The statement on nationalised trains is running 12 hours late

It was not a great start for the soon to be nationalised Eastern mainline company. The media were told early yesterday morning, whilst the Commons only had official confirmation and a Minister to question twelve hours later. The statement wasn’t worth waiting for. The Minister had no figures of how much revenue would fall, how much of the promised premium payments would be lost, how much capital they would need to put in, or how they would improve the performance and lower the cost of the service.

This is the second franchise that has gone wrong, implying the government’s system for letting these contracts is bad. Taxpayers have had to spend a lot of money on contract negotiation and due diligence on the companies taking them out. There won’t be any explanation or rebates on all that wasted money.

According to the Commons Minister (who simply read out his boss’s statement from the Lords, including referring to his audience as lordships) all will be well. He told us the company is profitable, that taxpayers will enjoy a period of the revenues from the franchise before selling it off again to another private sector company. There was no recognition of what a financial body blow this is to his railways budget. Once again we have a government rushing to nationalise something they clearly do not understand, which will turn out to be a worse financial deal than they let on. There was no sign yesterday of any controlling mind amongst Ministers who knows how to make this proposal work.

What should they have done? They should have taken more security and negotiated a tighter deal when they set up the franchise in the first place. They should have spent more time seeing what the relative cost of dealing with the existing franchise holder would be compared with taking it in house. I am not persuaded they did the homework or came up with the best answer for taxpayers. Given that they signed a bad contract originally, they should have spent more time examining all the options to mitigate their losses. Yesterday’s statement looked like a fit of pique allied to playing to the nationalising gallery.

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29 Comments

  1. Posted July 2, 2009 at 6:16 am | Permalink

    In what sense is this democracy in action? The executive takes decisions to spend substantial but unquantified sums of public, i.e. our, money without any regard to counter-arguments that might result in a better course of action. They won’t even allow elected representatives to query unelected ministers. Not so much democracy as banana republicanism.
    Yet another example of why the main priority of an incoming Conservative administration is to ensure the immediate return to the private sector of all nationalised enterprises.

  2. Posted July 2, 2009 at 6:29 am | Permalink

    There are also the usual contradictions. If the Minister is correct that the company is profitable, why is the franchise to be relinquished? My reading of the situation is that National Express realised that the franchise contract was going to lose them a lot of money and tried to renegotiate. As such, even if the original franchise deal had been profitable, it looks as though (through poor growth due to the recession) it will soon turn to loss.

    For the Minister to claim that the taxpayer will gain from the revenue then gain further when the franchise is resold cannot be the case. The original franchise involved staged payments, which will obviously stop when the existing contract is broken. Any replacement contract will not raise anything like the GBP1.4bn originally negotiated. There is less money in the private sector for such extravagance, and there is now ample evidence that the franchise is not worth that outlay.

    One suspects that this was a game of brinkmanship where National Express knew that it only had one chance to avoid unquantifiable losses. The Government side of the table doesn’t care if it loses because it’s only taxpayer’s money, making rational negotiation impossible. The costs of transition from the existing franchise holder to Government to new franchise holder don’t matter, because they don’t admit to them. Thus they don’t care if losing the franchisee costs money, and won’t have tried to quantify that cost.

    I don’t doubt that this Governments approach to negotiating contracts is seriously flawed, and they appear to have no concept of how absurd they make themselves look over such impractical intransigence. Your suggestion that they are “playing to the nationalising gallery” may well be true, but I suspect that part is merely opportunism arising from yet another comedy of errors.

  3. Posted July 2, 2009 at 6:55 am | Permalink

    When I saw the (sometimes less than massively erudite) Mr Prescott grinning on the news, you knew it was a bad deal.

    The BBC coverage was once again PRAVDA-esque with the ‘journalist’ simply allowing Andrew Adonis to read out prepared soundbites saying how jolly wonderful everything is.

    Allied with Mr Brown’s utterly lamentable performance yesterday, no concept of financial control and the refusal to even contemplate it (akin to not opening the credit card statements), it really shows a group of people (I can’t call them a government anymore) out of their depth, out of ideas making bad decisions on the hoof without any idea of how they are to be delivered.

    What will be left for Cameron to take over ?

    Incidentally, can I suggest a soundbite? “botched re-nationalisation”

    • Posted July 2, 2009 at 8:12 am | Permalink

      ‘What will be left for Cameron to take over ? ‘

      A democratic country full of citizens wanting a return to democracy – freedom of choice, freedom to speak and the freedom to make the changes Mr Cameron envisages – returning ‘power to the people’ as opposed to oppressive State control and ongoing mounting debt.

    • Posted July 2, 2009 at 12:54 pm | Permalink

      Not normally my favourite journalist, PRAVDA’s Robert Peston has earned his corn today with his blog about the link between National Express and the East Cost franchise holder

      http://www.bbc.co.uk/blogs/thereporters/robertpeston/2009/07/i_could_operate_trains.html

      It seems that National Express never had much skin in the game and are quite at liberty to walk away from the contract now things aren’t going to plan. The last bit about Lord Adonis rejecting a £100m offer from NE to exit the contract on a consensual basis shows just how financially- and commercially illiterate the custodians of the public purse are.

  4. Posted July 2, 2009 at 7:33 am | Permalink

    I know he has only been in the chair since 22 June but I am not aware that the new Speaker’s arrival has yet led to any reduction in statements being made on the media before parliament. Nor does he appear to have made any corresponding criticism of ministers, even though he has had several opportunities to so do. Is he serious about changing this?

    • Posted July 2, 2009 at 8:17 am | Permalink

      Labour’s contrived use of the BBC alongside it’s ministers’ refusal to debate/answer direct questionsin Parliament simply confirms it’s utter contempt for the House and opposition members.

    • Posted July 2, 2009 at 8:19 am | Permalink

      Mr Bercow really has this one chance to show he means business on the subject of statements to the House rather than the media. David Cameron was quite right in saying ‘give the bloke a chance’ but we fear that the new Speaker will be found out as lacking ‘bottle’.

      Also, as we blogged last night, do the National Express employees join the public payroll with pensions and perks…or might we see them striking when it comes to a negotiation?

      As we all seem to agree, another Fred Karno’s!

      • Posted July 2, 2009 at 11:14 am | Permalink

        It can only be concluded that Mr Bercow’s thinly veiled threat upon arrival – a non legislated ‘rule’ – was misleading in that it exempts Labour ministers making announcements via left wing biased BBC etc. He’s just another spinner and manipulator – the ‘rebel’ who refused to acknowledge or wear the Badge of Office.

      • Posted July 2, 2009 at 5:54 pm | Permalink

        The Essex Boys

        You raise an excellent point.

        What happens to all of the workers, do they transfer to the Public payroll, only then to be transfered again at a later date to another franchise.

        If so who pays their wages.

        Seems to me that National Express paid too much for the franchise in the first place, have just found this out and having lost 20 millionrather rapid are looking for out.

        Assume not any significant penalty clauses, otherwise they may think twice.

        Sadly from passengers comments (radio and TV) the service had improved out of all proportion since national Expess took over the Service.

        Never was a great fan of privatising the railways with so many different train operators, and track management sytem operators.

        If National Express was loosing 20 million in a few months running a good service, how can nationalisation for a few months (with all of the set up costs) produce a profit ?

  5. Posted July 2, 2009 at 8:34 am | Permalink

    You are right; the government should have considered security far more carefully andalmost certainly should have insisted on a parent company guarantee rather than concentrate their minds on the headlines of the day.

    This of course underlines the conflict that always exists in government and is the reason why no government should involve itself in commercial undertakings of any kind, particularly when the likes of John Prescott are involved.

  6. Posted July 2, 2009 at 8:46 am | Permalink

    I’m not persuaded that the government ever does its homework or looks out for the taxpayer with any of their nationalisations these days – yesterday was no exception.

  7. Posted July 2, 2009 at 9:09 am | Permalink

    Why is the State involved AT ALL in the provision or running of business services? either in their regulation, subsidy or provision.

    Criminal law exists to regulate against crime – such as fraud, or negligence. Do we think these laws inadequate such that we require further law, specifically for railways? if not, why is the Government regulating railways at all, over and above other industries?

    Rail companies – like all companies – should be untouched by the State beyond the standard provisions which apply to all companies. It is the State which creates problems in the first place; and then which creates even worse problems with its “solutions”.

    Government is but one method of Governance; and it is a method which specifically and exactly imposes its rulings by force. You will be harmed by law if you do not comply. Government is purely and wholly about non-voluntary contracts, purportedly for our individual or common good, but in practise the Government generally acts in its own favour or in the favour of those who have by one means or another paid for the Government to act as they wish. After all, by what means or mechanism does the common mass of people have to direct Government to impose non-voluntary contracts which are in their favour, other than being granted by the Government a single vote each, every four years, to select from a set of those who implicitly and inherently are in favour of, since they benefit from, the current arrangement.

    It’s a stich-up. You’re permitted by Government to vote for those who support having a Government.

    What happens if you think Government is a bad idea? are you supposed to form a political Party, get voted into power and then disband Government? why should such a Herculean task be required of those who wish not to have the Government impose by law requirements upon them? is not itself imposing such a Herculean task upon someone to be free of Government the use of force to impose Government? all contracts should be voluntary and well-informed; making it so impossibly hard for someone to be free of a contract they have no wish to be part of is *not* voluntary.

    The options made available to us by Government *are not the only options*. We do not have to organise our State in this way. We do not have to have a Government; it is only one means of Governance – and it is a particularly bad means. We do not even need to have a *State*.

  8. Posted July 2, 2009 at 9:23 am | Permalink

    Echoing a couple of previous posts, and as I have commented elsewhere, it does seem that Bercow has ‘lost his bottle’. He ruled statements must be made by ministers to the House and not through the media yet we have seen instance after instance where his request has been flouted by the Prime Minister and his colleagues.

    Likewise it is hyprocritical to ‘slap down’ Greg Hands for naming a civil servant in the House – Ms Izzett – when both Kelly and Lyon have been ‘named’, and who are Kelly and Lyon if not civil servants?

    Is the last paragraph not worth a question in the House?

  9. Posted July 2, 2009 at 9:49 am | Permalink

    The East Coast Main Line has an interesting financial history, a good deal of it fraught and unprofitable. As an LNER line it had an existence only between 1923 and 1947. the Late And Never Early Railway concentrated its efforts largely on this service to the serious detriment of the other major lines in its system. BR only enshrined this policy for much of the network, only being forced into improving the old Great Eastern Railway after serious pressure. In short, whatever profitability the LNER had, it was only bought at the expense of the bread and butter services, and the fancy London-Newcastle-Edinburgh part was probably a major loss leader. There are huge sunk costs in the East Coast Main Line, and it has always been a difficult call to cover capital never mind revenue costs. Where on earth National Express got their figures from when they bid for the franchise I do not know, perhaps from a ouija board. What a pity they did not look at the background.

  10. Posted July 2, 2009 at 10:04 am | Permalink

    Yet another chance to find out whether government runs things better than free enterprise. If the government make a £1.3 billion profit on this they will have matched, indeed exceeded, what they were to get from National Express.

    Does anybody want to accept a small bet that they won’t?

  11. Posted July 2, 2009 at 11:36 am | Permalink

    This whole problem really stems from the ridiculous scheme of selling temporary licences to run trains to the highest bidder. If British Rail had been properly privatised, i.e. as one joined up company, we could have had a more sensible debate about levels of subsidy and service.

    As it is, we have an effectively nationalised company running the track, other private companies running trains on that track (with contracts with the track company and temporary licences from the government), and yet other companies leasing out the trains themselves. And now we find out that the operating companies don’t really exist and were set up with severely limited liability specifically to bid for these licences.

    It was a botched privatisation from the start, and the botching is still going on, including the government’s handling of this crisis. National Express should be told to get on with the job of running the contract they bid for, and if their “special purpose vehicle” goes bust, the government can nationalise THEN. And NE can have egg all over their faces and explain to the City why the fact that one of their subsidiaries is bankrupt doesn’t reflect on their own management. Right now they look clever and the government look like (and are) mugs.

    In my view we should wait until the train company licences expire, and then privatise the lot as one company, as should have been done in the first place.

    • Posted July 6, 2009 at 11:37 am | Permalink

      If the NE SPV goes bust you do not need to nationalise it all. More likely it would be placed in adminsitration and the contract offered to other potential franchisees on current market terms. Someone would buy it, if the price and terms were commercial.

  12. Posted July 2, 2009 at 12:09 pm | Permalink

    GNER gave up the franchise now National Express; it’s hard to see how the government can make it work.

    The service is, in my view, well run and the trains always seem to be full.

  13. Posted July 2, 2009 at 12:53 pm | Permalink

    To suggest that the original negotiations should have been “tighter” as MR Redwood does is misleading .National Express paid way over the odds for the East Coast franchise.There have even been suggestions that 10% pa growth in passenger numbers was factored in.Not to worry National Express can walk away and let the Gov take the strain, as it were .
    Germany ,France,Belgium all have publicly owned trains.Why are we so exceptional?We have exceptional private sector expertise?

  14. Posted July 2, 2009 at 1:25 pm | Permalink

    Since Devolution transport in England seems to have had a Minister who is either a Scottish MP, and therefor unaccountable in England, or a Peer – accountable anywhere! No wonder it is all a mess

  15. Posted July 2, 2009 at 1:56 pm | Permalink

    Given that they signed a bad contract originally, they should have spent more time examining all the options to mitigate their losses

    ==================

    If they signed a crap contract, they are going to have their arses sued for breaking it by nationalisation

    Nick

  16. Posted July 2, 2009 at 5:09 pm | Permalink

    The whole affair sounds very much like cutting off one’s nose to spite one’s face!
    So the government will run the railway and they “expect to make a profit”. So would National Express, but they also had to pay the franchise fee. Unless the government is so confident that they can make a profit which is at least equal to the franchise fee, they should have considered renegotiating the contract as a reduced fee is better than none at all. Once again it seems that the taxpayers will loose out, not so much because of National Express defaulting, but because the government has no idea of negotiating in a commercial environment.
    What I also found annoying was the biassed BBC attitude in favour of the government in their news bulletins. National Express was clearly at fault for wanting to make a profit and not go bankrupt, which I thought was just typical of an organisation run in a non-commercial manner using tax-payers’ money.

    • Posted July 3, 2009 at 8:22 am | Permalink

      Yep, if Adonis is so sure he is going to make a profit he should have no problems putting up his personal assets to cover the ‘unlikely’ losses. He won’t of course, he will put up ours instead.

      ~Very bad.

  17. Posted July 2, 2009 at 6:41 pm | Permalink

    Does David Cameron still admire Lord Adonis after this fiasco ? The Conservative Leader has been full of praise for the newly appointed Transport Secretary after all. Seeing another Labour transport/nationalisation disaster must have shaken Cameron’s faith in his favourite former SDP member now running what some charitably call Brown’s transportation policy.

    Do we really want Lord Adonis in a Cameron government when he has served up the kind of left-wing nonsense that appeals to the Prescotts of this world while affronting the intelligence of anyone who understands transport economics ?

    If this is a brilliant Cabinet Minister then how do you define a dud one ?

  18. Posted July 2, 2009 at 7:19 pm | Permalink

    Hold on, isn’t this what Bercow was going to change and let the House know first??

  19. Posted July 2, 2009 at 9:44 pm | Permalink

    Quite why the government charges a franchise fee defeats me. It’s just another stealth tax. How much better to let the operating companies rent the track at a higher rate from Network Rail. At lest the cash would go straight back into engineering. Better yet properly privatise the Railway and sell off trackwork and trains to one company. If you really must set them some pulic interest requirements and if these are uneconomic pay them to run the services.

    Private capital built the network. What’s so impossible about returning the erstwhile private infrastructure to private capital?

    • Posted July 4, 2009 at 7:41 am | Permalink

      Lola

      The problem with your suggestion is that its too simple, and the Government would not get the money to spend on its chosen subject.

      Your proposal would mean more money for maintanace, so tracks would be better, so trains could ruin on time, and the train companies could charge lower fares as their overheads (lower rent/franchise fee) would be less.

      Its a no brainer really, Gordo wants his cash, and thats an end to it.

      Bit like Green Taxes, what is it spent on !!!!!!

      Agree the way privaisation was completed was far too complicated to work effectively.

  20. Posted July 4, 2009 at 5:58 pm | Permalink

    This is the perfect chance to have a real private railway run entirely for profit and without any government intervention or subsidies. Highest bidder wins and owns lock stock and barrel. We would then get the railway system everyone wants and the country deserves. After this successful experiment the same could be applied to energy and the roads. Let the markets decide employing and incetivising the finest business brains. Here’s the plan:

    1. Sell off all assets. Ballast, scrap metal, wood, equipment. etc.

    2. Sell all land.

    3. Plunder all profitable routes. Millionaires at the front in private carriages. Peasants at the back in stainless steel carriages with a trough in the middle. The carriages in the middle will pay the going rate which is whatever the market will bear.
    These companies have a railway to run and do not need any interference from the government in any way. Safety can be compromised as most people will stick their neck out to save a few bob.

    Any objection to this plan is just intellectual clap-trap or no market actually exists. Which is closer to the truth. Dogma.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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