The collapse of the National Express franchise for the East Coast rail service may well foreshadow the redrawing of the entire privatised rail franchise system. The loss of this £1.4bn contract, the most expensive in the country, will have a major impact on the 5-year funding settlement for the railways which will have to be met by the taxpayer in higher fares. But it presages a wider crisis in that the £35bn settlement for the 2009-2014 maintenance and upgrade system is based on the assumption that rail fares will increase by an average of 7% over this period, when in fact because of the recession passenger numbers are falling so that fares are increasing on the East Coast line by only about 1%. There is the further immediate issue of the conditions under which National Express can walk away from its £1.4bn contractual liabilities with the loss of only £72m in loans and performance bonds since the Department for Transport cannot legally demand that the company pay the full cost of the contract. This is yet another flagrant example where a company privatises the gains in conditions of economic growth, but then leaves the taxpayer to socialise the losses when the economy deteriorates. Is this a way to run a railway, let alone a range of other major public services?
Privatisation, the flagship of the Thatcher-Blair regimes, is now visibly wilting. The State has already had to take control of railway track and stations by setting up Network Rail in place of the collapsed Railtrack, and now in addition to nationalising the East Coast line is likely also to strip National Express of its other franchises under cross-default guidelines. If so, the State will then own Britain’s most prestigious rail route and two of its busiest commuter franchises by the end of this year. And this trend may well go further since the privatised system costs three times as much to run as it did under British Rail when it was State owned before 1996. Indeed GNER had already been forced to give up the East Coast mainline before National Express.
It is a story replicated in different ways across the spectrum. Part-privatisation of the Royal Mail has been dropped in favour of modernisation within the public sector, with a proposed model of governance based on the best elements of Network Rail, the BBC, and not-for-profit models. Stock transfer of Council estates has been rejected by tenant ballots in more than 100 local authorities and the building of Council houses, virtually vetoed under the Thatcher-Blair governments, is now returning to favour, even apparently with the Tories. The private Independent Health Treatment Centres, which were excessively costly, are being allowed to wither. The destruction of Labour’s comprehensive SERPS pension scheme, started by the Tories in 1986 and completed by New Labour, produced a collapse in pension security, an enormouse private pensions mis-selling scandal, and a vast increase in inequality in retirement. The privatised energy market led to an anti-competitive and anti-consumer gas and electricity oligopoly where highly profitable companies avoided passing on falling energy wholesale prices to the poorest consumers.
Moreover, the recent performance of privatisation contracts has been a string of failures. TNT, the preferred bidder till recently for the Royal Mail, lost the child benefit records of 8 million families in 2007. The US-owned ETS managed to bring about the breakdown of the national SATS school testing system through its excessive delays and failures over the marking of school scripts. Then there was the EDS computer disaster at the Child Support Agency, followed by the mishandling of pension payments by Xafinity.
Why then does the lure of privatisation still survive? It’s partly the nexus binding civil servants and Ministers to the companies for whom they (generously) set the rules and provided contracts and were then later rewarded by lucrative directorships. Examples abound like Simon Stevens, Blair’s former health adviser, who later morphed into European president of the US company UnitedHealth, and David Manning, Blair’s foreign policy adviser, who later picked up directorships with Lloyds TSB and Lockheed Martin. This process has now accelerated dramatically for ex-Ministers. Blair himself has taken on multi-million contracts with JP Morgan and Zurich Financial, while several of his Ministers have trodden a similar, albeit more modest, path – including Patricia Hewitt with Alliance Boots and Cinven ( a private equity company which purchased 25 private hospitals from Bupa), Alan Milburn with Bridgepoint Capital (which won a number of NHS contracts), John Reid with G4S security services (which has business with the Home Office), and Adam Ingram with EDS (of which MoD is a major client). Would privatisation, which has such a poor record of performance, otherwise still persist?