Virgin – propped up by British Government

“As Britain’s best-known businessman, seen by millions as a buccaneering role model, Sir Richard Branson has produced bookshelves of advice about “relying on yourself”, creating a “nation of go-getters” and “standing on your own feet”.

As he wrote in his self-help manual, Screw It, Let’s Do It: “If you want milk, don’t sit in the middle of the field in the hope that the cow will back up to you.” This year, however, is likely to be one where Branson gets most of his British milk from the taxpayer teat.

Using recently published company accounts and regulatory disclosures, The Sunday Times has established that Branson’s Virgin Group is on course to join what critics call the “corporate welfare state” — with the majority of its UK revenues coming from work subsidised, or wholly funded, by the public purse.

More than 80% of revenues at Virgin UK Holdings, Branson’s main holding company in Britain, already come from operations dependent on public funding, mainly rail and the NHS, the accounts show.

Branson’s companies received £320m from taxpayers in 2016 for running public services. Some £262m of this was from the health service or local councils for medical and social care through his Virgin Care business. Then there was a net government subsidy of £58m for Virgin’s share of the East and West Coast rail franchises, a joint ventures with Stagecoach.

Virgin UK Holdings does not own all Branson’s British businesses, such as his stakes in Virgin Money and Virgin Atlantic, his biggest cash cow in 2016. And the tycoon — who lives mostly in his tax haven personal island of Necker in the Caribbean — now has substantial international interests, not least his space venture.

Nonetheless, in the UK, the balance of his income is shifting more towards public services. In a deal likely to be completed this year, Branson will slash his interest in Virgin Atlantic, from 51% to 20%. He has already cut his stake in Virgin Money to 35%.

Even in 2016, with the airline still on board, healthcare and rail accounted for about 40% of Virgin’s total UK revenues. By comparison, the now-collapsed Carillion earned about 45% of its UK income from the government that year.

Virgin Care has more or less doubled its NHS work in the past two years. If that growth were to continue, it is easy to imagine that more than half of Virgin’s UK revenues could be derived from public sector work — particularly in light of the likely reduction of Branson’s airline holding.

“Branson poses as a champion of competition, but has always been reliant on getting government-granted contracts and monopolies.” said Branson’s biographer, Tom Bower. “But as that sort of work grows, so does the risk that political controversy over it contaminates the brand loyalty, which is Virgin’s only real asset.”

Branson’s recent deal to escape up to £200m in future payments to the Treasury for his 10% share of the East Coast rail franchise drew that sort of political flak. Lord (Andrew) Adonis, a former transport secretary and chairman of the National Infrastructure Commission, called it “scandalous” — though Virgin points out that it has lost money on East Coast, and paid a £2m premium to the government last year.

On the far more lucrative West Coast line, Virgin’s 51% share generated revenues of £1.1bn, profits of £34m and it paid £7.5m in tax in 2016-17. The franchise also netted Branson £60m in state subsidy that year — and almost £1bn since 2008, according to the Office of Rail and Road (ORR) regulator.

Virgin says most of this money was paid to Network Rail to maintain the tracks its trains use. The ORR, however, defines it as a subsidy to Virgin, since the operator would otherwise have to pay Network Rail itself.

West Coast is much improved under Virgin — though Branson cannot claim all the credit, as he often does. The £9bn upgrade, allowing today’s faster, more frequent trains, was funded by further Treasury cash.

Despite all the subsidies, Virgin now charges £338 for a standard peak return from London to Manchester, up 50% since 2008. The morning peak period, during which such fares apply, finishes as late as 10.40am, while the evening peak for most English destinations starts at 3.01pm.

However, it is the NHS that has the potential to cause Branson the greatest political grief. Tellingly, in the 400 NHS and social care contracts now run by Virgin, its branding is extremely low-key. The Care Quality Commission, the health regulator, strongly praises many of its services. Yet middle England may not always agree. In Somerset and Yorkshire, where Virgin runs NHS contracts, there have been controversies about care standards. In Surrey, Virgin was criticised for suing the NHS, winning a multimillion-pound settlement. There is also controversy about tax. Branson’s core health and social care company, Virgin Care, made more than £8m profit in the year to March 2017. Its accounts, published on December 28, show a liability for corporation tax of £1.6m.

Across the web of companies that make up the Virgin Care group, however, “administrative expenses” of £31m were set against profits, reducing tax liabilities to nil. Virgin Care claims on its website that “we have always paid our UK taxes in full and will continue to do so”. In fact, it has never paid any UK tax — because, it says, it has never made a profit.

Virgin declined to respond to detailed questions about what the administrative expenses were, though it said they were less than in the public NHS.

Branson says Virgin Care has “saved the NHS and local authorities millions” and insists he does “not want or intend to profit personally from the NHS”. If and when a dividend was taken from the work, a spokesman said, all the money would be invested back into NHS services.

Virgin said last night that it had “many successful businesses across the world”, and continued to “start and invest in new ventures”. It said the publicly funded businesses accounted for a smaller share of profits than of revenues, and pointed out that it might no longer run West Coast after 2019, when its current deal ends, though it is bidding for a 30% share in the new franchise.

Branson’s trajectory in Britain seems clear, however. While Virgin’s name still adorns many UK businesses, it no longer owns most of them, including Virgin Mobile, Virgin Media and Virgin Radio, instead licensing other companies to use the Virgin brand. “Virgin is increasingly living off the state,” said Bower.

Yet even as it does so, new questions are being asked over the model, and even the very principle, of private involvement in public services. With the collapse of Carillion, the rise of the hard left, and a scathing National Audit Office verdict on the Private Finance Initiative, could Branson, for once, have misjudged a trend?”

Source: Sunday Times (paywall)

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