Chicken Tikka Masala’. The talk is at 6.30pm in the Canalside West lecture theatre. Seasonal refreshments will be served from 6pm. Details from Janet on 01484 472169.