James Meek, in his account of the way Britain’s power industry fell into foreign hands, misses out one detail, which was crucial to the massive growth of EDF, the state-owned French company, and key to the way that it and other state-owned firms from elsewhere in Europe have been able to ‘renationalise’ utilities and services in Britain on behalf of foreign governments (LRB, 13 September).

I was at a couple of meetings in 1996 that brought together the rump of the state-owned enterprises that had survived the Thatcher and Major privatisations. They included the bodies running the Tube, the canals, Manchester Airport, the Scottish water supply, the Post Office and air traffic control. Apart from still being in public ownership, they had in common the need to raise money for capital investment. They were well aware of the rules in the rest of Europe that enabled (and still enable) a firm like EDF to behave like a private company but to enjoy the advantages of low borrowing costs backed by government. The case was made to the Labour opposition for the same rules to be adopted here. John Battle, then Labour’s shadow minister for energy, was one of those briefed, as was the shadow Treasury minister, Alistair Darling.

Nothing came of it. Some of the operations (like air traffic control) were privatised by Labour; others (like the Tube) were afflicted with private finance schemes; some, like the Post Office, staggered on with various concessions to private sector management styles. The canals survived Labour to be turned by the Tories into a charity.

In the meantime, as Meek makes clear, privatisation led to a succession of takeovers; many of the original buyers are now forgotten, replaced by foreign companies. Meek concentrates on the energy sector and the growth of the French EDF, but there is a similar story to be told about the transport sector. One of the biggest companies running buses and trains, Arriva, is majority-owned by the German government. SNCF, the French state railway company, is said to be eager to bid for HS2, the next high-speed rail franchise.

Of course the government has had to intervene in the rail industry when private companies have failed. Thus we have the quirkily named Directly Operated Railways, created to run the East Coast line when National Express pulled out. We have the extraordinary National Rail, whose finances the Labour government bent over backwards to keep off the books. The company is largely owned by self-appointed members, despite being heavily dependent on state finances. Justine Greening, until recently the Transport Secretary, admitted she was unable to veto its directors’ bonuses (they later decided to waive them).

One of the main reasons Labour would not adopt European borrowing rules, it said, is that it would create unfair competition if a public company could borrow more cheaply than its private sector rivals. Yet this is exactly what many French, German and Dutch state-owned firms now do. It may not be the only reason they are so competitive, but it certainly helps when they want to buy a slice of Britain’s transport or energy sectors. Britain is judged in the same way as its EU competitors: it has to report to the IMF, follow the European System of Accounts and adhere to the Maastricht Treaty. But it refuses to take advantage of these rules in the way that other countries do, by treating state-owned businesses differently.

There is one exception: the privatised banks. We spent so much on them that the sum is simply too huge to be counted as part of government debt, so the government created a loophole for itself, effectively applying international rules just in this one case.

Given that successive governments have flogged off practically all the state-owned enterprises (as will presumably happen soon with the nationalised banks), these issues might be thought no longer to matter. But actually they do, because local authorities still own tram companies, markets, the odd bus company and Manchester airport. Most important, they own two million council houses. It would be a massive boost to localism if these self-financing enterprises (where most or all of the income comes from charges to customers) could borrow to expand, without affecting the headline figures for public debt. There is a powerful argument for allowing this when the economy badly needs boosting. Nothing in international rules prevents it from happening, only the Treasury’s aversion to letting go of the purse strings.

Original post: letter in London Review of Books