Government divestments and the regulation of natural monopolies in the UK: The case of British gas

Abstract

The privatization of British Gas in December 1986 represented the largest transfer of ownership from the public to the private sector in the UK to date. Given the natural monopoly nature of many of British Gas's activities, the form of the privatization and the control of the industry after flotation have important implications for domestic consumers, and society generally. This paper examines these implications. In particular, the theoretical options for privatization and regulatory approaches are examined in general, followed by an examination of the approach adopted for British Gas. The initial experiences of the flotation are also discussed. The paper concludes that a different feasible form of privatization than that actually chosen could have improved the potentiality for increasing competition and that the regulatory formula adopted may allow excess profits to persist.