Don't be fooled by Richard Branson's defence of Virgin trains

Richard Branson didn't like my column about his rail company – but he can't deny that taxpayers are piling up debts to subsidise his profits

• 
• • Aditya Chakrabortty
  • The Guardian, Monday 24 June 2013 20.00 BST

Richard Branson. Photograph: Bloomberg via Getty Images

The rich are different from you and me: they hire PR advisers. As night follows day, any criticism of Richard Branson will be met with a fierce counterblast from his troops. So it was last Friday, when a column in Branson's name appeared in the Guardian.

The Virgin boss was displeased with my piece on this page arguing that the hundreds of millions he and his partners made from the West Coast mainline had been handed to them by taxpayers. He wanted to rubbish the thesis, and reassure you that it simply wasn't true. As the headline on his article put it: "Hard work, not handouts, put our trains back on track." And the rather innovative way Sir Richard sought to persuade you of his case was by not addressing the main points and instead kicking up a load of sand.

First, he denied that the "serious money" to buy Northern Rock was fronted up by foreign investors. Tell that to the National Audit Office. In its May 2012 report on the sale of the Rock, the parliamentary auditors laid out the sources of the £772m paid for it. Virgin directly put up £200m; that compares with the £269m chipped in by the US fund manager Wilbur Ross and £50m from a private-equity fund based in Abu Dhabi. The remainder, reports the NAO, was a short-term bank loan "repaid using cash extracted from Northern Rock plc". How this £253m was taken out of the former building society we'll know for sure when the latest accounts are filed with Companies House, but to me it sounds a lot like the asset-stripping that was much talked about at the time. Whatever, my point stands: in the whip-round for buying the Rock, Virgin was not the major contributor.

Then there are the hundreds of millions you and I have given Virgin to run its railway. Branson's response here is particularly tortured: the facts won't allow him to deny receiving huge subsidies, but he does want to deny that our hard-earned money is what made the difference. To do that, he first makes out what a huge risk he took on with the West Coast franchise. Now, I wouldn't want to make out the pre-1997 line as some Elysian pleasure-rail. But you do have to wonder just how rickety this business venture was, given that over its 16 years of business, Virgin trains has only racked up a loss twice: in 1997 and 2006. Over that period, this tremendously precarious enterprise has yielded a pre-tax profit of £674m. The Virgin boss doth protest too much, I think; perhaps to drown out the sound of the cashtills ringing.

Finally, to the point Branson doesn't want us to discuss: the amount we've given to him. Let's go back to the report that prompted my earlier column. A group of researchers based at Manchester University's Centre for Research on Socio-Cultural Change looked at both the openly admitted subsidies (the £9bn-odd paid by us for upgrading the track used by Virgin) and the hidden handouts of train companies paying Network Rail super-low prices to use its lines. Under Railtrack, train operators used to pay £3bn a year in rail-access charges; now that figure has nearly halved to just over £1.5bn. Virgin is the third-biggest recipient of this secret subsidy, paying less in 2012 for using the track than it did in 2004. That is despite having a lovely new line to run on, which allows it to offer a more frequent and lucrative service. Without these subsidies, Branson and co would be in the red. But with them, it is taxpayers who are in the red: Network Rail has a debt of £30bn, which is growing at £5bn a year. This is money that will almost certainly have to be paid back by you and me.

I've said this before, but I have no particular grouse with Branson. I've taken Virgin flights and found them fine; I've also stood on a Virgin train from Rugby onwards, but such is life. I haven't been holding out for an invitation to Necker. But Virgin Rail is merely a player, a lobbyist and a big beneficiary of a terrible system, where Britons hand money to private companies who then claim to be running a profitable business while relying on a subsidy from us. Last week, we read about how the town of Fermanagh prepared for the upcoming G8 summit by sticking posters over its empty shopfronts to make them look bustling. Something similar is going on with the use of public money in the notionally private industry of rail: it's a Potemkin market, nothing more.

Branson's reply is part of a sector's attempt to duck this argument with the aid of bluster and selective facts. And since neither the government nor the train operators want to disrupt these secret handouts or to rip the veil away from our privatised system, it's easier for the press not to probe too deeply.

Yet poll after poll shows the public wants to take the rail network back into national ownership. That's all the more remarkable, given the lack of support from major political parties (it's left to Green MP Caroline Lucas to introduce a private-member's bill calling for renationalisation), and the vacuum in the media where serious discussion of alternatives to the current mess should be. Far easier, I guess, to have a secret £30bn debt with our names on it.

Why do UK rail fares keep rising?

With train companies, Network Rail and the Government involved, the answer is far from simple

Fed up: protesters against a rise in rail fares in King’s Cross Station Photo: AFP/Getty Images

By Christian Wolmar

7:47PM GMT 02 Jan 2013

 

Here we go again. It’s a new year but an old story. Commuters are up in arms about rises in rail fares and they’re looking for someone to blame.

Aside from the fact that central London was half empty yesterday and finding a seat on a train would have been no problem for most, they have a good point. This is the 10th successive year of above-inflation fare rises, and there is no sign of any change in policy coming until the next general election at least, and probably well beyond that.

But finding the right target for passenger anger is made difficult by the fact that transparency is not a feature of the rail industry and railway economics remains a dark art. The train companies, the Government, previous governments, and even Network Rail (responsible for the track and infrastructure) are all in the frame for blame. And actually, all of them deserve at least a bit of buckshot, if not a high-velocity bullet.

The railways may have been privatised in the mid-Nineties, but in reality they are a mix of private and state interests, with most of the purse – and other – strings still being pulled by the Government. Forget the notion of a raw capitalistic enterprise with energetic entrepreneurs seeking innovative ways to fleece the public: the train operating companies are pretend capitalists who have very little room for manoeuvre and invest very little. They complain that they make only a 3 per cent profit – or around £250 million annually – yet that is a misleading figure, based not on investment, as with a conventional company, but on turnover.

The train companies will receive a proportion of the extra fare income that yesterday’s rises generate, thanks to an opaque process that began last summer. Once the fare rises (which are based on July’s inflation figures) are known, the Department for Transport (DFT) and train companies begin negotiations over how the spoils should be divided. This is because rising fares will deter some passengers from travelling, and under the franchise agreements the DFT has to compensate the private companies for this loss.

However, given the recent inept performance of the DFT over the West Coast franchise, it would not be reckless to suggest that perhaps the train companies get rather more of this extra dosh than they need to cover any passengers lost as a result of the rises. The projections and the sums of money that follow are, of course, “commercially confidential”, and therefore not released to the great unwashed British public.

There is a real irony here. The legislation to regulate season tickets and off-peak fares was designed, at the outset of privatisation, to protect passengers from greedy private companies exploiting their monopoly position. Originally, the rises for “regulated” fares were set at the RPI measure of inflation minus 1 per cent, as a way of encouraging rail travel. In fact, since 2003 – when the formula was changed by the Labour government to RPI plus 1 per cent – the legislation that supposedly protects consumers has been used against them.

However, the situation with unregulated fares – which represent about half the income of the train companies – is completely different. Train operators are free to set all other fares, which include the very expensive peak fares on intercity and other routes, first class and advanced, and all of the increase will go to them.

For their part, the train operators argue that the extra revenue from unregulated fares is needed in order to meet the financial arrangements that come with the franchise deals – most of the train companies pay an annual premium to the Department for Transport. They say these unregulated fares are set commercially because operators face competition from airlines or the roads. But many people making occasional journeys at peak times have no option but to travel then, and are therefore heavily penalised for their lack of flexibility.

A spokesman for the train operators justifies the situation by saying: “Train companies have to meet tough financial commitments agreed with the Government when franchise agreements are signed.” It is also the case that since 2007 there has been a cross-party policy of increasing the share of the cost of the railways paid by rail users, which is now around two thirds, compared with less than 50 per cent six years ago. Yet this does not negate the fact that the train operators decide the level of unregulated fares and many have gone up far more than regulated fares. A peak return from London to Manchester in standard class, for example, is now a stunning £308.

Provided the DFT gets its sums vaguely right, the Government therefore will receive a substantial proportion of the money from increased fares. Ministers’ explanation for the rises is that this money will be used for investment in the railways – but the relationship between investment and fare rises is a distant one.

In fact, the amount of investment going into the railway for extra capacity such as improved track and better signalling is determined by a complex process of negotiation involving Network Rail, the Office of Rail Regulation and the Department for Transport. Ministers set out an investment programme in five‑year periods – the current one runs out in March 2014 – and allocate funds accordingly, and then the Office of Rail Regulation assesses whether enough money is available to carry out the plans. Network Rail then undertakes the work, primarily through contractors.

New trains are provided through a different, and similarly tenuous, relationship. The Government will determine that there is a need for new trains and build this into franchise contracts. The trains are then leased, with the operators paying for them out of their income from the fare box and any subsidy they receive from the DFT. However, the level of fare rises is not linked to the acquisition of new rolling stock. As one angry rail traveller tweeted yesterday: “Why should I pay more to travel in Lincolnshire when the services and rolling stock are so bad?”

Overall, then, there is very little relationship between yesterday’s fare rises and future investment plans. Indeed, for the past two years, the Government, in the face of public pressure, has backed down from proposed fare increases of RPI plus 3 per cent to the current RPI plus 1 per cent, which has resulted in a reduced income of around £250 million annually – enough to kick-start an investment programme of, say, £2.5 billion. Yet there has been no suggestion from ministers that this cut in fares income will reduce the amount available for investing in the railways.

The position of Network Rail – a state-owned company in all but name – adds to the confusion. It spends around £6 billion a year on maintaining the railways but has been sharply criticised for excessive costs. A report in the spring of 2010 by Sir Roy McNulty, the former chairman of Short Brothers, the airline manufacturer, identified wasted spending amounting to 30 per cent.

Network Rail is therefore being required to cut costs; McNulty reckoned it could save £1.8 billion by 2019. Justine Greening, who was Transport Secretary until the autumn reshuffle, argued that if these reductions were made then fares could, in future, be held steady, but few industry insiders believe that such big cuts could be made without compromising performance or safety.

So the real blame for the fare rises must lie with us, the passengers, and our appetite for rail travel. Ever since the early Nineties, passenger numbers have kept on rising steadily. Remarkably, even the long-term trend of passenger numbers falling during recessions has been reversed, as numbers have continued rising except for 2009-10, and even then the fall was very small.

The one way to ensure that fare rises are lower in the future is for more people to shun the railways and use the alternatives – or simply not travel. While numbers keep rising, even in times of recession, why should either the train companies or their political masters change the policy?

Christian Wolmar is a writer and broadcaster specialising in transport.

The song No Charge reminds us that Britain used to be less greedy

Those who believe the myth that 1970s Britain was 'the sick man of Europe' forget how progressive the decade was

Neil Clark
Neil Clark
guardian.co.uk, Friday 10 June 2011 10.30 BST



It's regarded by some as one of the slushiest No 1 records of all time. It's exactly 35 years ago this week that No Charge, sung by the Canadian artist JJ Barrie, got to No 1 in the British pop charts – and thanks to the wonders of BBC4, who are repeating Top of the Pops shows from 1976 on a weekly basis, we'll all be able to see it performed on our television screens next Monday.

Some won't be looking forward to it too much – in his Guardian article of a week ago, Alexis Petridis claimed that 1976 was the worst year for pop music ever.

But leaving aside debates about musical merit, what watching the repeats of Top of the Pops and other programmes from the same era on channels such as Yesterday, ITV3 and ITV4 shows us is what a less commercialised age the pre-Thatcherite 1970s were.

No Charge might be considered over-sentimental by some, but it is also a powerful critique of the mentality of putting a dollar sign on things we should be doing for free.

It's extremely unlikely that such a song would be released in the uber-capitalist Britain of today, let alone get to No 1. But in the progressive, left-leaning mid-1970s, it was always likely to be a hit.

Thanks to the glories of the "market economy", many things which were free, or at least very cheap, 35 years ago, cost a small fortune today. In 1976 you didn't have to book up months in advance to find a reasonable train fare from London to Liverpool, you just turned up on the day. Utility bills were not something to be feared in the days when publicly owned bodies and not profit-hungry private companies provided your electricity, gas and water.

Students going on to higher education did not have to worry about building up huge debts in order to pursue their studies. Neither did old people have to worry about selling their homes in order to finance going into care. And in those pre-Sky days, all the best sports – including live coverage of England's summer Test match series – could be watched on television for the very modest cost of the licence fee.

In short, in the social democratic Britain of the 1970s, No Charge was not just the name of a No 1 hit record, it summed up the ethos of the era – an era in which the interests of people came before corporate profits.

This aspect of the 1970s is often lost in accounts of the period. The dominant neoliberal narrative casts 1970s Britain as the "sick man of Europe" – a country rescued from the horrors of collectivism by the great saviour Margaret Thatcher. But even the liberal left have bought in to large parts of this rightwing myth, and have failed to stick up for the 1970s as much as they should. The fact that Britain went to the IMF in the autumn of 1976 is taken as proof that the postwar settlement had failed – even Denis Healey, chancellor at the time, has admitted: "We didn't really need the money at all."

Watching television programmes of the 1970s reminds us of the anti-capitalist values which were once mainstream. The year that No Charge got to No 1 saw the television debut of James Mitchell's drama series, When the Boat Comes In, which tells the story of trade union activist and strike organiser Jack Ford. The Onedin Line, currently being re-shown on the Yesterday channel, highlighted the greed of unscrupulous ship-owners and the terrible conditions that sailors had to endure in the 19th century. Upstairs Downstairs, another 70s classic being repeated on ITV3, showed how those "downstairs" saw their position improve in the 20th century. In Poldark, the title character takes the side of the poor against the greedy landowner and banker George Warleggan.

Since the days when those programmes were screened, we've seen the money-grabbing values of the City and Wall Street permeate all aspects of our lives. Who would have thought that water – which falls out of the sky for free – would become a tradable commodity, or that care homes would be owned by City investors?

While in the summer of 1976 we were listening to No Charge and enjoying the lowest levels of inequality in our history, in the grossly unequal Britain of June 2011, we're tuning into The Apprentice. The proto-Thatcherite little boy in No Charge – who wants to bill his mum $5 for "mowin the lawn" and $1 for "takin out the trash" – rightly gets corrected: today he'd probably be lauded as a brilliant up-and-coming entrepreneur.

Neoliberals want us to believe that "market forces" are the only show in town. But watching 1970s television programmes gives us a window into a world where things were different. It's not possible to turn the clock back to 1976, but we can make the title of JJ Barrie's No 1 hit record the slogan for a better and less commercialised Britain.