Rail is a gigantic scam for siphoning off public money

Branson and FirstGroup have both gamed a disastrous privatisation. The case for public ownership is compelling

• 
• • Seumas Milne
  • guardian.co.uk, Tuesday 28 August 2012 22.20 BST

'Nearly 20 years after John Major’s disastrous privatisation, this is the reality of Britain’s railway: a byword for bewildering fragmentation, unreliability and exorbitant cost.' Illustration by Belle Mellor

Barely a month since the private security firm G4S crashed and burned in the runup to the London Olympics, we're back in outsourcing la-la land again. This time the battle is over the monopoly franchise to run passenger trains on Britain's most lucrative rail route, the west coast mainline.

Ministers have given the 15-year contract to the privatised bus operator FirstGroup, with a licence to increase fares by up to 11% a year, reduce services, downgrade catering and close ticket offices. Richard Branson, whose Virgin Trains has had the franchise since the 90s, is crying foul, and on Tuesday launched a legal action to halt the handover.

Labour wants MPs to be able to scrutinise the deal. But the transport secretary, Justine Greening, is determined to plough ahead regardless, potentially tying the hands of government for the next three parliaments. And the controversy follows uproar over plans for an average 6.2% rise in rail fares from January.

Commuters now routinely spend 15% of their income travelling to work on what is now the most expensive rail network in Europe. No wonder coalition MPs are lobbying for some relief from the drive to load more of the costs on to passengers: it is now cheaper to fly on half the popular routes around Britain than travel by more environmentally friendly rail.

The heavily subsidised rail privateers, whose top five executives paid themselves an average of £1m last year, are also supposed to cough up a bigger share. But there's little sign of that happening – and the west coast mainline deal helps explain why.

Forget the special pleading by Branson, who's made over £200m from rail privatisation. Virgin's own record is poor. But his accusation that FirstGroup is gaming the system is widely shared by industry analysts and insiders.

Greening claims FirstGroup offers the best deal for taxpayers. In reality it's based on heroic growth expectations of 10.6% a year and payments to government that are heavily loaded on to the contract's last few years. The company in fact has an incentive to dump the franchise as those payments come due, because they dwarf the cost of the bond penalty.

If FirstGroup – which is walking away from the Great Western franchise – defaults, it wouldn't be the first time. That's what happened with Bermuda-based Sea Containers and National Express, who had the contract for the east coast mainline before the last government was forced to take it over. But by then, both ministers and corporate executives would likely be long gone.

Nearly 20 years after John Major's disastrous privatisation, this is the reality of Britain's railway: a byword for bewildering fragmentation, unreliability and exorbitant cost – and a gigantic scam for siphoning off public money into the pockets of monopoly contractors.

Branson has raged at the government's "insanity" in awarding the west coast mainline franchise to FirstGroup. But it is the system itself that is irrational. Privatisation was supposed to cut public subsidy by boosting competition, investment and innovation.

In fact, it has done the opposite. Government funding has at least doubled in real terms, while fares have also increased, largely because of privatisation – including the costs of fragmentation and duplication; dividend payments to investors; contractors' profit margins; debt write-offs; and higher interest payments to keep Network Rail's debts off the government's balance sheet.

Taken together, those privatisation costs amount to around £1.2bn a year, according to a new thinktank report (Transport for Quality of Life's Rebuilding Rail), while genuine private investment is estimated at barely 1% of the total funding of the railway. It's hardly surprising that the mainly publicly owned rail systems in the rest of Europe – several of which now run bits of Britain's privatised rail – are cheaper.

The solution could not be more obvious. It's to rebuild a publicly owned and integrated railway. That can be done at zero or minimal cost, by bringing back each franchise into public ownership as the contracts expire. Freight apart, it can also be done under EU law, and with built-in local control. And saving the £1.2bn-a-year costs of privatisation over time would be the equivalent of an across-the-board cut in fares of 18%.

Rail renationalisation has long commanded large majorities in opinion polls. So you might imagine politicians would fall over themselves to sign up to a policy that's popular and saves money. The fact that they don't says something about the continuing grip of discredited ideology and corporate interests on Britain's political culture. Even a respected public transport pressure group like the Campaign for Better Transport, which now relies on funding from privatised transport companies, shies away from campaigning on the issue.

Labour is at last inching in the right direction. Its transport spokesperson Maria Eagle has floated the possibility of extending public ownership to rail services, and this week called for the east coast mainline to be kept in public hands. But with Tory defence secretary Phillip Hammond declaring the Olympics has changed his mind about privatisation and Liberal Democrat Vince Cable pressing the case for the outright nationalisation of banks, Ed Miliband can afford to be a bit braver. Last year he called for a break with the neoliberal model. Rail could be the place to start.

Socialism for the Rich

George Monbiot

In the documentary series which finished on Friday evening, the heiress Tamara Ecclestone set out to prove that she isn't "a pointless, quite spoilt, really stupid, vacuous, empty human being". This endeavour was not wholly successful. Channel 5 showed her supervising the refurbishment of her £45m home in London, in which she commissioned a £1m bathtub carved from Mexican crystal, an underground swimming pool complex, her own nightclub, a lift for her Ferrari, a bowling alley with crystal-studded balls and a spa and massage parlour for her five dogs, to save her the trouble of taking them to Harrods to have their hair sprayed and their nails painted. But there was something the series didn't tell us: how much of this you helped to pay for.




In court a fortnight ago, her father, the Formula One boss Bernie Ecclestone, revealed that the fact his family's offshore trust, Bambino Holdings, was controlled by his ex-wife rather than himself could have saved him "in excess of £2bn" in tax. The name suggests that the trust could have something to do with supporting his daughter's attempt to follow the teachings of St Francis of Assisi.



Ecclestone has also been adept at making use of the corporate welfare state: the transfer by the government of wealth and power from the rest of us to the 1%. After the mogul made a donation to Labour's election fund, Tony Blair demanded that F1 be exempted from the European Union's ban on tobacco sponsorship. The government built a new dual carriageway to the F1 racetrack at Silverstone.



In other countries his business has received massive state subsidies. Russia, for example, has recently agreed to build a circuit for Ecclestone to race his cars, and then charge itself $280m for the privilege of letting him use it. Working in India in 2004, I came across the leaked minutes of a cabinet meeting in which the consultancy McKinsey insisted that the desperately poor state of Andhra Pradesh – where millions die of preventable diseases – cough up between £50m and £75m a year to support F1. The minutes also revealed that the state's chief minister had lobbied the prime minister of India to exempt Ecclestone's business from the national ban on tobacco advertising.



Socialism for the rich, capitalism for the poor: that is how our economies work. Those at the bottom are subject to the rigours of the free market. Those at the top are as pampered and protected as Tamara Ecclestone's dogs.



On Tuesday George Osborne decided at last to review the private finance initiative (PFI), under which the companies building public infrastructure made stupendous profits while the state retained the risks. But if you thought that the chancellor's decision represented a wider shift in policy, you'll be sorely disappointed. Two days later he agreed to sell the state-owned bank Northern Rock to Richard Branson. Under the deal, the state keeps the liabilities while Branson gets the assets – rather like PFI. The loss equates to £13 for every taxpayer.



Someone who will not suffer unduly from being touched for £13 is Matt Ridley. As chairman of Northern Rock, he was responsible, according to the Treasury select committee, for the "high-risk, reckless business strategy" which caused the first run on a UK bank since 1878. Before he became chairman, a position he appears to have inherited from his father, Ridley was one of this country's fiercest exponents of laissez-faire capitalism. He described government as "a self-seeking flea on the backs of the more productive people of this world … governments do not run countries, they parasitise them."



The self-seeking parasite bailed out his catastrophic attempt to put his ideas into practice, to the tune of £27bn. What did the talented Mr Ridley learn from this experience? The square root of nothing. He went on to publish a book in which he excoriated the regulation of business by the state's "parasitic bureaucracy" and claimed that the market system makes self-interest "thoroughly virtuous".



Having done his best to bankrupt the blood-sucking state, he returned to his family seat at Blagdon Hall, set in 15 square miles of farmland, where the Ridleys live – non-parastically of course – on rents from their tenants, handouts from the common agricultural policy and fees from the estate's opencast coal mines. No one has been uncouth enough to mention the idea that he might be surcharged for part of the £400m loss Northern Rock has inflicted on the parasitic taxpayer. It's not the 1% who have to carry the costs of their cockups.



Even in the midst of this crisis, when the poor are being hammered on all sides, the government still seeks to transfer their meagre resources to the rich. Last month the business department listed five employment rules that businesses might wish to challenge. Among them were the national minimum wage and statutory sick pay.



On Friday, David Cameron opened negotiations with Angela Merkel over the eurozone crisis. His two principal demands were that there should be no "Robin Hood tax" on financial transactions and that the working time directive, which prevents companies exploiting their staff, should be renegotiated.



Just as instructive was what he did not discuss. In fact, as far as I can tell, none of the European leaders have yet mentioned it in their summits, even though it accounts for almost half the EU's spending. It is of course the agricultural subsidy system, which now costs British taxpayers £3.6bn a year.



We like to imagine this money supports wizened shepherds who tie up their trousers with bailer twine, but the major beneficiaries are people like the Ridleys. The more land you own, the more support you receive from the state.





The common agricultural policy is a massive state subsidy to the richest people in Europe: the aristocrats and plutocrats who possess the big holdings. British politicians pretend that it is protected only by the French. This is bunkum: in February a House of Commons committee demanded not only that the existing subsidy system be sustained but also that we should reinstate headage payments, encouraging farmers to produce food nobody wants.



Last week the Guardian exposed a system which looks like state-enforced slavery. To qualify for the £53 a week they receive in jobseeker's allowance, young people are being forced to work without pay for up to eight weeks for companies such as Tesco, Poundland, Argos and Sainsbury. Some of the nation's poorest people, in other words, are being obliged by the state to subsidise some of its richest businesses, by giving them their labour.



For the corporate welfare queens installing their crystal baths, there is no benefit cap, no obligation to work, in some cases no taxation. Limited liability, offshore secrecy regimes, deregulation and government handouts ensure that they bear none of the costs their class has inflicted on the rest of us. They live at our expense, while disparaging the lesser mortals who support them.



A fully referenced version of this article can be found on wwwmonbiot.com

The billionaire Virgin boss Richard Branson is no radical, he's no entrepreneur, he's just a plain old-fashioned carpetbagger

Last week, you, me and every other taxpayer in Britain each handed £13 to the billionaire Richard Branson. Not that we were told about this national whip-round. Instead, George Osborne claimed the heavily discounted sale of Northern Rock to the Virgin boss and a few of his chums represented "value for money". That's a funny way to describe a deal where taxpayers come out at least £400m poorer, but at least we now have an answer to that perennial pre-Christmas question of what to give the man who has everything.




And what do Team Branson plan to do with the Rock? Listen to Virgin Money chairman David Clementi's talk of creating "a significant banking competitor" and you'd have come away with wholesome impressions of commitment and investment. If you'd leafed through the FT this weekend, though, you'd have read about how the Virgin consortium will raid the business of its own cash to pay for the purchase – and then, as the chief investor, American financier Wilbur Ross, puts it: "We would hope to sell out a few years down the road." In other words, the business plan is to buy it cheap, strip it of assets – then flog it dear.



Hang on, you're probably thinking. Is this the same Branson who had those record shops? Who always pops up in the papers dressed as a woman or riding in a hot air balloon? Sir Richard of the Beard and the Overbite?



And the answer is: yes. Sure, Branson would like you to believe that he's the greatest iconoclast since John Calvin, leading a Reformation of established business. And if you won't buy that, he'll settle for being cast as a public-school Don Quixote for ever tilting at insiders and interest groups. Yes, the entrepreneur screws up – as with cars, cola, cosmetics and all those other discarded Virgins – but he takes risks.



The more prosaic truth is that the Virgin boss keeps himself in homes in Holland Park and Necker Island by taking taxpayer subsidies and operating heavily protected businesses. After all, you don't get much safer than a small mortgage lender that's had all its rubbish assets taken off it by the Treasury, in a market where the big banks are keeping their eyes down and their fingers crossed.



Think about the great Branson triumphs and you'll see what I mean. Virgin Rail? A monopoly on the West Coast main line, complete with initial subsidies worth hundreds of millions. Virgin Radio and Virgin Mobile? Both granted government licences to operate in a heavily restricted market. Virgin Airlines? The beneficiary of regulators' decision to strip British Airways of landing slots between London and New York and award them to the number two player. Again, a closed market where Branson has tried to keep the door shut tight against further competition.



Despite all the awards and the cosy relationships with whoever's in Downing Street, the Virgin boss neither makes anything, nor changes anything. He's no radical. The Northern Rock purchase is typical of his style: he fronts up a deal where the real money tends to come from someone else (in this case, an American and an Abu Dhabi investment firm), slaps the Virgin name everywhere and then cashes out as soon as possible. Branson isn't an entrepreneur; he's a carpetbagger.



Early in Tom Bower's splendid biography of Branson, there is a scene in which he is giving a Millennium Lecture at Oxford University in November 1999. The "lighthouse for enterprise" is asked what his great hope is for the new century, and a hush falls over the audience. What might he say? Were this Bill Gates, a picture would be painted of a software revolution. The head of Nissan might summon up a vision of Africans and Asians gaily pootling about in cheap new hatchbacks. What does the bearded visionary have in mind? "To run the national lottery."



Of course he does: a government-gifted licence to get his brand name plastered everywhere – the sort of thing Branson is always after.



But here's the thing: in his desire for sheltered money-makers, the Virgin boss differs from the rest of British business only in his desire for publicity. Look at our household names: take out retail, banks and commodities and the things you're left with bear names such as Wessex Water or Centrica or Arriva. In other words, they do things the public sector used to do – pump water or pipe gas or lay on public transport. Alternatively, they're outfits such as Serco, or Capita and they're bidding for contracts from the government; or they're engineers bidding for PFI projects. Now look at the big names in America or Germany: there are firms such as Google or Siemens.



Over here much of the private sector isn't adding anything or innovating – indeed, it's tricky to do that when you're running an administrative office or supplying water. They're simply taking contracts and cutting staffing costs.



This is a picture of lazy British business, either seeking business from the state or the protection of sheltered industries. And yet if you listen to the Conservatives, the problem with the economy is that the labour markets are too heavily regulated. No 10 lets it be known that it's taking seriously ideas to scrap laws around unfair dismissal, so that employees can be sacked without explanation.



The implication of all this is that Cameron and Osborne think the workers are to blame for the malaise of the British economy. Look at the Northern Rock deal, however, or flick through the business pages, and the opposite appears to be the case: it's business that needs to be prodded into working harder.

The Rioters' Defence

By Peter Oborne Politics Last updated: August 11th, 2011 in The Telegraph


David Cameron, Ed Miliband and the entire British political class came together yesterday to denounce the rioters. They were of course right to say that the actions of these looters, arsonists and muggers were abhorrent and criminal, and that the police should be given more support.

But there was also something very phony and hypocritical about all the shock and outrage expressed in parliament. MPs spoke about the week’s dreadful events as if they were nothing to do with them.
I cannot accept that this is the case. Indeed, I believe that the criminality in our streets cannot be dissociated from the moral disintegration in the highest ranks of modern British society. The last two decades have seen a terrifying decline in standards among the British governing elite. It has become acceptable for our politicians to lie and to cheat. An almost universal culture of selfishness and greed has grown up.

It is not just the feral youth of Tottenham who have forgotten they have duties as well as rights. So have the feral rich of Chelsea and Kensington. A few years ago, my wife and I went to a dinner party in a large house in west London. A security guard prowled along the street outside, and there was much talk of the “north-south divide”, which I took literally for a while until I realised that my hosts were facetiously referring to the difference between those who lived north and south of Kensington High Street.

Most of the people in this very expensive street were every bit as deracinated and cut off from the rest of Britain as the young, unemployed men and women who have caused such terrible damage over the last few days. For them, the repellent Financial Times magazine How to Spend It is a bible. I’d guess that few of them bother to pay British tax if they can avoid it, and that fewer still feel the sense of obligation to society that only a few decades ago came naturally to the wealthy and better off.

Yet we celebrate people who live empty lives like this. A few weeks ago, I noticed an item in a newspaper saying that the business tycoon Sir Richard Branson was thinking of moving his headquarters to Switzerland. This move was represented as a potential blow to the Chancellor of the Exchequer, George Osborne, because it meant less tax revenue.

I couldn’t help thinking that in a sane and decent world such a move would be a blow to Sir Richard, not the Chancellor. People would note that a prominent and wealthy businessman was avoiding British tax and think less of him. Instead, he has a knighthood and is widely feted. The same is true of the brilliant retailer Sir Philip Green. Sir Philip’s businesses could never survive but for Britain’s famous social and political stability, our transport system to shift his goods and our schools to educate his workers.

Yet Sir Philip, who a few years ago sent an extraordinary £1 billion dividend offshore, seems to have little intention of paying for much of this. Why does nobody get angry or hold him culpable? I know that he employs expensive tax lawyers and that everything he does is legal, but he surely faces ethical and moral questions just as much as does a young thug who breaks into one of Sir Philip’s shops and steals from it?

Our politicians – standing sanctimoniously on their hind legs in the Commons yesterday – are just as bad. They have shown themselves prepared to ignore common decency and, in some cases, to break the law. David Cameron is happy to have some of the worst offenders in his Cabinet. Take the example of Francis Maude, who is charged with tackling public sector waste – which trade unions say is a euphemism for waging war on low‑paid workers. Yet Mr Maude made tens of thousands of pounds by breaching the spirit, though not the law, surrounding MPs’ allowances.

A great deal has been made over the past few days of the greed of the rioters for consumer goods, not least by Rotherham MP Denis MacShane who accurately remarked, “What the looters wanted was for a few minutes to enter the world of Sloane Street consumption.” This from a man who notoriously claimed £5,900 for eight laptops. Of course, as an MP he obtained these laptops legally through his expenses.

Yesterday, the veteran Labour MP Gerald Kaufman asked the Prime Minister to consider how these rioters can be “reclaimed” by society. Yes, this is indeed the same Gerald Kaufman who submitted a claim for three months’ expenses totalling £14,301.60, which included £8,865 for a Bang & Olufsen television.

Or take the Salford MP Hazel Blears, who has been loudly calling for draconian action against the looters. I find it very hard to make any kind of ethical distinction between Blears’s expense cheating and tax avoidance, and the straight robbery carried out by the looters.

The Prime Minister showed no sign that he understood that something stank about yesterday’s Commons debate. He spoke of morality, but only as something which applies to the very poor: “We will restore a stronger sense of morality and responsibility – in every town, in every street and in every estate.” He appeared not to grasp that this should apply to the rich and powerful as well.

The tragic truth is that Mr Cameron is himself guilty of failing this test. It is scarcely six weeks since he jauntily turned up at the News International summer party, even though the media group was at the time subject to not one but two police investigations. Even more notoriously, he awarded a senior Downing Street job to the former News of the World editor Andy Coulson, even though he knew at the time that Coulson had resigned after criminal acts were committed under his editorship. The Prime Minister excused his wretched judgment by proclaiming that “everybody deserves a second chance”. It was very telling yesterday that he did not talk of second chances as he pledged exemplary punishment for the rioters and looters.

These double standards from Downing Street are symptomatic of widespread double standards at the very top of our society. It should be stressed that most people (including, I know, Telegraph readers) continue to believe in honesty, decency, hard work, and putting back into society at least as much as they take out.
But there are those who do not. Certainly, the so-called feral youth seem oblivious to decency and morality. But so are the venal rich and powerful – too many of our bankers, footballers, wealthy businessmen and politicians.

Of course, most of them are smart and wealthy enough to make sure that they obey the law. That cannot be said of the sad young men and women, without hope or aspiration, who have caused such mayhem and chaos over the past few days. But the rioters have this defence: they are just following the example set by senior and respected figures in society. Let’s bear in mind that many of the youths in our inner cities have never been trained in decent values. All they have ever known is barbarism. Our politicians and bankers, in sharp contrast, tend to have been to good schools and universities and to have been given every opportunity in life.

Something has gone horribly wrong in Britain. If we are ever to confront the problems which have been exposed in the past week, it is essential to bear in mind that they do not only exist in inner-city housing estates.
The culture of greed and impunity we are witnessing on our TV screens stretches right up into corporate boardrooms and the Cabinet. It embraces the police and large parts of our media. It is not just its damaged youth, but Britain itself that needs a moral reformation.