Two more utility franchises cost taxpayers dear – very, very dear


VIRGIN EAST COAST

The East Coast rail franchise will be terminated three years early, avoiding the embarrassment of another private firm handing back the keys to the government but potentially forfeiting hundreds of millions in premiums due to the Treasury.

Under a rail strategy announced by the transport secretary, Chris Grayling, a new partnership model will replace the franchise contract of Virgin Trains East Coast (Vtec).

The train operator, a joint venture led by Stagecoach with Sir Richard Branson’s Virgin Group, had pledged to pay £3.3bn to run the service until 2023 when it was reprivatised in 2015 after six years in public hands.

Instead, Vtec is likely to pay a fraction of that sum, with the bulk of payments due in the final years of the franchise.

The firm signalled that it also expects its payments for the next three years to be cut. In the first full year of operation, it paid £204m. Shares in Stagecoach jumped 12% on the news.

Andy MacDonald, the shadow transport secretary, told the Commons that the strategy announcement was “a total smokescreen”. He said: “The real issue is that the East Coast franchise has failed again and the taxpayer will bail it out.”

Pointing to the share price rise, he said: “Markets don’t lie. The secretary of state has let Stagecoach off the hook for hundreds of millions of pounds. He’s tough on everyone except the private sector.”

GREAT WESTERN RAILWAY

More questions were raised by a separate decision to give First Group another contract to run Great Western Railway (GWR) up to 2024 after it was controversially allowed to continue running the service, despite dodging £800m due to the government in an original contract.

The franchise, which runs commuter services into London Paddington and long-distance trains to Wales and the south-west, is likely to be broken up, under plans published by the DfT. The biggest commuter franchise, Govia, which operates the Thameslink, Great Northern and troubled Southern services, will also be broken up.

DfT will extend First’s current GWR franchise contract by another year, to April 2020, and then give a direct award for two more years, with an option to double the tenure.

First has run the trains during the botched upgrade of the route by Network Rail, which has seen costs overrun to almost treble the original budget and stretches of the electrification project abandoned to save money.”

https://www.theguardian.com/uk-news/2017/nov/29/east-coast-rail-franchise-terminated-three-years-early-virgin-trains

Wrong Minister at wrong station, even though he stayed at a hotel directly opposite the right station in Exeter!

“They (the Government) sent the Roads Minister to talk to us about grand new plans for our rail network.

The press call was for 9am on Platform 6 at Exeter St David’s station.

Jesse Norman took the train to Exeter on Tuesday. He stayed in the Premier Inn, and strolled across to the station where he was due to meet Devon County Council leader John Hart and the media.

There was only one problem: Mr Norman went to Exeter Central, instead of to Exeter St David’s.

In the end he jumped into a cab to the right station, shaving a few minutes off an already tight interview schedule. …”

http://www.devonlive.com/news/devon-news/shambles-government-sends-wrong-minister-852341

“Tories accused of trying to quietly re-privatise Britain’s rail infrastructure” (including south west)

The plan is for Great Western Railways to be split into two:

“The plans would create a new West of England rail franchise to provide long-distance services between London, Wiltshire, Somerset, Devon and Cornwall together with local and regional services across the south-west.”

https://www.gov.uk/government/news/the-future-of-the-great-western-franchise

“Transport secretary Chris Grayling says the government wants to break up the troubled [Great Western] Thameslink, Southern and Great Northern franchise when the current contract comes to an end, and look into reopening lines closed during the notorious Beeching cuts of the 1960s.

But the proposals also include publicly-owned Network Rail sharing its responsibility for running the tracks with private train operators.

Britain’s rail network – the tracks, bridges and infrastructure – was taken into public ownership after a bungled experiment with privatisation left it close to collapse.

Railtrack, the privatised franchise, went bankrupt after being hit with the cost of repairs and compensation from the Hatfield rail crash in 2000. …

… Mr Grayling denied that the plans amounted to the splitting up and privatising of Network Rail.

He told BBC Radio 4’s Today programme: “No, we’re not privatising Network Rail. Network Rail will remain in public ownership, but Network Rail is going to be devolved into a series of route businesses, it’s not going to be one big central blob, it’s going to be a series of locally-focused, or route-focused, operations around the country.”

http://www.mirror.co.uk/news/politics/tories-accused-trying-quietly-re-11606147

Two (of many) privatised water scandals

1. SOUTH WEST WATER

“A water firm has been slammed for handing more money to its owners than it spent on upgrading equipment.

South West Water paid a £213.1million dividend to its parent group Pennon last year, while investing £190million in drinking and wastewater operations.

Research group Corporate Watch said that over past ten years, it has paid £1.7billion to its owner and banks, and invested £1.4billion on upgrades.
Last December the firm was fined £1.7million by the regulator Ofwat for missing pollution targets.

Its minor spills increased from 222 to 252 during 2016, according to is latest annual report. The firm says 82m litres of water leak a day, within its target of 84m litres. …

http://www.thisismoney.co.uk/money/markets/article-5086339/South-West-Water-paid-owner-upgrading.html

THAMES WATER

Enough has been written about a Conservative government that knows its electoral success depends on Britain remaining a property-owning democracy, yet offers nothing beyond token gestures to stop the young being priced out of home ownership. Enough, too, has been said about graduates being overcharged, pensioners soaking up the largesse of the tax and benefit systems, the failure to upgrade infrastructure, the obesity crisis, and all the other problems that can’t be tackled because of half-thought-through Tory prejudices.

Allow me instead to concentrate on the scandal of the privatised water industry. Journalists and academics have been banging on for what feels like an age about an ‘organised rip-off’, to use the words of the usually sedate Financial Times. Few took notice, and that should not surprise you. Causes can appear marginal for years. Politicians see no need to address them. Then, with no warning to those who haven’t been paying attention, they explode.

Last week Michael Robinson of the BBC presented a superb documentary on what Thames Water had done to London and the southeast. Most infamously, the company poured 1.4 billion litres of sewage into the Thames near Marlow alone, destroying fish and fouling the home lives of river-side residents. The residents were also its customers. Not that Thames Water seemed to care. Water is a private monopoly. Why should it bother itself about the feelings of people who had nowhere else to go? After hearing how managers ignored warnings from workers about persistent equipment failures, Judge Francis Sheridan encapsulated their attitude when he said that the company had presided over ‘a shocking and disgraceful state of affairs’.

As shocking is the way that the former owners of Thames, the Australian bank Macquarie, was able to pass its costs on to the public. Macquarie took on £2.8 billion of debt to buy the company; it then loaded £2 billion of Cayman Islands debt on to Thames Water and its customers, despite giving assurances to the water regulator Ofwat that it would do no such thing. Macquarie has taken its profits. According to Martin Blaiklock, an infrastructure consultant, its investors received returns of 15 to 19 per cent over 11 years — twice the expected level. All it has left behind is a £2 billion debt and a very bad smell.

Now Thames Water is owned by a Kuwaiti investment fund and a Canadian pension fund. Its managers talk the soothing language of customer service and corporate responsibility. But when pressed by the BBC to say that they would not seek to imitate Macquarie and extract rapacious returns from a captive market, they refused to answer the question.

What interest do Kuwaiti and Canadian investment funds, Australian banks and Cayman Islands financiers have in ensuring the quality and affordability of our water? The hopeless regulators have no answers. Since Margaret Thatcher privatised English water companies in 1989, six out of the nine have pulled themselves off the stock market, meaning they do not have to release to their shareholders information that the regulators can scrutinise.

They promised to bring efficiency. Instead they have brought unsustainable levels of debt that, one way or another, the public will have to redeem. Researchers at Greenwich University say that in the past decade, the nine companies have made £18.8 billion of post-tax profits. Far from using the money to make the water system better, they have paid out £18.1 billion in dividends, and financed investment through loading £42 billion of debt on to consumers.

The university estimates the English are paying £2.3 billion more a year in water and sewerage bills than if the utility companies had remained in state ownership. These costs might have been bearable in good times, but as the Brexit-induced fall in the pound pushes real wages back down again, the prices of water, gas and electricity are bound to be political issues. Customers may not be overly keen to subsidise shareholders and lavishly overpaid managers.

I am not surprised that the Conservatives haven’t joined Labour in demanding the renationalisation of the water industry. It would cost about £70 billion, and in any case, Tories don’t nationalise. But why, after the Macquarie shambles, aren’t ministers and the regulators saying that secretive private equity and Middle East funds should not be allowed to control utilities? Why have they allowed Macquarie to move to the National Grid’s gas division? Ofwat is huffing that it has got tough, but it imposes no penalties on managers who break their commitments. After loading Thames Water with debt and flooding the Thames Valley with excrement, its then boss, the unimprovably named Martin Baggs, bagged a 60 per cent pay rise in 2015.

Conservatives claim to believe in the free market. If they did, they would view monopolies as Adam Smith viewed them — as conspiracies against the public interest. They would not care whether the monopolies were public or private. Both give consumers no choice. Both can put their customers’ interests last. But to the Tory mind, a distinction without a difference makes all the difference.

Because water companies are private monopolies, politicians and regulators back away from confronting them with the necessary anger and vigour. If a nationalised industry behaved as Thames Water has, they would be outraged. As it is, the mere fact that the monopolies are private is enough to persuade politicians to stand aside and let a scandal grow. No one will be more surprised than them when it explodes.”

https://www.spectator.co.uk/2017/09/even-the-tories-should-admit-that-its-time-to-renationalise-the-water-companies/

Developers want government to force landowners to sell to them

“The Government should prove it is serious about boosting homebuilding by forcing landowners to sell up, a top housing association boss has told MPs.

Public land should also be used for construction to bypass the sluggish system for buying and building on private space, said David Orr, chief executive of the National Housing Federation, which represents non-profit associations.

“If we are going to build 300,000 homes a year we need quite muscular government action on land, on the compulsory purchase of land in the way that we did in the 50s and 60s for the new towns and the peripheral estate urban extensions that were built in those years,” Mr Orr told the Treasury Select Committee.

“And I certainly think that we need a much much more vigorous approach to the use of publicly-owned land.

“If we are to make a transformative change in the level of supply, if you are going to build houses, you need access to land.”

Philip Hammond, the Chancellor, used last week’s Budget to set out plans to boost construction by offering funds and guarantees to builders as well as scrapping stamp duty for most first-time buyers.

Bur Mr Orr was unimpressed with the effort, noting that the Office for Budget Responsibility did not change its forecast for construction levels despite the Budget’s measures.

He said that extra guarantees beyond the £8bn offered last week would also be a substantial help.

Brian Berry at the Federation of Master Builders, which represents smaller construction firms, said those solutions from the Chancellor do little to address the supply shortfall.”

http://www.telegraph.co.uk/business/2017/11/28/use-compulsory-purchases-force-open-land-300000-homes-target/