By The temporary nationalisation of the east coast mainline rail service, following confirmation that National Express is walking away from the £1.4billion contract, is a further indication of just how much sections of the private sector are currently ripping off the taxpayer. Labour needs to act to prevent this continuous effort by the private sector to privatise profits and nationalise losses.
The London-to-Edinburgh route will be taken into public ownership at the end of this year. But the contract will be put back up for auction to private companies. As the Guardian’s Dan Milmo reports, it is the second time in three years that the owner of the east coast contract has walked away: GNER gave up the franchise in 2006 after admitting that its promise to pay the Department for Transport (DfT) £1.3bn over 10 years was too much.
Once more the public sector is left to step in where a private operator has failed, bearing the cost until the route can be contracted to another private operator. Reports also suggest that the next bidder will pay much less than the National Express contract, leaving an unexpected shortfall in the rail budget.
“It is simply unacceptable to reap the benefits of contracts when times are good, only to walk away from them when times become more challenging," says Lord Adonis. Quite right. But then what is the government going to do to prevent it? What we are seeing at present is a pattern where the public sector is stepping in to bail out failed private sector institutions at a cost to the taxpayer, only to plan to return the profits to the private sector as fast as possible. This pattern, the least efficient policy for the public finances, is one of the issues that will be addressed at the Progressive London conference* on the global economic crisis later this month.
Over the last few months tens of billions of pounds has been poured into bailing out Britain’s bankers and shareholders – when they were in effect bankrupt – instead of nationalising them at their real price (which in effect was close to zero) and putting them to use to really assist the economy. As a result public debt has ballooned, the shareholders are happy, the executives at the top are largely unaffected, but lending to potential borrowers is still in the doldrums. The loss to taxpayers of the bank bailout still has to be counted.
It is a measure of how bad things are in the economy that this state of affairs is still actually better than the Tories’ approach, which would have slashed investment this year, in the midst of a recession, and would have let things spiral out of control; but this is no reason itself to persist with policies that basically let the private sector rip off the public - with the inevitable public backlash against a Labour government.
Only today it is being reported that Northern Rock is pressing for up to £3 billion more from the taxpayer once it is divided into one bank that can be sold off – perhaps to Tesco - and another that would probably be kept in public hands. In other words the potentially profitable section would be passed to the private sector whilst the public sector would keep the unprofitable half.
Public losses, private gains appears to be the National Express mantra.Thus it rejects government arguments that it might have to return its London-to-Essex service and National Express East Anglia franchise under default rules flowing from its east coast mainline fiasco. "National Express has taken and received clear and detailed advice from leading legal counsel upon its, and its subsidiaries’, positions under the east coast and other franchise agreements and is confident that the implication of any NXEC default should be confined to the NXEC franchise,” it says. “The group would oppose any attempt by the DfT to cross default, in order to protect shareholder value.” So it wants to keep making profits on the rest of the rail network while being bailed out by the public sector on the one it’s dumped.
It is reported that the government is preparing for a battle over the attitude of National Express towards the ‘cross-defaulting’ issue. It should take the same approach to the public sector generally. It may well be concerned that dirty words like nationalisation will make it appear too left wing. But bringing the banks into public ownership at their real cost would have been better value for the public sector and would have cut out massive costs to the taxpayer that will have be repaid in either cuts or tax increases or both.
In the case of the east coast mainline it would be better to return it to the public sector for good, bring in world class management, and run a decent rail service in the public interest rather than in the now twice-failed private sector.
* The Progressive London conference: The Global Economic Crisis – why it’s not over…and debating the alternatives will be held on July 11 2009 at Hamilton House, Mabledon Place, London, WC1. Speakers include Ken Livingstone, Vince Cable MP, Geofrrey Robinson MP, Diane Abbott MP, Steve Hart (Unite), Sam Tarry (Chair, Young Labour), Graham Turner (author, “The Credit Crunch”), Prof Danny Quah (LSE), Prof Doreen Massey, Jenny Jones AM.
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The government spend £6.6bn on the road network.
The cost estimated by the Highways Agency of accidents and deaths on the roads (incidentally the safest in Europe up to 2007 and now 3rd) was £12bn.
That still leaves a £10bn surplus.
Motorists may cost subsidise rail, but with no railways the motorists would sit in a permanent traffic jam.
What about the wider costs of motoring, it’s not just the roads your tax pays for (although I wager the true costs of building roads and maintaining them even down to the painting of the lines and sweeping them clean is a substantial part of the tax take), also the police to control them, emergency services, health care for the thousands killed and injured, the effects of the pollution, on both the population in terms of asthma other respiratory diseases, but also the environmental impact, NOx contribution to Acid Rain and of course the CO2.
I would be interested to see what the balance of motorists tax versus the true cost of motoring is.
By the way I passed my test in 1982 and have yet to get any sort of fine or ticket, it is possible if you use your brain.
Additionally you have to consider that the alternative in many cases (though obviously not in the case of very long journeys like Edinburgh-London) is to travel by car, an alternative so heavily taxed it is on that fine line between comedy and tragedy. Do we laugh or wail hysterically at the cost of fuel duty, road tax, VAT, insurance tax, Congestion Charging, residents' parking permits and the inevitable fines for minor infringements almost inevitable in any driving year*. All this simply to enjoy the freedom of controlling our own timetables. And they've hardly got started with slapping on yet more taxes to make cars more "green"**.
If the true cost of motoring had been available without all the government imposed fees and fines the railways would have long since been covered in tarmac to make more roads. And it would have been done with overwhelming popular support.
Instead the motorist will continue to subsidise the railways and we'll continue with this ludicrous fantasy that vehicles trundling along on rails are somehow better than vehicles that do the same, but without the rails.
* Motorists in general must be held to the very highest standards you understand, although different rules obviously apply to Lord Ahmed (who killed someone while texting on his phone and got banged up for a breath-taking 12 weeks!) or police officers (proven to be speeding through 30mph zones at over 100mph not during an emergency or in pursuit of some villain but "for practise" you understand. Now shut up and pay that fine for doing 41mph you d***head.)
** If two thirds of the money I spend on petrol already goes towards duck houses, ID cards and Trident, how will increasing that proportion make me "more green" when I next drive my car?
Do civil servants get to set their own bonus levels and key performance indicators for the work they do?
Of course they do. I've been in kick-off meetings for large government contracts and the first item on the agenda has been which KPI measurements to use as a reward for success. The private sector KPI's - impossible. The civil service KPI's - very easy.
Well, that's the exact mechanism that triggers a nationalisation and then onto privatisation; a private loss rather than leading to bankruptcy and letting the firm go bust; government steps in.
Instead of railing against private firms, why not let them run the business lock, stock and barrel and not intervene if they cannot make a go of it?
That would determine the real value of a business. Make the UK far more business friendly by lowering the governments take of their profits through taxes to prop up the State.
Profits incidentally are the returns from investment, the creation of value and wealth and the sheer hard work of the employees. The State does not have a right to an ever increasing take of the economy.
World class management and public ownership? Oh that is very, very funny.
What we really need is a world class government commensurate with our Top 5 world class economy.
Four years ago my job center found me a job in Reading, they said Reading was within the ride to work area, they then phoned up to get me a rail card, I had a phone call which said can you drive, I asked why and the lady at the job center said because if we paid you to go by train we have to take out a loan. she said the cost because it's not the best time to travel was £335 return you would earn less then £175 a week after a year you would have to pay the cost your self. I then had another phone calls saying forget it they had failed to find a way of getting me to work cheap enough, which I think tells a lot about green travel within the UK.
Hm, if they have legal support for their case, then I fear we can only blame the incompetence of government lawyers for allowing this to be. But actually, in the main, I agree with the headline of the article. The government is far too quick to nationalise losses rather than letting companies go to the wall. If National Express want to walk away from the East Coast mainline, let them. Let it collapse. Let it either stay dead or be re-started by someone who wants to make money out of running it cost-effectively.
I think you will find that most or all of the illusory "profits" that train companies make, is in fact the subsidy given to them by the ever generous government. I can't see the benefit as a taxpayer: we pay a fortune to subsidise train companies who also screw us on ticket prices. Train companies are pretty much laughing all the way to the bank, and they clearly have very little risk as they can just walk away with very little damage to "shareholder value".
The (Labour) government has clearly just dropped their trousers and offered the train companies the Vaseline. Mind you, the whole thing was just as bad under the Tories.
It's time to let an unregulated market loose on the train business. No bidding for franchises, no subsidies, no lobbying for the business, no PFI shenanigans. The government should just walk away from the entire shambolic mess and let people get on with it.
But this government won't do that. It is so "corporatist" that it's within a gnat's whisker of the BNP's aim of a state-directed but privately-owned economy.
And we all know what that means, don't we, folks?
I don’t really see why, when our forefathers and fathers paid to build the infrastructure that is the rail network, how we are still been charge outrageous prices to use what we have already paid for!
They need to be renationalised and run for the benefit of the travelling public.
I agree that the private sector can be more efficient at running business, mainly because it has different drivers, such as shareholder, competition, market forces etc. Where as the Government has different drivers, and before you say it, it is not just about taking your money.
What you do need to remember about making money is that this sometimes becomes the main focus of the business, sometimes at the expense of the customer and of safety. I am trying to think something like that might have happened recently, any ideas?
I do think that if public transport in this country is going to make an impact and help reduce pollution then it needs to be affordable. At the moment I don’t think that is the case, some FACTS:
York to London leaving on the 2/7/2009 and coming back 3/7/2009 – price range £132.50 to 381.00 – duration 4 to 6 hours
Carlisle to London leaving on the 2/7/2009 and coming back 3/7/2009 – price range £92.30 to £411.00 - duration 4 to 6 hours
I would not say most of these prices are what I would call affordable.
You have to think about what is the reason why we have a train network, is it to make profit to pay shareholders, is it to transport people and goods quickly across the country, is it in modern times an effective way of reducing carbon emissions.
Looking at the stats from 1992 to 2002:
Passenger numbers have increased by nearly 500 million
Passenger receipts have increased by £2,148 million
Loads of cash!
If the country is committed to making an impact on reducing cars on the road then a quality public transport system is the key to that. To ensure that we have a quality service, the Government will have to have a stake in this system, running in partnership with private companies. If they are not you will only have a profitable service not a quality one.
There also needs to be some work done to reduce the price, I remember talking to somebody who said that when they were younger, him and his mates spent all summer travelling around the lake district. Now that would be great if we could get prices to the point were it is possible for kids to go out exploring the country.
I'd rather that Guy became a civil servant and made our money work harder!
So, an answer to the question would be nice. You made the original statement about socialism, so surely you have an answer with regards to the Conservative side?
I'm not the one with an issue over private sector profits. I think you'll find Alan was the one writing "So we should let large multinational companies obtain our assets at a knockdown price, and then they can make enormous profits to keep for themselves?"
As always socialists rush to criticise private business (as well as the middle classes) but are all too happy to take the tax receipts based upon their success.
Not only did I answer your question but am now happy to throw "hypercrits" back at all socialists
As for the "it is no good a company basking in the good times and then running away when things get a bit hairy", I wonder how much each franchise is worth on the open market without government interferance?
It's a well known problem that central and locla government contracts always go to whoever bids the best in terms of cash return. The fact that the civil service wouldn't know how to get value for money and a good partner when it comes to contracts with the private sector is just another government failing.
The labour party and government havent a clue when it comes to private business and haven't a clue when it comes to running the public sector efficiently. I wonder what there is they do have a clue about?
Should we place bets Alan on whether he answers the question or not?
For once I agree with Adonis: it is no good a company basking in the good times and then running away when things get a bit hairy.
I know it will annoy you even more (I can almost see your moustaches bristling!) but i hoep Adonis does what he has said he might do - and that is take away their Liverpool Street and fenchurch Street services. I can't speak for the latter, but i am well acquainted with the former and they are forever "apologising for the late running of this service" - the service genuinely were better in BR days.
It's the PFI mantra, not something that National Express cooked up.
Who said anything about giving ownership to them? Let them run the lines with fee constraints and a degree of investment built into the contract and leave them to it.
I don't believe the state is competant enough to run a cornershop and certainly not a railway.
The issue is the amount any franshise winner has to pay to the government. It's been too high and now looks like it will come down, which is a good thing.
As for the profits jibe, I do wonder what socialists like you would do without company profits to tax and private sector workers to tax? Presumably you'd have to find a new group or two to steal from?
No, let the private sector run it profitably and stop assigning these rediculous sums they have to pay to win the line"
Guy, You seem almost like a paradody of Colnel Buffington-Huffington Blimp, the High tory of the Shires.
So we should let large multinational companies obtain our assets at a knockdown price, and then they can make enormous profits to keep for themselves?
I sometimes wonder if you really are naive or if you take lessons.
If the government can't forecast well enough to hold a spending review than what chance the estimate that these lines should draw in are also wrong?
If the line is losing money then it will just cost the taxpayer to keep it running. I'd rather my taxes were spent on something else (or returned to me ideally).
We want SMALLER government, not State owned anything. Apart from anything else, the State has proved again and again that it is utterly useless at running anything properly.
Police the streets, protect the borders. Leave the rest up to us, the public.