By Simon Fletcher
from LabourList
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.
