On Tuesday January 3nd hapless train commuters were faced with the biggest fare increase in five years. That was not an end to their woes. Transport Minister Chris Grayling has announced that he intends to bail out the Stagecoach and Virgin East Coast line (Vtec) running from London Kings Cross to Edinburgh. Shadow Transport Minister Andy McDonald points out this will cost the taxpayer “hundreds of millions of pounds.” (Estimates are that we could lose £2bn.)
The story so far: after privatisation of British Rail in 1993, capitalist consortia were invited to bid for the franchises for regional train operating companies (TOCs). The East Coast mainline was run by National Express till 2009, when it pulled out because it could not fulfil its obligations, and it was losing money hand over fist. The government was forced to nationalise the line.
Lo! The publicly owned line had the best punctuality record of all the TOCs. Over the period 2009-2013 it didn’t get a penny in government backing. In fact it returned £208.7m to the state’s coffers in 2013. Over the same period Virgin West Coast (run by the rascally Branson) got £179.6 million in revenue support.
So (obviously) the Tories decided to reprivatise the East Coast line in 2013. Vtec got the franchise from 2015 till 2023. They pledged to return £3.3bn to the Treasury over that period. Now they have found that they can’t make the profits they were salivating for when they tendered. So they will walk away in 2020.
The point is that the vast majority of the £3.3bn we were promised was due to come our way in the last few years of the franchise. Grayling is letting them wriggle out of their responsibilities. Let us call it by its right name. This is a bailout.
Privatisation has been an expensive failure. The office for Budget Responsibility estimates that £4.2bn in our money went to the rail industry in 2016-7, more than twice as much as the equivalent for nationalised British Rail. The franchise system is broken. Franchise holders can take a punt on whether they can make money out of transporting people and just walk away if it doesn’t work, leaving the taxpayer holding the baby.
Andrew Adonis has just resigned as head of the National Infrastructure Commission. For him this was the last straw. “Handing a cheque worth hundreds of millions of pounds to Richard Branson and Brian Souter (of Stagecoach) would be indefensible at the best of times but we are now at the worst of times... The cost of this bailout is going to be a slashing of the national infrastructure programme and even bigger fare rises – and as that becomes apparent in Parliament and in the media I think Chris Grayling’s position is going to become untenable.” Adonis is not a raving lefty. He got his start in politics as a member of the Social Democratic Party, the right wing split off from Labour in the 1980s.
Mick Cash, General Secretary of the RMT, agrees. “It stinks. It looks like the government rigging the market again in favour of the private sector. This is basically Chris Grayling manning the lifeboats and bailing out Virgin and Stagecoach once again.” He added, “Even worse, with 75% of Britain’s railways in overseas hands, it is the British people who are subsidising state-run rail operations across the continent.”
Even a majority of Tory voters support renationalisation of the railways. It’s high time to end this racket.
And now Carrillion...
Carrillion’s collapse has driven another nail into the coffin of the privatisation mania. The firm employs nearly 20,000 people in the country. Apart from construction it is involved in managing soldiers’ homes, and running prisons, libraries, schools and hospitals. All their money comes from tendering for public contracts. In 2016 they took £5bn. In the same year they boasted that they had paid out higher dividends every year since they were formed. This was our money going straight out to shareholders without touching the sides.
Carrillion issued a profits warning in July 2017. City sharks knew the firm was in trouble and made a killing on the share price. The government was clueless. Worse, they continued to award contracts worth £2bn to the company even though they knew it was likely to go belly up.
Apart from the threat to jobs, 28,500 pensioners are gazing at a £580m black hole in the pension fund. Will we end up bailing out their pensions? We don’t yet what will happen to the jobs and essential services. We do know that privatisation stinks.
Tory MP Bernard Jenkin said it all. Carillion's collapse, "Really shakes public confidence in the ability of the private sector to deliver public services and infrastructure. He went on to say that is shouldn’t be treated “as a private company just there to enrich the shareholders and the directors."