I could operate trains
It turns out that I could have been the operator of the East Coast rail franchise.
Well, almost.
What I mean is that the operator of this important rail service is not National Express Group, which is what many of us naively thought, but a so-called special purpose vehicle with only a limited financial connection to the well-known listed transport group.
So if I'd shown a bit of imagination a few years ago, perhaps I could have persuaded a few banks to lend a few tens of millions of pounds to PestieCo - my own special purpose vehicle - and then PestieCo could have offered to pay the government £1.4bn in instalments to operate a major rail service for seven years.
Here's my reason for thinking this idea isn't as absurd as it sounds. It's an extract from National Express's trading statement today.
"Under the DfT's [Department For Transport's] model for franchise bidding, the Group's financial obligations under the East Coast franchise are strictly limited. Like all rail franchises, NXEC [National Express East Coast] is a special purpose vehicle, set up to meet the DfT's requirement as a standalone legal entity, with its own assets, management team and franchise agreement with the DfT. National Express is not a party to, or a guarantor of, NXEC's obligations under the East Coast franchise agreement."
What that means is that the parent company, National Express, has very limited financial exposure to the losses being incurred by NXEC, the holder of the East Coast franchise - and believes it can hand back the franchise to the government with near impunity.
These are the relevant numbers.
National Express has made a £40m subordinated loan to NXEC and has also provided a £32m performance bond to it.
What this means is that once NXEC's losses have reached £72m, that's the end of National Express's financial responsibility for the business.
At that point, the parent company can return the franchise to the government and incur no further losses.
And, according to advice National Express has received from leading counsel, in handing back the franchise National Express as a group would not be in default on the contract with the DfT, even though NXEC would clearly be in default.
Which is highly relevant, because it means - according to legal advice received by the company - that the government would have no right to take back the other two profitable rail franchises operated by National Express (East Anglia and c2c).
So the government doesn't seem to have much of a stick with which to beat National Express.
Although the transport secretary, Lord Adonis, implied on the Today programme that he did think he could get those other franchises back. So maybe there will be a punch up in the courts about all this.
Lord Adonis also said that there would be a new tender for the East Coast line, as and when he has it back - which will be before the end of the year.
And he thinks the market for such franchises is lively and buoyant.
Hmmm.
If he doesn't lose hundreds of millions on the new auction, then maybe the UK isn't experiencing its worst recession for decades.
Update, 11:19: I have learned that last night Lord Adonis rejected an offer by National Express to pay "well over £100m" to terminate the east coast franchise on a consensual basis.
This termination agreement was negotiated between National Express and Department for Transport officials and was "ready to sign", according to a source.
However Lord Adonis, the transport secretary, refused to sign as a matter of principle, in that he does not want to be seen to be renegotiating the terms of rail franchise agreements.
What this means is that the government may instead receive no more than £72m from National Express, which - as I explained earlier - is the financial guarantee provided by National Express to the special purpose vehicle that holds the franchise.
Some will wonder why Lord Adonis has apparently reduced the potential compensation for taxpayers from the termination of this important rail deal.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~15~RS~)
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Yet another example of privatisation biting back. It is a mess and it is difficult to believe it is an isolated case. No disruption? Thought of the staff and even their managers who will once again go through the mill of TUPE transfer to the state and later to yet another rail operator a year later. This time the operation should remain in public ownership and run in the national interest and as a check on the remaining private operators.
What a way to run a railway and what a way to run the country but the nonsense of pretending that there is competition in the railway system will continue under the next government!
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The government is messing it up again and judging from comments made by a Libdem MP this morning, the LibDems are clueless.
The decision is political, with the government wishing to appear tough, as it would cost the taxpayer less to have renegotiated.
There is an argument that other TOC's would seek to renegotiate but providing the TOC's are making a profit or manageable losses in their SPV's, they would not hand the contracts back if the government refused to renegotiate. If they are making unmanageable losses on a contract (as appears the case with NEX) they would try to renegotiate anyway, and hand the contract back if the Government refused to renegotiate.
There are a small limited number of companies able to manage these contracts and in future, seeing NEX's experience and treatment, they will quite rightly be far more careful in their tendering to ensure they make large profits to cover their risks - that means higher prices/lower premia or the government keep the contracts, with all the inefficiencies and taxpayer cost that will entail.
NEX itself has I understand been very efficient in managing the contract - will the government be any more efficient? I doubt it.
Well done NEX for ensuring your risks are limited - after all that's what the government and Mr King have advocated with the banks (whilst confusingly at the same time telling them to lend more!?).
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As much as national express are fools for bidding too much, a greedy government should try and think more long-term.
As Robert says, the new bids are going to be lower so the taxpayer will lose money on this again. Allowing only sustainable bids would be better for all sides. More due diligence needed.
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"It is a mess and it is difficult to believe it is an isolated case." There maybe others, but its worth noting the "cap and collar" clauses in most franchises - meaning that after the first few years the taxpayer will take up to 80% of the losses and the free wheeling risk taking bus operators will take only 20%.
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No Robert we don't need you running a railway, we need you as the Minister for transport. Yet again a bunch of MP's and Civil Servants have been found wanting when it comes to looking at the T&C's of these bids allowing the private sector to run rings around the Government. When there is money to be made they will take it but it the whiff of a loss then "We're out of here" seems to be the moto. Having said that, if Bob Crow and his Lackies get their way then the sole reason for the railways will be to provide employment for "The membership". Looks like the jobs yours.
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At last some movement in the right direction. This is a total embarassment for all but if the govt can do this (ie nationalise compannies) then they can start saving a few other "strategic assets" eg Corus - here's the thing Mr Brown we are an island and we need a steel industry. I know he has gone completely mad but surely even he realises we cannot have a country full of civil servants and debt - we have to make things!
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In essence Robert, what you are arguing is an end to 'special purpose vehicles'. That is limited companies set up in such a way as to ensure that the ultimate holding company has neither to consolidate the 'subsidiary', nor be liable for its losses.
I think that is perfectly reasonable. I believe that the courts should be encouraged to view such 'special purpose vehicles' as attempted frauds and deem their sometimes extravagantly complex ownerships as being null and void and take the view that if a company exercises management control over the company it must be treated as part of the company no matter how devious and complex are the apparent legal relationships - which has in the past been held as the 'true' test.
By the way, this would have most cathartic effect in the financial sector, particularly banking where I have knowledge that some organisations have a combination of hugely complex cross ownerships and so many 'fake' subsidiaries that even they themselves are unable to properly produce consolidate accounts. Auditors take the (risky) view that the accounts are OK, as, on balance, the complexity will not have a material impact on the true and fair view of the company's results (but who can really tell?)
I am all for putting company legal departments out of work, by making their work unnecessary as it will be commercially ineffective!
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Robert,
Shortly after you came on the today show - Mr O'Toole came on (from NE) and claimed that actually the franchise hasn't been taken bakc by the government.
He did trundle out a load of cobblers, but my bull-waffle filter in my ear interpreted what he said to be.
"We haven't lost the franchise yet - contrary to Lord Adonis's statement - and if the recession ends soon and revenue picks up we will keep the franchise - otherwise it will go back to the Government"
To put it simply - if it starts making money, we'll keep hold of it - but if it continues to loose money - we'll hand it over to the Government for the taxpayer to subsidise.
PRIVATISING PROFITS - NATIONALISING LOSSES AGAIN.
Once the ball started rolling with the banks - they're all at it now.
Good to see privatisation working well then - I suppose it's further proof of what a good idea it is to sell Royal Mail, in fact while we're at it, why do we sell everything which makes money and leave ourselves with the dross the private sector doesn't wan....oh - I see, we're already doing that.
I wonder if NE will want it back again in 5 years time when the recession is finally over - double dip anyone?
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Yet another one way bet this government agreed to!
If National Express make huge profits they keep it all, if they lose money, they hand it all back to the government (and us taxpayers) at minimal cost to themselves.
Nice to see the principals of Thatcher's "free market" in operation isn't it?
In reality it's a one way bet for those already with huge wealth and influence to create a market that favours them, leaving the taxpayers to pick up the pieces whenever things go wrong.
Just like the banking fiasco and the "Masters of the Universe" rewarding themselves with huge bonuses throughout the good years, and then leaving us the taxpayer to pick up the pieces when things go belly up.
This so called "free market" is purely a gambler's paradise, a one way bet where the rich never lose and us mug taxpeyers always end up paying the bill one way or another (either through higher charges as paying customers or higher taxes/reduced public spending to compensate for the huge losses incurred by these gamblers).
The whole of the UK economy has been reduced to nothing more than a giant roulette wheel for the rich to use as their play toy.
This country was once great and had pretentions of being civilised (i.e. the strong looking after the weak etc), clearly it's now just every man for themselves and grab as much as you can at someone elses expense.
How sad!
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When the government acts on our (tax payers) behalf one would kind of hope they would get it right. However they seem to keep messing things-up for us, losing or wasting us money. If such a deal was drawn-up by business the individual(s) would have been sacked at losing the rights holder such a lot of income, yet our government carry on as though "thats life", "thats how it happens".
How can we have any confidence in their business capabilities when they do things like this, when their regulatory systems ultimately require the taxpayer to bail-out the banks, etc. They appear quite incompetent.
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Let's nationalise everything.
I doubt this government could even do that correctly. We should not allow them to manage our economy. If they by some miracle get back into power I'm taking my chances in another country. Enough is enough.
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Comment 3 : city-unslicker
"More due diligence needed."
Or perhaps a re-definition of due diligence so that it has some chance of actually achieving what it, supposedly, sets out to do? Or is consideration and assessment of outcomes something a bit antidiluvian for the 21st Century?
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....and just to correct your statement Robert - you couldn't have run this franchise for the very fact that in order to "get the banks to lend you the money for the franchise" - you would have to be in their club, or be doing them a favour - and that would have intefered with your integrity as a reporter.
You would also have to have been prepared to abuse the system of bankruptcy (as NE have done beautifully) and make your purchasing company a subsiduary and limited so it carries no personal liability for you.
Like Rudyard Kipling wrote.
If you can leave your scruples behind you
If you can dump your morals in the dirt
If you can look the passengers in the face and claim "improvements are being done"
If you can ignore the anguished cries of the taxpayer and leave them looking like a fool.
Then you too can be a train operator my son.
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It turns out that I could have been the operator of the East Coast rail franchise.
Robert, dear boy, you can't write an article without Lord Mendacious telling you what to say. Somehow I think even a Hornby set is way beyond you.
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With regard to the deals struck to run these franchises.
Once again the public has to decide - are our policitians corrupt or just plain stupid - and no-one wants to have to decide as they're both bad for the country.
How many more industries are going to be sold on the cheap to private companies to rip profits out of and then be saved by the money printing machine that is the Government?
Seeing as all parties see privatisation as the way forward - can we now conclude that none of the major parties are acceptable for governing this country?
Labour has shown it's true colours - the Tories were always up for privatisation and the Lib Dem's are also happy to leave privatised industries as they are.
Which party is providing the option of nationalising all the previously privatised industries? Aren't the public sick of being held to ransom by once national industries who now preside over monopolies?
I can't find anyone who actually believes privatising anything solves any issues at all - the issues with the national industries are still there once they go into private hands - the only major difference is the workers are less happy, totally demotivated and paid a lot less.
I see it as Government laziness - they don't have the creativity or ingenuity to resolve the issues in the publicly owned industries - they look across jealously at people like Branson who seem to find running such things easy - and come to the incorrect conclusion that they should hand it over to the private sector.
Maybe they need to take the bull by the horns and start fixing the problems in the few national industries we have left - starting with the post office - instead of running like a baby at the first sign of any hard work.
My only comfort is that swine flu will eradicate the pigs that run this country.
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Yet another example of the heady mix of economic tough times and Labour government incompetence. With the taxpayer once more set to pick up the tab.
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AAAAAAAAAAAARRRRGGGGHHHHHH !!!
How angry does this make ?? Companies making big profits, like the banks, because they are mean, macho, thrusting types, willing to take on BIG risks which those boring, dull non-capitalists wouldn't get out of bed for.
Er, except that they aren't taking big risks at all - a one-way bet.
Disgusting - but was it ever thus.
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Would posters please stop blaming the "free market" for our issues. The reason you cannot blame the "free market" is that we have never had one. The Governments' grubby fingerprints are all over this, as with all commerce in the UK.
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In my view, this government inherited a mess with regard to the railways.
I don't believe HMG is at fault....maybe rail should never have been privatised (as many of us have thought since day one).
Perhaps the whole system is too complex to privatise, and the government is doing its' best to give first aid to a sickly dinosaur.
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Another transport issue.
Government orders a study to understand "white van man"
Report:
Self employed male working as a sole trader, holding valid driving license, owning or leasing tatty white transit van with Sat Nav, able to drive fast delivering goods at a low price, most of which are purchased online.
In direct competition with Rail Freight, Post Office and delivery firms. Not good for the environment. Expansion of numbers unlikely to continue due to gordon's bust the economy. If regulated or taxed, most likely to disappear, increase unemployment numbers, change sex or purchase coloured van.
End of Report on this complex sector.
Conclusion...white van man your days are numbered.
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I have travelled on National Express East Coast to Leeds and Norwich quite a few times as well as much further up to Edinburgh. When GNER lost the franchise they were suitably gutted but NE were much better at customer service, the trains were fast and on time, free wi fi, cleaner and the most important aspect MUCH MUCH CHEAPER THAN VIRGIN! So much so that I would book to go via Leeds to Cumbria rather than take the West Coast mainline.
The only beneficiaries of this move by the unelected transport minister are going to be Virgin. Mr Branson must be laughing his head off. To have a competitor that was willing to do ticket 'sales' and 'for one month only' discounts on advance tickets must have been a big shock to him.
To me National Express were one of the first signs that we might get to the stage where travelling by train in this country might approach the cost of travelling by train to another country. When it is cheaper for a one way ticket to Brussels or Paris from London than a one way ticket to Edinburgh you know that something is not right somewhere and yet again to me this is laid at the government's station (sic). They should have given them more time as no one (hardly anyone apart from the most pessimistic) will have built a global recession into their business model...
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Maybe this be a good thing from the point of efficiency as the taxpayers can now give money DIRECTLY to the National Express shareholders without having to go through the tedious process of 'running a railway', thereby 'cutting out the middleman'...
Crazy world..
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Although NX have limited their financial losses, what effect do you think this will have on their current franchises, or the negotiations on future franchises, their ability to bid for Government bus contracts, or the perception of the National Express brand?
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Its about time that the government (of any colour) represented the people for once. Re-nationalise the basic utilities like transport, energy and water - ie the basics of a nation's needs (they do it in most European countries). Any profits made should be ploughed back into the service for the good of the people. Im not talking about going back to the old days here (as gordonsc4lk at 5. said, we dont want to run our assets for the membership, but for the people).
I see no reason why a nationalised industry cant be run efficiently. Let the people benefit from the profits as well as suffer from the losses. This would also solve the current fiasco of energy companies failing to pass on the recent price falls.
The whole free-market thing has been festering since the 1980s into a greedy take what you can while its there cesspit, and it seems from other comments here that Im not the only one who thinks like this.
Come on people, take back our streets from the criminals, take back our assets from the carpet baggers.
By the end of the day I expect Dave, the peoples champion, to be condemning the nationalisation of the railways; after all, if theres a bandwagon passing by, Mr Cameron is surely behind it trying to catch it up. He's pretended to ditch traditional conservatism many times before for the sake of a headline.
Im not against capitalism, just for fairness and justice
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I've no doubt that we will have a number of anti-capitalist people commenting who quite clearly have no understanding of this situation.
This is a regulated market not a free market with the Government taking huge chunks of money from ATOCs for using the railway network. Bidding for previous franchises was based on growth niumbers to pay for what is effectively a tax.
Fair enough for the ATOCs you might say but it works both ways. But since those growth numbers are no longer valid because this Government has presided over an economic mess, you can't also insist on the revenue taxation (license).
The pathetic 'Adonis' posturing means that NE has simply walked away when a deal could have been renegotiated to the Government's benefit. Now we are left as tax payers paying for all of it. Just how does the Government think it is going to get a better deal when it retenders given the franchise losses?
You have to be a really stupid or frightened leftwing government to come up with the current solution. Absolutely pathetic.
Would the 'ignorant' contributors on this blog please understand economic basics before mouthing off unintelligent drivel.
What a banana republic we live in.......
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Robert
A much loved grandfather of mine did run a railway. He was senior manager at LMS both before and after nationalisation. He looked forward to nationalisation as he hoped it would bring much needed investment to the railways. All he and the rest of his team of professional railwaymen got was a brand spanking new bureaucracy sitting in Euston on a train which never left the station. In the end I think the old man preferred it when Hitler was bombing his railway as at least then he knew who the enemy was.
I don't think running a modern railway is all that difficult but this being modern Britain, a place where everyone expects either a drink or a tax free wad in the back pocket, we make it as complicated as possible. We divide the track from the service and franchise the services. We also have a system for encouraging the movement of freight by road called rail freight.
It is not a case of making a profit but more a case of being able to run a bath.
National Express overpaid for the franchise. No doubt their investment vehicle - we need to call it that - was designed specifically for that reason. I thought it odd from the outset that a bus company wanted to get involved with trains; unless they wanted to pull the track up at suitable intervals.
To a degree I can understand the government taking the view that to overpay for a contract is foolish and National Express need to loose out for not being able to meet contract terms to which they freely agreed. I mean business is business, isn't it? So why does Adonis then want to punish the company by confiscating the other franchises? Might this have something to do with a pending general election?
I really do feel that it is time in this country that we just settled for methodologies that work rather than make other people rich. The market does not apply to rail franchises as each operator buys a monopoly. So any argument that this is free enterprise is just nonsense.
It is at best a managed monopoly run by The Treasury and always was. The entire privatisation process started under John Major and not Thatcher - she wasn't that stupid - was aimed at maximising income for The Treasury. We have seen the commercial and managerial skills of The Treasury at work in the City these last two years and it does not impress. So maybe we should put The Treasury out to tender? Could it get any worse?
Yet again we encounter the shambles caused by too many bosses, too many silly ideas, too much money, too many egos and too much fantasising. There is no right or wrong to it: it is just another mess caused by a political and commercial class which is utterly clueless.
What we need in this country is for something to work, to be reliable and not cost the earth. When my grandfather ran his railway we had all that and fought a dreadful war into the bargain. What went wrong?
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So the DfT (Government) with its fleets of lawyers didn't see that the franchise agreement that they were completing was with what could very quickly, as it has, become a man of straw, and put a guarantee in place with the parent group - that's basic legal drafting that any legal executive would insist on - and we pay these people six figure salaries to deliver reputable legal arrangements that should stand the test when push comes to shove - not.
Government was so obsessed with covering its back and smoothing over the previous failure of the East Coast franchise which the DfT had driven to undeliverable premia, that it did it again - and now this one has failed too!
Please can we have our railways back? - as one - with real railway managers like Chris Green and Peter Rayner, who can bang heads together and get the money men and sub contractors out of what should be a strategic national activity which was running at one sixth of the current gross cost to the taxpayer before the politicians and consultants ruined it.
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This just goes to prove that Govt cannot do business. It is clear that National Express never had the exposure to give them the incentive to ensure this franchise benefited from Private experience.
They may as well have nationalised it - which is of course what they have had to do now. Labours Rail strategy now in tatters along with everything else.
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12 years... and still no integrated transport policy.
1997: J. Prescott cancels long awaited widening of A21... because.. it is surrounded by "blue"....
check this map out (dual carriageway apart from small section) - looks like the clogged artery which it is. Every day for the last 12 years people have sat and fumed in their cars becuase of J Prescott.
http://www.streetmap.co.uk/map.srf?x=559103&y=146448&z=120&sv=tonbridge&st=3&tl=Map+of+Tonbridge,+Kent+[Town]&searchp=ids.srf&mapp=map.srf
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#18 truths33ker
True - we haven't - but then if we did follow free market principles to the letter there would be no financial system by now as the banks operate a fractional lending system and the fall of Northern Rock would have created the panic and we would all be swapping stones and sticks for currency.
....is that what you want?
The free market has been saved (again) by those desperate to make it work (because they profit from it). This is not an indication that it does work - in fact the contrary.
For free markets to work properly every participant needs to have complete knowledge of the market - which is never going to happen in a society which is perfectly happy keeping secrets from each other in order to exploit one another.
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Right so once again it is heads you win tails I loose for the government. Whoever agreed to and set up these privitisations should be publicly vilified and sacked from what ever they are currently doing.
good job the postoffice semi privitisation has been delayed - may just give them time to come up with something that is not biased against tax payers. I WISH!
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Can we have GNER back running it now? They did a super job and were thrown out because they failed to make a silly enough bid.
Perhaps the government will now see the stupidity of the franchise bidding system as a way to run a railway.
If they'd seen how badly the similar competitive tendering process worked in the MOD years ago, they could hav epredicted this. But then governments don't learn from history, do they?
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#22 lordBeddGelert
Excellent point - and very funny.
May I go further to say perhaps we should all simply pay money to the rich and stop all this messing about with taxes and franchises and the like.
If we all set up direct debits we can reduce the need for the BoE to keep printing out that paper money stuff too - further reducing waste and effort.
I'll get into my irons sir....
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#23
Answer - None
Why? - because someone obviously has friends in the Government and therefore the rules that apply to the rest of the world don't apply in the sleazy and corrupt world of Parliment.
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Robert - what would be interesting to know is whether the government fully understood the implications of the structure. Where they advised that the use of an SPV would allow National Express to walk way with limited financial exposure or did the lawyers who negotiated the contracts not asdvise the government properly? This follows on from the Goodwin pension saga and I'm left wondering whether it is the government or its legal advisers which are incompetent.
I have no problem with the use of SPVs in itself; this is a legitimate tool which allows companies to ring-fence risky operations. I appreciate that it is open to abuse but it also has benefits. It is really for those contracting with SPVs to ensure that they have adequate protections such as parent company guarantees (although I have some sympathy with small ordinary creditors being left high and dry).
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I'm really sad to see that the east coast main line is in trouble yet again. It still is, no matter who is running it, the most punctual and comfortable line in Britain as I regularly use it. Why can't National Rail manage traffic like airports - open access, but slots are sold to private companies with their own stock instead of this franchise system.?
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8. At 10:12am on 01 Jul 2009, writingsonthewall
I agree privatisation is not working, I wonder where this will all end up?
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Who cares who owns the thing, so long as the fares come down. London to Newcastle at £100+ for an off-peak fare is ridiculous. No wonder they've lost passengers. It's cheaper to fly. Rail prices need to come down generally if we want to get people out of the skies and their cars.
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All the Government wants to be able to do is create populist grabbing headlines first and foremost, about how much it will be paid by franchise holders to run the rail networks. As a voter I'm supposed to swoon in admiration at the amounts of money the Government is getting (for us taxpayers, apparently?) And if we get an efficient, comfortable, attractively priced, rail network as well, then that would be purely coincidental.
The problem is the mentality behind the rail network deals. It seems that what politicians believe the country needs is...Large Tax Receipts, ("best value" or something like that) When ordinary, yet sensible, people think what we need is a decent rail network!
You might think that bidders would not want to go too wild as that could be self-destructive. Well, that only applies if they stand to lose everything if their venture fails. Only that's the problem. National Express are able to call it a day having lost only £72Million, not £1.4billion. In other words people bidding won't lose everything even if they make wild bids.
Apart from politicians missing the point about what is popular, once again it's the rules (i.e the legal framework, bidding for and operating the franchises,) that are all wrong. It's not funny any more.
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The Government can't run the country so what makes Lord Adonis think that it can run the East Coast mainline goodness only knows. A bit of mid summer madnees - it must be the heat. Bring back the LNER.
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And here was me thinking that record numbers of people were paying record prices for the Rail service.........oh hang on thats what the government claim.
Its a farce and we all know it.......and theres only the Government who believe that train travel is now magically better than ever .
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#25 Rugbyprof
It seems it is YOU who doesn't understand the Economics of the situation. Nobody said the railways were a free market - there is no such thing (except in Theory books).
You summary contains one big hole - this statement:
"growth numbers are no longer valid because this Government has presided over an economic mess"
WRONG - growth numbers are no longer valid because we are in a recession - not caused by the Government - but caused by the run for diminishing profit of the Capitalist structure resulting in overproduction and the eventual destruction of capital.
In case you haven't noticed - the world is in recession - and unless you are suggesting that this Government also runs the world - then as much as it pains me to say it - you cannot blame this Government for the inevitabile collapse of Capitalism - which is occuring - AGAIN.
If this market was a free market then there would be a lot of people walking to work in East Anglia as the eventual collapse of the train provider would mean the loss of transport for a whole region. Thankfully it's not - so the Government can at least keep the trains running - even at great cost to the tax payer.
I presume your solution would be to send 100,00 bikes to Norwich and tell them "thats the free market for you folks!"
I would educate yourself a little first before coming on here and accusing the rest of us of being ignorant.
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19,
I agree, the Railways should NEVER have been privatised. Neither should any other organisation central to the fabric of society.
The NHS
The Post Office
Prison Service
the list goes on.
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#30 writingsonthewall
Not all banks would have failed and the debt would have been liquidated. Deposits would have been safeguarded up to 35k. Good debt would have been sold on. What we have now is a government and system that will not let the malinvestments be liquidated and we will be robbed by inflation and taxes to pay for it. If you can't fail in capitalism then you don't have capitalism - you have fascism. You have swallowed the government scaremongering.
You mention the "free market" has been saved again even though we don't have one. You are confusing me.
In your 3rd paragraph you are describing a perfect market not a free market. All this information is available on Wikipedia.
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#33
"Money for nothing, and your energy for free"
What a crazy world indeed. As a society we have been seduced on two fundamental points:
1) thinking that money can make money
2) that science will continue to provide us with abundant and cheap energy
The two key pillars of modern economics are crumbling before our eyes, yet all sane voices that point out these catastrophic systemic problems are simply ignored or poo-pooed:
http://books.google.co.uk/books?id=EgI30Za9mvcC&pg=PA125&lpg=PA125&dq=%22herman+daly%22+georgescu-roegen&source=bl&ots=BLcSBvLgeX&sig=uYP18hGW-zLDE1fZDDUCU4lnTFM&hl=en&ei=JEJLSp7SHtPm-QbGtbymCA&sa=X&oi=book_result&ct=result&resnum=1
As Daly puts it "Economists are alergic to physics and biology", yet we biological creatures subject to the laws of physics.
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With regard to Lord Adonis and his apparent fit of Pique (If you wo'nt play nicely with my East Coast Train set then I'll have my other sets back)maybe he has the right attitude.
OK so this was a special vehicle set up for the East Coast Mainline but it has been "Sold" to the public as National Express and where on the picture does it show the words "East Coast" on the trains. In fact as someone who has travelled many times on this service I can say that no-where will you find the words "East Coast" on Menues or other literature. Perhaps the real litmus test should be whether any engine, carrage, member of staff or any item leased to or owned by National Express East Anglia has ever been used (Rented, borrowed, hi-jacked or simply strayed) on the East Coast Mainline. If so then surely they are trading as a single company never mind the legal niceties. Why do I sense fat lawyers starting to rub their mid-riffs with sorting this one out at taxpayers cost.
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The use of SPVs isn't unusual. Most large business "compartmentalise" their different arms for insolvency reasons. For example, a manufacturing business which runs its own distribution wouldn't want the manufacturing arm jeopardised if the distribution side of it hits the buffers and becomes insolvent (excuse the pun...). Hence, the two are run as separate businesses in separate companies. Each of the companies has its own legal personality and their assets and liabilities are not intermingled. The performance bond (from the parent company) of £32m must be a rolling bond to cover operating costs (i.e. to ensure that the SPV has sufficient cash to run the services) not to cover the instalments due to the government. I don't think many companies would give a £1.4bn guarantee for the full franchise fee payable - it must just be the nature of the train franchise business. The government has ultimate control over who the franchise goes to and on that basis satisfies itself that the instalments will be met. It was for NE to do its due diligence on the value put on the franchise. They say their revenues have dropped as more people are downgrading from first class. No wonder! The recent 'simplified' ticketing beggars belief. Where once there were mid range fares available up to the day of travel now there are expensive (and VERY expensive for first class) fares if you dare to travel without planning three weeks in advance and cheap and VERY cheap fares provided you book weeks beforehand on the internet. Woe betide anyone without the internet simply turning up at a station to buy a ticket. There's nothing like making the train an attractive alternative to driving...
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'Some will wonder why Lord Adonis has apparently reduced the potential compensation for taxpayers from the termination of this important rail deal.'
I'd have thought he has rejected the deal from NE in order to pursue in the courts the other two franchises still held by NE, as you suggested earlier in your post.
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#35 nedafo
"I have no problem with the use of SPVs in itself; this is a legitimate tool which allows companies to ring-fence risky operations"
....but if you ring fence risk and remove it from the equation where is the justification for profit?
Are you saying that it's acceptable for businesses to make profits without taking any risk - or by reducing it to insignificant levels?
If that's true then where is that profit coming from? It leaves you with just 1 option - exploited from he workforce (i.e. paying them less than they're worth)
Is that how society should be run - near slavery? We steadily move towards a society where the few dictate to the many - i.e. a Dictatorship?
A Capitalist Economy where the risk is mitigated by financial trickery such as SPV's simply becomes a robbery from the weak by the powerful. Many small busineses out there would love to operate knowing that they cannot loose - sadly this option is not open to those without a huge expensive legal / tax team - concentrating the power up the the large multi-national coroprations.
...and I thought freedom and liberty were the most prized amongst humans - maybe I'm wrong and there are many people who are happy to be slaves.
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SenorMac: yep, high fares, often scabby trains. Third change of operator in as many years. Rubbish. The utter failoure of transport policy has got to be high on this government's gravestone.
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#38 senormac
...and there lies the ultimate problem. It will be cheaper to fly because the market cannot take into account the damage to the climate.
This means the more we rely on markets to run things, the worse the damage to the environment will get.
There is no financial cost to damaging the Environment - which is exactly why the Capitalist economies around the world will end up destroying it.
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#42 Writingsonthewall
Read the posts - there are a number of contributors who have no idea how the current railway franchise system is set up (whether it's the most efficient is another matter?) - i.e. 'its that nasty capitalist system milking it from us taxpayers rubbish' and therefore look stupid. Fortunately there are a few good contributions here that ask the right questions.
With regard to your assertion re the current economic mess. There's plenty of evidence around suggesting this Government has dug a very big hole using tax receipts as a pretence for unsustainable spending .........Capitalism hasn't failed you idiot.
London was at the epicentre of the financial services industry because G Brown wanted it that way and provided a very nice 'lite-touch' regulation to an industry that needed tough regulation on new financial instruments. But it suited FS industry management and the Government becasue of increasing tax receipts. Greed on both sides. Pure and simple.
As a small busines tax payer I would like the Government to represent me, not one that treats me purely as a revenue raising account number for it to make selfish decisions and spend unwisely.
In terms of the rail franchise, the point is despite the economic reality of reduced ATOC revenues, the Government is insisting on its 'tax take' as agreed before on increasing revenues. Economic madness. NE obviously set up their commercial obligation smartly (which makes the Government how dumb?)
There are other very good posts here which saves me from further explanation.
I would suggest you read my post again. By the way, what economic and management qualifications do you have? I suggest you really take those red-tinted spectacles off and wake-up.......
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I found an article from December 06 on the BBC website when GNER were talking about surrendering their franchise.
"The government made it clear that rail operators that fall into financial difficulty should expect to surrender the franchise and not receive financial support," said Transport Secretary Douglas Alexander.
"To do otherwise could set the precedent that we are willing to bail out operators at extra cost to the taxpayer."
What a load of old cobblers. Yet again another mighty cock up by our government!
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#44 truths33ker
I thought you're after the truth.
"Deposits would have been safeguarded up to 35k"
By who? - oh yes the Government, but in a free market the Government doesn't step in to save depositors - thats NOT A FREE MARKET.
This mysitcal belief of 'the debt would be sold on' is rubbush. If it was true why is the Government having to FORCE the banks to lend again?
The confusion between free market and our current Economic system in this country is because it is confusing. The Economist claim that the best way for industry, services and consumer functions to operate is to 'let them get on with it', live by the sword, die by the sword - but in reality, experienced has proven that you cannot do that - so we end up in a 'mixed economy' - which is the worst of both worlds.
My point was that you cannot operate a true free market in areas that matter to people - which unfortunately means all of them.
To refer to Wikipedia is states:
"A free market is a purely theoretical term that economists use to describe a market which is free from government intervention"
....and protecting up to 35k of savings by the Government is.......?
you cannot escape the hypocrisy of the Capitalist system - stop trying as you will only end up lookng silly.
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I am always worried when someone says they are doing something as "a matter of principle." It usually means they do not know what to do, although they feel something needs to be done they have no idea what. They don't like whatever is being offered, but with no alternative so, they are left with the do nothing option. Renegotiating the other franchises is a red herring.
This is how it works. I renegotiate a supplier contract out of need, don't really want to but circumstances dictate I must or end up with a bigger problem, another supplier knocks on my door and says I want to renegotiate, my answer - No! where's the problem. There has to be justification to renegotiate and both partys agreement.
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If they can get was with only paying the 72m, why were they prepared to negotiate and go to 100? - Presumably they thought they might not get away with the 72 only.... Maybe Adonis was right not to sign.
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NXEC's predecessor, GNER, failed because it over-bid to win the franchise back. The bid was innovative in terms of how it was going to generate extra revenue, but was far too ambitious. It promised (I think) £1.3bn over the course of the franchise, and failed because it was unrealistic. GNER handed the keys back, and were replaced by National Express, who promised to pay back..........£1.4bn. In less time. With no innovation to bring in the extra pennies. So how was NXEC ever going to succeed?
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As with RBS, we see another cock up by the government to ensure that companies and their directors shoulder full liability for their actions.
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I am presently un scrambling my brain thanks Robert.
Is every TOC franchisee held in the same manner .ie SPVs?
If so go on then Merseytravel count me in for Merseyrail
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Sounds like yet another example of the taxpayer being shafted by private interests.
Still, National Express is not getting away with on the same scale as the banks.
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I love it when a poster says something along the lines of "this Government has presided over an economic mess" early on in their comment because then I can skip past the rest of their drivel. I presume the global banking collapse was all down to Gordon and his meddling. Or was it because he didn't meddle enough? God save us when these people get the opportunity to vote in a General Election. Fairness and justice doesn't seem too much to ask of any company rather than the attitude which now seems to dominate in this country of getting away with whatever you can in order to make money. The whole place seems to have become corrupt.... except it's all legal isn't it?
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I was going to repeat again that (almost all) UK governments are useless when they try and get involved in the real world.
They can't organise schools building -the PFI programme is a ridiculously expensive way to get new school building, we will be paying forever.
They can't organise transport -rail, road or air.
They can't plan prisons, hospitals, sewage, parliament buildings, defence procurement.
They can't sort out immigration;
They (and their over-paid advisers) can't draft watertight contracts, and can't help changing their minds non-stop.
But I can't be bothered any more.........
I think the system of electing incompetents and two generations of a wimped-out puppet civil service is a failure.
Needs to be thought out from scratch again.
Regards,
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#54 writingsonthewall
I was describing what would have happened to deposits under the current rules, not what would have happened in a free market. In a free market with sound money we would not have got to this situation in the first place.
Banks will lend again when they think that they will get paid back. Currently assets are overvalued. Government "forcing" banks to lend again sounds like coersion to me.
The problem with socialists is that they eventually run out of other peoples' money.
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Surely the £32M bond is intended to cover the Government's immediate losses if NX walk away from the franchise? Once their loses reach £40M, then they have to walk away and forfeit the £32M.
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So National Express cannot run a railway!
How do they manage to run hundreds of (generally empty) coaches up and down motorways, large empty buses and coaches blocking roads in airports, towns and villages. How do bus companies make a profit?
Surely they are not subsidised by our local and national taxes to create some mythical "co-ordinated transport policy" - or are they.....?
An investigation into this is long overdue. "Public transport" green? Don't make me laugh!
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No Robert, it is not that Lord Adonis does not want to be seen renegotiating contracts. Instead, renegotiating the East Cost contract would have signalled to other operators that they too could renegotiate theirs. And given most rail contracts were signed during the peak of economic growth, they would all be queueing to do so. Stagecoach has a bitter dispute with the DfT at present, and Arriva who beat competition to secure Cross Country a couple of years ago (rouyghly at the time when NX was awarded East Coast) reported two years ago they required 10% year-on-year revenue growth to remain profitable. Guess what, they reported on Tuesday 2.4% annual revenue growth for the first six months of the year!
Refusing to renegotiate contracts is in the interest of the country, and it is a sensible position to hold. If National express had more robust financial footing it could have weathered the storm. The high price it paid for the franchise is only one contributing factor. Its large level of debt prevented the company from calling on shareholders to put more cash into the business until it handed back the keys to the DfT.
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What we seems to have developed post Thatcher, is Public Libility for losses, and private gain for profits.
That's no way to run a railway or a country.
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May I suggest these people to run the East Coast Main Line:
http://www.rossrail.co.uk/
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You should be aware that these "special purpose vehicles" (i.e. subsidiary companies) are widely used to facilitate privatisation and the private finance initiative. BSF (Building Schools for the Future) makes use of these and so do various Councils for the new ways of dealing with waste etc.
As you are rightly aware, such companies are limited liability companies, so the liability of their shareholders (often a massive company or consortium of massive companies) is strictly limited.
Privatisation and PFI were spun on to an unsuspecting public as a method to shift the risk on to the private sector....
As we can now see, it does NO SUCH THING. Privatisation and PFI are nobbut Capitalist cons. I am disgusted that a Labour government - a LABOUR GOVERNMENT continues to perpertrate such cons.
I am an ACMA, a local government officer and former Councillor. (Oh, you've guessed - Labour - when it used to be Labour).
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of course all this privatisation is simply anarchy turned into profiteering...and you thought anarchists were hairy hippies making a bit of antisocial bother? real anarchists wear suits and have yachts.
It's all well described here by robert and most of the bloggers....privatisation of profits and socialisation of losses. who will create the political will and intelligence to make an efficient, safe and reasonably priced railway (and NHS, Education system, Gas and Electric and Water supply etc etc)?..we have to fight to bring back 'old labour' as none of these tory parties in thin disguise will do more than line the pockets of their mates in the club, at the expense of a deceived and subservient public.
My real impulse to enter a blog however, was the thought as to how much it will cost to repaint all the trains and rolling stock?..AGAIN. privatisation is so efficient! obviousy a small cost in comparison with the billions lost through the so called free market and the Washington Accord....but symptomatic nevertheless.
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#61 Pawelkwak
Actually reading somebody else's drivel can be quite enlightening and highlight how somebody has obviously wasted a glorious opportunity provided by one of the best subsidised eductation systems in the world.
In terms of corrupt - you speak for yourself and the current Government/MPs.
There are a lot of hardworking tax payers out there that neither see justice nor equity. Think pensions for a start....
As for GB and financial services, GB is a known control freak, but it suits him to lightly meddle when he wants to - see my earlier entry #52.
People are going to eventually see that we as a nation were right at the heart of the financial meltdown with banking derivatives (and of course were being trumpeted by the Government (for tax receipt purposes). The truth will out as they say, because you can only fool some of the people some of the time.
They also need to realise that our banks were many of the largest (particularly in the last decade). This made our economy unbalanced and also of higher risk. Given these facts do you not think that the Government has been highly negligent bordering on criminal to see events unfold under its watch?
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As I understand it the Train Operating Companies hire rolling stock from a Leasing Company. The Train Operating Companies also pay Network Rail to use their tracks.
Now everyone wants to make their cut out of all this whereas presumably if individual companies owned the track and rolliong stock there would nto ahve to be two otehr parties to pay?
Seems to me that privatisation was designed to let too many companies have a share of a our mobney as passengers or as taxpayers.
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12. ExcellenceFirst makes an interesting point about due diligence suggesting that "consideration and assessment of outcomes" is not at the core of the Government privatisation process. I, likewise thought that was what due diligence was about. If its just a process to cross-check other people's stated 'facts' its as much use as a Government target on Police arrest statistics.
The MOD civil servants were never much good at assessment of outcomes in my experience although their serving military colleagues have long recognised the critical need for such assessment to help them consider the impact of a change to their planning assumptions early enough to head off impending risk. It seems sad that none of these skills appear to be retained in the Civil Service "doctrine" - sorry, they dont do doctrine do they. I am beginning to realise they are responsible for most of any Government's problems. I think its just possible that Lord Adonis has made a sensible decision and ignored the option presented for the greater long term good. Trouble is we no longer believe any of them...
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"My real impulse to enter a blog however, was the thought as to how much it will cost to repaint all the trains and rolling stock?"
Well it may keep the ailing British paint industry from going under...
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54. At 12:29pm on 01 Jul 2009, writingsonthewall wrote
""Deposits would have been safeguarded up to 35k"
By who? - oh yes the Government, but in a free market the Government doesn't step in to save depositors - thats NOT A FREE MARKET."
Actually almost all regualted firms pay a levy to FSCS (it depends on what type of busines they do). As an example one insurance company paid a £14m levy this year. This levy covers FSCS compensation - not the taxpayer. If FSCS didn't have te funds with which to cover losses there might be an issue but to date i am not aware of this happening.
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Any industry that requires massive investment such as essential transport (trains buses and roads), health, power and essential services should stay in state control. You should recruit people from the private sector to run them (not civil servants). Would we franchise our air force, army and navy? For the benefit of the civil servants and politicians thats a question not a suggestion.
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National Express, and before that GNER, have both fallen into the trap of bidding too much money. The system is biased in favour of the company which puts in the highest bid and makes the most promises. Inevitably broken! This system looks like "the emeperor's new suit."
I live in Edinburgh and use the service regularly. All we ever get is rebranding, and a new paint job on the trains... (PestieCo is one of the names we haven't seen yet - and I'm sure if we did, the only difference we would notice is the new name and new colours - unless Robert Peston has a few billion spare to buy some new rolling stock!)
What the line really needs is investment - new trains and a commitmnent to public service. The current system is only geared up to re-arranging the proverbial deck-chairs....
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Robert Peston: "So the government doesn't seem to have much of a stick with which to beat National Express."
National Express thinks the Government does indeed have a stick. That's why they're prepared to offer a large additional compensation to put the issue to bed.
By the way, does the £100+ million include the £72 million bond?
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So Bowker fails yet again, and walks away to another well paid job. At least it is outside the UK this time. Sympathies go out to the travellers on the railways in UAR
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The bankruptcy of the privatised, franchise model is open for all to see again as it was when GNER and Southeastern went belly up. Basically, a company can take a franchise on in the good times and walk away in the bad. Its a case, like with the banks, the profits go to private industry and the losses fall to taxpayers.
At the time it was announced even people within National Express were surprised about the amount they were paying for the franchise, and it was known that other bidders had bid substantially less. The company took a big gamble on continuing revenue increases and it didn't pay off. That DfT accepted a bid that was significantly more than the others without questioning the risk of accepting it, places massive question marks over their ability to manage the system. Whatever its other faults, the Strategic Rail Authority did not automatically select the lowest bid and was prepared to ignore stupid bids e.g. Connex when they clearly weren't deliverable. But the DfT have been told to cut the cost of the railways and accepting the highest bids seems like the easiest way to do it. Don't bother questioning whether the franchise model works or whether the rolling stock companies are effectively printing money... that's just too difficult.
What also hasn't been mentioned here is the problem of two regulatory authorities looking in two different directions. National Express' business plan was dependent on both a buoyant economy and increases in the number of train paths to enable it to run more services to Leeds and York etc where the rail business is growing. Unfortunately, the DfT were unable to deliver these train paths and the Office of Rail Regulation decided that they should go to Grand Central, Hull Trains, Uncle Tom Cobbley and all rather than National Express. Because while the DfT are interested in maintaining franchise payments, the ORR are looking to increase competition. National Express don't want more competition, they want as near as possible sole use of the East Coast line to enable it to deliver the profits that meet the franchise payments. And the more train operators competing from stations such as York to London, the greater the amount of revenue they have to give to their competitors as their share of the revenue for that route.
No doubt the DfT will get someone else will get to run the show again in a couple of years, but the franchise roadshow will carry on. Because the failure of the system to deliver means nationalisation and neither of the main parties wants that.
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Robert,
What exactly do you thinks "has also provided a £32m performance bond to it." really means? I'd bet it's an insured performance contract which means, if I'm right that National Express' downside is only £40m with the balance falling on some unfortunate insurance company!
There's one born every minute - and most of them seem to get a job in Government.
Mark
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I see that National Express takes on the profits happily but refuses to recognize losses as their own. Its as simple as that, privatization means they cannot loose.
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Post: no21
I think you have your facts wrong, just done a check on London to Penrith via Leeds and direct on the West Coast Mainline... via Leeds: £120.90 and direct with Virgin: £80.60... you may not like Sir RB but his trains are much cheaper (and more frequent) than your route choice!
You're "virgin" on the ridiculous!! lol
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Many of your contributors appear to have forgotten quite how bad the railways were when they were entirely in public ownership. Trains are now quicker, cleaner, more frequent and by and large the fares are lower. That is why so many more people want to use them.
The franchise model is certainly flawed, but that is not the fault of the train operating companies. Their pitifully small balance sheets (and hence their inability to sustain substantial losses) are a direct result of the way the franchise rules are drawn. It is time the rules were changed to make the operating companies own more assets in the form of trains and track. Then there would be no question of them handing back the franchises so easily.
(Incidentally Robert, it was a revelation to hear you could have afforded the £72 million to set up your very own train set...)
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Surely whether to privatise or not depends on whether the private sector is more efficient that the government, and the ability to pass on some of the savings back to the government. For example lets assume that under public control, the revenue exactly offset costs so the franchise broke even. If a private company could reduce costs (increasing revenue brings us into a different question on ethics of overcharging passengers) by say £100 million. Then if the government receives £50 million payment for the franchise, both parties are better off. If the private company overpays (e.g £150 million), as in NEX's case, then even if the loss was limited to say £10 million, the government could end up receiving £110 million, i.e. again the public sector benefits.
Therefore I don't understand all these arguments people are making that the government are privatising profits and taking on losses. The loss NEX is incurring is after paying the government franchise fee, so the government is benefiting. If the government took on the franchise, it would lose the franchise fee, which would be partially compensated by the probable profit it would make.
If more worryingly NEX was making a loss before government fees, then the government has actually benefited from franchising the line, as they would have been hit with the full loss themselves, and instead they have received some fees (limited by the loss NEX can make).
The only financial case (I'm staying away from other wider issues on service quality, etc) that would argue against privatisation is if the franchise fee the government charges is less than the profits it would make if it ran the line itself, which is clearly not the case here as NEX has apparently overpaid.
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This is just a scheme to privatise the gains, and nationalise the losses. I thought we had dunderheads in government, but now I realise we have dunces. Is there no-one who can teach them the basics?
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It may be a very stupid question but who is the loser in all this. The travelling public and the taxpayer? My memory fails me but I suspect that when British Rail was broken up many years ago the total deficit for the whole network was not that great. Instead various governments have sold off the "family silver" only to have to come back and bail out various operators as and when they decide the Golden Goose has got a bit constipated! Re-Nationalisation seems to becoming a vital part of the commercial strategy of some organisations. I feel hugely sorry for any East Coast travellers, perhaps that's why they are now travelling by other methods leading to the collapse in revenue. The latest suggestion that the failure was down to over-optimistic bids (by this company and it's predecessor GNR) is banal. If any Government failed to take the best (highest) bid they would be laughed out of Westminster.
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#72 Rugbyprof
And you of course know Gordon Brown.
As for only being able to fool some of the people some of the time, it looks like those hardworking taxpayers (which you obviously see as some sort of minority group of which you are a part and everyone else is is either not hardworking or not a taxpayer or both) are fully prepared to be fooled all of the time as they get ready to march back in to the polling booths for more of the same.
And small businesses, well they never, ever fiddle their taxes do they?
"the Government has been highly negligent bordering on criminal to see events unfold under its watch?" And your pleading for the Government to intervene in the way banks were being run was ignored?
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Well they say due to low passenger numbers. I recently paid a fortune to buy a ticket on the day from Newcastle to London - i has no choice. After complaining to the ticket officer I boarded the train to find it half empty.
Well i certainly wouldn't have bothered using it at that price unless i had to. It was very clear to me why the train was empty. It would have been cheaper to drive or possibly fly to the moon.
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£72 million seems like a lot for any company to lose.
And as for all of the moronic RentaMob tosh: it's a franchise system this is how it works. It can't operate on the basis of 'heads we win, tails we renegotiate' otherwise people would overbid for the franchises safe in the knowledge they could then renegotiate if things get rocky. It's not the government's fault that National Express overbid. This is the very opposite of privatising the profits and nationalising the losses.
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here is a scoop for you robert...tesco to bid for northern rock...
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#89 Pawelkwak
I'll leave you to waddle in your own ignorance, after all, its your choice......
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At long last we have one publicly owned railway again!
And this should now stay in public hands. As other rail franchises come up for renewal, they too should come into public ownership. Each regional rail company should be owned by a consortium of local councils in the area it services. Mainline services, like the East Coast, should be "owned" by national government, but half the board of directors should be elected by the general public and the other half by rail staff.
And finally, bus companies should also be brought back into public ownership - give them back to local Councils.
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Absolutely incredible.
Again I find myself incredulously thinking how utterly incompetent we are.
I'm a firm believer in the free market, and please don't all beat me at once- privatisation. Many problems with old state organisations (including the post office) have been inherited by the private companies following years of chronic under investment by government. Look at PO pensions, and railway infrastructure before privatisation.
However, this, yet another debacle must seriously question the legitimacy of privatisation within the railways. The bidding process is flawed and that the losses cannot be traced into National Express is, as a few above have commented an utterly incompetent failure of due diligence.
Risk can equal reward and I accept that. But no risk cannot equal reward and that much should be made perfectly clear.
It seems to me that as there is no competition there is a flaw in the 'free market' of the trains, and an entirely legitimate argument that this should be run as a pseudo state-run organisation, perhaps not for profit.
In the alternative more flexibility should be introduced regarding the bidding prices, linked to revenues and incentivising investment by each bidder. Crucially, and currently an abject failure- the contracts need to be for far longer. In the US I understand they're for over 100years in some cases and this encourages long term investment. Provided the government is paid X% and service targets etc are met this seems a fair balance.
As for Adonis failing to sign on the line- I hope there is an equal furore as was the case over FG's pension, which looks like we were all squabbling over the spilt milk in the circumstances.
In any other 'profession' such a decision, if true, would be regarded as negligent. It's really very simple.
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Am I right in thinking that this would be a profit making business about from the 1.4bn franchise payments?
Agree with an earlier comment about the mentality of the deals. If the priority was a good service first, with income second priority we could have an excellent rail service that could still turn a profit for the owners.
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doesn't the concept of "lifting the veil" come into play - ie that the Special Purpose Comany is only a device of National Express so the Government can go after them and not just NXEC??
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#63 Truths33ker
"In a free market with sound money we would not have got to this situation in the first place"
Sound money? What does that mean? Do you mean money based on actual production (value) and not future value (credit)?
A free market allows the exchange of goods and services based on unhindered competition - i.e. perfect knowledge by all market participants. So when you've worked out how to ensure every man,woman and child knows everything about any market they participate in (even down to buying milk) and that they can freely source it from any location without impacting the cost - then you can have your free market and I'm sure it will work out.
Sadly - this is not actually possible - you should know this by now.
#52 Rugbyprof
"Capitalism hasn't failed you idiot"
The central axiom of capitalism is that the best allocation of resources is achieved through consumers having free choice.
So I presume the wasted resources (cars built but unsold, houses left empty when there are homeless people in the world, viable businesses closed down because banks pulled credit etc) are a sign of Capitalism 'working'?
It never ceases to amaze me how some people will defend an idea without actually questioning what it is they're supposed to be defending! I'm sure you feel happier blaming the Government for all the trouble - so who did you blame in 88? What about 79? were you around in 39? - who's fault was that? - The Government again?
You blame greed on both sides as being contributary to the problems - didn't you know that Capitalism is based on greed? Without people wanting to 'better themselves' - or as I put it "bettering their neighbour" - then the system wouldn't work.
You can't have Capitlaism without greed - so blaming greed for the current mess is the same as blaming Capitalism - thanks for agreeing with me - next time think about what you're saying - it helps.
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I am one of the many frustrated passengers that regularly attempt to use this so called service. Over crowded trains, regular faults - which mean you get dumped on a station of the company's choice without any form of replacement.
Their staff are miserable and aggresive towards passengers.
That is why I regularly support the Grand Central service as the east coast line needs proper competition not a state run service or a monopoly. Despite their technical difficulties, Grand Central are friendly, clean and above all else affordable.
Anything that provides a customer service needs to be customer focussed and I am sorry, but the east cost operators over the years seem to have forgotten this.
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# John_from_Hendon (and others) I am not united with you in anger as much (weirdly perhaps) this time about this issue --as opposed to the Banks.
With the Banks the people messed up and got rewarded... here the people are messing up and are only being rewarded to the extent that they are not being stuffed utterly...
More to the point in this case the details was in the contract...written, clearly and there to be read and argued with...and negotiated away by the Govt.
This time the Government signed up to something clearly---what needs to happen isn't to start ripping up freely and clearly entered into contracts.
The Govt need to either read the large print, as well as the small, and just argue more.... OR stop doing this stuff.
Balancing upside advantage and downside risk when negotiating anything in business (such as issuing a licence for example) isn't rocket science----giving and taking where possible, and clearly red-lining any 'deal breakers'; where one may feels movement is not possible is just ordinary stuff isn't it??.
If As Robert peston insuinuates the SPV idea was 'right out there from the start' and (possibly) even a Govt approved idea, then it looks like in the balmy, golden Jazz Age days Pre-Lehman the actual franchise was looked on as no-brainer money fountain---- and a bizarre unforseeable collapse of the parent company was what they were staring at and trying to box off....... which is okay..... AS LONG as you box off the 'reverse ferret' of a still prospering parent and a collapsed offspring SPV.
The obvious solution, which I expect any day is to put Mike 'no due diligence necessary' Ashley into Mandelson's dept of Industry, his record of value destruction at Newcastle United obviously marking him up as ideally suited to slot right in....
Then he can handle the 'quick as you like' stupid giveaway of Northern Rock to the Nation's favourite Grocer (or should that be the tremendous value for taxpayer sale of said busted bank??)
Less worrying than the price or T&Cs on the deal is the implicit possibility that calculations are being made, and events set in train, because, with falling/frozen salaries and imminent inflation we may need to be able to fix up a small mortgage on the spot, to afford the weekly shopping within a year or so......
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What a surprise! as other have said the game in this country with so-called "privatisations" the private sector pockets any profits but as soon as it gets difficult the taxpayer picks up the losses. This has been the rule ever since the days of "cost-plus" MOD contracts. As soon as you involve civil servants, and then auditors, it can only go one way. It will only stop when the directors of such organisations have to legally & properly put their personal assets- houses & pensions- at risk in the same way as most small business owners are forced to by their financiers. Incidently many years ago we were told the Comapnies Act actually outlawed parent companies & shareholders dodging their liabilities for subsidiaries etc...evidently yet another of the many misleading government statements.
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#61 Pawelkwak
Well said.
Once Gordon goes the same people will start blaming the unemployed for the crisis - without realising Capitalism cannot work without 'an army of unemployed waiting in the wings to take the place of the working man who does not accept the lowest offering from his employer'.
The simple fact is that the recession occurs because of the collective behaviour of us all - I don't blame anyone for behaving like that as I have said above - the system of Capitalism needs greed to operate. It's fundamental that each person in the world is driven by the need to amass greater wealth then their peers - who are also doing the same - resulting in an upward spiral (boom) which eventually must lead to the eventual crash (bust).
Any tinkering the Government does is futile - the people need to realise there is no controlling this bucking bronco - the ONLY way to prevent the collapse is to change the worlds behaviour....
...and as I have said before - good luck with that one!
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#63 truths33ker
"The problem with socialists is that they eventually run out of other peoples' money"
The problem with Capitalists is that they are happy to share in the profits of 'other peoples money' - but when the losses come they want to 'hand it back to the people' and sit on a beach in Bermuda.
...and isn't that the TRUTH.
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Perhaps this is a start to the radical changes needed for public transport which will finally get me out of my car - please, I'm still waiting...
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It seems to me that the government is treating business directors as gentlemen and should realise that they are not. The main purpose of directors seems to be to maximise their take home pay and they will do this by any nefarious method.
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"At long last we have one publicly owned railway again!"
If only. Apparently splitting trains from track is an EU competition requirement. Of course, other countries don't worry about that, whereas we must have yet another re-tendering process.
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I reckon it will take years to try to unravel the governments wheeling and dealing.
This must be socialist capitalism for it seems to be acceptable in many areas that companies can now privatise the profits and if the franchise goes pear shaped just hand the problem back to the taxpayer.
Maybe that's why such a casual approach was taken when bidders produced such outlandish business plans.
This is good journalism which opens up a much wider area for investigation. Whatever else is out there it's not looking good.
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#92. At 2:20pm on 01 Jul 2009, jolo13 wrote:
"here is a scoop for you robert...tesco to bid for northern rock..."
Already reported, 8 hours before your post, on the Today programme on BBC Radio 4.
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#73 neonisoff
"As I understand it the Train Operating Companies hire rolling stock from a Leasing Company"
Oh yes.....and guess who own's those leasing companies?
RBS (Angel trains) - until it had to sell last year
HSBC (HSBC Rail)
Abbey National (Porterbrook)
So we're all back to square one - THE BANKS.
Surely I'm not the only person asking why banks own and lease the rolling stock of the rail system?
This is typical of the Capitalist system - the banks don't own these trains because they know anything about running the railways - they own them because they know it's a monopoly and therefore can charge whatever they like - it's corporate blackmail - and yep, you've guessed it - WE PAY - either the consumer or the tax payer....oh what's that, you're a tax paying consumer then I mean YOU PAY TWICE!
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#100. e2toe4 wrote:
"I am not united with you in anger as much (weirdly perhaps) this time about this issue --as opposed to the Banks."
You are right to point out that the abuses of corporate law are far more prevalent in the banking and finance sector. But in the case of National Express's franchise of GNR it was essentially a form of state subsidised cash cow - unfortunately the cow became barren and the cash dried up! It highlights the essentially fraudulent nature of many so called privatisations (see Metrolink and the Tube etc. and all PFIs)
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# 98 Writings on the wall
A free market is not to be confused with a perfect market where individuals have perfect information and there is perfect competition. You are getting confused.
Sound money is Gold and Silver, which have finite quantities, as opposed to fiat (government printed) currency.
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"I've no doubt that we will have a number of anti-capitalist people commenting who quite clearly have no understanding of this situation.
You have to be a really stupid or frightened leftwing government to come up with the current solution. Absolutely pathetic.
Would the 'ignorant' contributors on this blog please understand economic basics before mouthing off unintelligent drivel."
Listen rugbyprof [sic] it is you who is the ignorant imbecile by even speaking like that. 'Capitalism' and 'economics' has nothing to do with a poor moral standpoint that companies can cream off excess profits in the good times, then pass the buck to the taxpayers in the bad news.
As you claim to be such a good economist [ha ha, I don't think Stephanie Flanders will be losing too much sleep over the threat your analysis poses..] perhaps you will remind us of when you warned us, with your penetrating intelligence, analysis and foresight of the unsustainable nature of the 'credit boom' and the potential collapse of the banks until the good ole taxpayer rode to the rescue..
Answer came there none..
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#98 Writingsonthewall
I see we have another amateur armchair economist.
I'm actually for a mixed economy capitalist system myself which based on history seems to be the best of the alternatives so far, but it's not perfect.
By the way capitalism is not based on greed. Go to http://en.wikipedia.org/wiki/Capitalism for a quick reference.
I have Adam Smiths tome along with Karl Marx amongst others facing me - and I can't find your assertion anywhere. Let me know if I've overlooked something.
I would ask you to reread my comments through a balanced approach rather than a one-eyed viewpoint.
I'm not the one with the academic gap in my education - by the way you didn't answer my previous question in my earlier entry #52 .............
Incidentally, I go on evidence re GB/government etc and there's an awful lot out there stacking up. Anyhow this blog post is about NE/government spat - let's get back to the main story.......
By the way the best one-liner today was #63 truths33k3r - the last line. You should read it over and over again........
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#76 MrManj
I think the FSCS payment only covers up to the original 25k - not 35k and certainly not the 50k we're covering now.
Also, this payment is an insurance scheme - and just like every insurance scheme it counts on the unlikely probability of 'not all disasters happen simultaneously'. The premium does not cover everyone claiming at once (in fact nowhere near)
Unfortunately the situation I described is exactly that - when the customers of Northern Rock started loosing money over 25k - would you leave your money in your bank?
I certainly wouldn't take the risk - and it's evident from past runs that this is true for the majority of people. This causes other banks to fail and the whole ponzi scheme falls over.
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The essential problem with railways is that they are an outmoded technology that requires this expensive infrastructure that requires constant labour-intensive maintenance and which causes annoying delays when something breaks down or goes wrong. Perhaps the reason it's cheaper and more reliable to fly or drive than go by train is that flying or driving is actually a more efficient way of travelling (forgetting all the carbon emissions nonsense which is just a conspiracy by tree-hugging hippies anyway.)
So none of this matters. Just tear up the tracks and tarmac them over.
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#89
"it looks like those hardworking taxpayers (which you obviously see as some sort of minority group of which you are a part and everyone else is is either not hardworking or not a taxpayer or both) "
If you work for the public sector, you do not pay taxes. You have nominal amounts of your salary withheld as you are being paid from tax revenue (or in Gordon's case, public borrowing).
If you receive benefits, you are not a net tax contributor either.
No representation without taxation. The people whose money it is should decide how it is spent.
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#103 "The problem with Capitalists is that they are happy to share in the profits of 'other peoples money' - but when the losses come they want to 'hand it back to the people' and sit on a beach in Bermuda.
...and isn't that the TRUTH."
Well Gordon was very keen to socialise the losses of the banks wasn't he?
If they're so important that we cannot let them go bust, they should be publicly owned. Yet after 12 years of a "socialist" Labour government, they were not.
Quelle surprise.
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So no-one at the DfT (or DafT?) thought through the consequences of allowing (or as National Express implies, obliging) franchisees to set up 'special purpose vehicles' to be the legal parties to the agreement?
Just how incompetent can these clueless civil servants be?? It stands to reason that a company of National Express's size will obtain the best possible legal advice, and will have closed-off every liability loophole. Is the government of the UK really run in such a third-rate and amateurish fashion? It beggars belief.
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Going back to basics, if NXEC had run the service better, they might have retained more of their customers. I used to travel monthly London to Edinburgh on GNER, where the service was great. Then came NXEC, which promptly put up the prices (from £39.50 to £56 for the same trip, over 3 years), but the service got much poorer at the same time. Now I travel by plane all the time.
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#85
"Many of your contributors appear to have forgotten quite how bad the railways were when they were entirely in public ownership. Trains are now quicker, cleaner, more frequent and by and large the fares are lower. That is why so many more people want to use them."
This is an argument that often comes up when the privatisation row goes round again. The same argument is being used to privatise the post office. What happens is the Government cannot be bothered to actually run it properly and massively under-invest (to a level that would put the private sector to shame) - they then say "oh look how bad it is" and offer the only solution to be full or part privatisation.
It's a bit like when my son wanted a new bike, there was nothing wrong with the old one - but he made sure he crashed it, left it out in the rain, lent it to freinds and generally stopped caring for it - until it broke and he claimed he needed a new one to get to school (or his education would suffer).
Some of what you say is true (about trains being faster, cleaner etc) - but you have to remember that ALL trains have got faster and cleaner as technology has become more readily available. However this has nothing to do with who runs them - except that even a 'tightwad' private sector would have to invest slightly more than the Government were at the time of it being a National industry.
All you need to do is compare our trains to Europe - then you see ow far behind we've fallen. Generally they are still controlled by the Government so they can build the infrastructure required and not worry about the shareholders.
Privatised railways are forced to operate like cattle trucks - pack them in, charge as much as you can, and pass the profits to the shareholders.
However I do take exception to your argument that 'more people want to use them' - this is more to do with the alternatives being expensive or longer (driving or flying) and the conciousness of people not wanting to destroy the planet - than it has to do with them improving.
Trust me - I live in London and last night you couldn't get anywhere on SouthWest trains due to......the points overheating, expanding and jamming (which strangely doesn't happen in India, China, Japan, France, Germany - under similar conditions)
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The TOCs have all sorts of devices to hold the government (that's you and me, at the end of the day, by the way) to ransom. A limited recourse SPV is one - so that if bits of the franchise are suspended and losses escalate, the parent can close the business with no proximate loss to itself beyond the exposure of the SPV. But there are others - like lock in agreements for government underrwriting, terms for the suspension of regulated fares [passengers would rightly say 'what regulated fares?'] and much, much more.
All this leads one to conclude that EITHER privatisation is too costly for the taxpayer, or else the civil service/regulator negotiators of these franchises are....not that hot. To put it mildly.
By the way, is this a record? This seems to be the first public pronouncement by a minister on rail for so long, I'd actually forgotten we had a transport minister 'looking after our interests' at all.
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#112 lordBeddGelert
Thanks for the reference!
Actually I have a couple of blogs, one of which did indeed warn. I also own a business. Since 2005 thinmgs have been flashing red and we were geared for the current economic mess. I also personally sent GB at no 11 warnings re his chancellorship. Only GB and I are privy to those communiques.
There were also far more eminent people providing warnings re credit crunch but I'll let you do some due diligence. Those close to me know that I have been personally warning about this for some time. I've shown your posting to those here and I must say its caused some hilarity.
By the way, I don't claim to be an economist - just somebody who has studied economics which is supplemented by commercial experience and knowledge (after all my main job is running a business). By the way Stephanie Flanders is an economic journalist not an economist - don't confuse the two.....
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#103 Writingsonthewall
Bermuda, possibly, Stanford preferred Antigua.
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#93 Rugbyprof
Sorry, I didn't realise I was talking to somebody with books by Adam Smith and Karl Marx in front of him as well as access to wikipedia. There was me thinking you must be some sad, embittered person who thinks abuse is a good substitute for reasoned arguement. My mistake.
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To quote Jeremy Hardy on BBC Radio 4's News Quiz "At least the public sector is only misguided, unlike the private sector that is both misguided and greedy!"
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#124 Pawelkwak
I see - you believe your postings bear reasoned argument. Perhaps you should read them again. I'm not the one with a chip on my shoulder.....
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Railways, railways and railways. Lock stock and barrel were all nationalized for good reason in the past. Privatising essential infrustucture and services are just not compatible with peoples needs nor of our national interest, the complete service ought to nationalized and run at cost on a non profit basis. The profitable parts of the railway service will help reduce the subsidy that we all, like it or not, have to put towards the non profitable parts. The railways and canals will have an ever more important role to play in our near future and I for one do not want to be held to ransom by the pickpocket mentality of minority interests. We can pay for it when we can afford to pay for it, not before. Already have had a belly full of tick.
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#122. Rugbyprof wrote:
"I also personally sent GB at no 11 warnings re his chancellorship. Only GB and I are privy to those communiques."
Actually, I very much doubt that GB even got to see those "communiques".
Such a pity; if only he had taken your advice then we might not be in the midst of a global economic crisis today.
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New boy here (well 3 posts) I can't help thinking that of the 125 posts to this blog a high proportion of them seem to be people trying to score points from each other. Reminds me of the small town newspaper web sites where they are monopolised by 2 or 3 sad people who convince themselves that they are really working hard and know everything etc. and have actually lost sight of what the original blog was for and just want to pick off the others. Robert can you not remove these posts so that people can get on with putting forward their points of view on the item in discussion which will obviously differ but make for a much more interesting blog.
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#107 virtualslverlady
"This must be socialist capitalism"
Unfortunately this is nothing but Capitalism - the only difference on this occassion is all the rules of markets go out of the window when the business in question is vital to the people i.e. Railways, banks, schools, hospitals, postal service etc.
Unfortunately in the folly of the boom the Capitalist government believed that 'everything can be run more efficiently privately' - forgetting that the whole point of competition is that there needs to be some!
What you end up with is a private monopoly which becomes just as innefficient as the previous public monopoly - or, like with NEX or RBS - you realise that you can't actually allow the market to decide which bsuinesses survive because it's not the people of East Anglia who are at fault for the inability of NEX to operate correctly.
I think people are slowly starting to realise what privatisation means - and that's uncertainty.
I don't mind the uncertainty of the corner shop going bust at the end of my road - however I would like a bit more certainty with my train or bank.
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#111 truths33ker
A return to the gold standard then - well I'm afraid that boat sailed a long time ago - it was dropped to fill the huge whole created by the last bout of overproduction.
I completely agree that currency should be based on tangible fixed forms (Gold and Silver) - but you cannot turn the clock back without collapsing all the world Economy.
I am not confused about free and perfect markets - the free market is a myth as without perfect knowledge there will always be colussion and cartels formed as groups gather together to achieve their single aim - profit.
What you seem to believe is that an unbalanced and unfair market is a free market - which is not true as all buyers and sellers must participate willingly. There are a lot of unwilling sellers around at the moment - so can you name a single functioning real world free market?
....didn't think so...
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I dont think anybody seriously thought NXEC could pay a £1.4Billion premium for the ECML over the lifetime of the franchise even when the economy was bouyant so no surprise they have walked away now. Maybe Virgin and SWT will be next? However before we get too vitriolic over this governments position on this mess lets not forget which political party spent £1bn of public money in the mid 90's gifting us a private sector Railway in its current form, complete with bus operators who butchered that de-regulated Industry in the 80's and were then given short term 7 year franchises to run trains. Oh and why not forget about the infrastructure body we set up for the purpose and give them their stations to manage too ? Cos they are bound to be desperately keen to invest £m's to maintain listed victorian structures for their passengers benefit! Nobody comes out of this debacle smelling very sweetly..
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Ah, of course, the perfect answer to the 'Wisdom Of Crowds', an 'expert' with a 'little knowledge'. Step forward 'rugbyprof'. Feel free to link to these blogposts. I'm sure Stephanie Flanders, who has worked as an economist, unlike your good self, will be delighted to read.
As will we, while we prostrate ourself in front of your superior wisdom and intelligence. Or something like that.
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114. At 3:06pm on 01 Jul 2009, writingsonthewall wrote:
Well FSCS covers deposits of up to 50k now. That isn't just for bank accounts but for all deposit business, e.g. ISAs
http://www.fscs.org.uk/consumer/key_facts/limitations_of_the_scheme/compensation_limits/
You might think that FSCS wouldn't stretch very far but let me give you an example. Remember the pensoin mis-selling review you are all so fond of bringing up? remember all those small IFAs who were out of business and ddin't perform said review? well the FSCS picked all these up between 1998 and current date paying up to £48,000 a pop without any sign of running short of funds. This sin't to say it couldn't ever happen though
Anyway my point wasn't any of the above. My point was that it was incorrect to say the liability falls to the taxpayer, as you stated.
In the case of NR Labour broke the mold here instead of relying on FSCS to do what it was set up to do. Since then they have no dobut been under pressure to offer such guarantees to other parties (although strangely they ignore the case of Equitable Life, hence they are being dragged to court later this month by policyholders).
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#113 RugbyProf
Have you actually read any of those books - or are they there just for show?
I laugh at you as you don't think I'm educated - oh how wrong you are. The difference between you and I is that I questioned what I was being taught and didn't simply lap it up like the trained soldier you are.
You didn't ask a question in #52 - simply called me an idiot and went on about how educated you are and how everything is the Governments fault.
I cannot believe how mis-guided you are about Capitalism - and you call yourself an Economist - no wonder the country's in trouble - not advising the Government are you?
Still - I suppose to you the running of NEX is a shining example of privatisation being curtailed by the nasty meddling Government who should have simply written a big fat cheque to keep the CEO in suits and quaffing champagne and asked no questions.
There's one born every minute...
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71# midnightrichard
"the thought as to how much it will cost to repaint all the trains and rolling stock?..AGAIN"
Oh well, it keeps them off the streets - those painters, i mean.
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#128 rbs_temp
I'm sure you're right!
And even if he did - I'm also sure they would have been ignored because it wasn't the 'general consensus' at that time as it didn't fit a particular view of the world...
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#117 DialSquareDomination
You must be the ONLY person in the WORLD who thinks this labour Government is Socialist.
Does anyone on this blog actually know what Socialism is? You throw the word around like a threat or a disease, but I bet most of you haven't got a clue.
Socialism is a transitionary period before Communism where the working class take control of the means of production. Factories, railways, banks etc. It has nothing to do with the middle of the road politics in this country.
I haven't seen any Labour Government hand control of anything to the working class in my lifetime - so to call them soicalist is ridiculous.
Sometimes I think this country deserves what it gets - why should I care about a bunch of un-intelligent self centred bigots?
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rugbyprof
I have never seen anyone get mullered on this blog as much as you have today.
Ever felt you were fighting a loosing battle?
I can't talk any sense into you - but surely the number of comments by others might be turning you?
Otherwise I presume you're still looking at those books on the bookshelf and wondering which wobbly table leg needs them next.
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Why are rail companies paying to operate a risky franchise at all? Wouldn't it be more sensible all around to appoint a private company - selected on the basis of suitability/experience rather than highest (outlandish) bids - to run the services "for free"? Variably cap that company's profits according to its success at hitting targets (surplus goes to government), but otherwise give it the freedom to regulate fares within acceptable margins. Government then adds a % tax to all ticket sales.
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#129 gordonsc4lk
You're right - however in our defence this story is a bit lame and some people are saying some outrageous things today.
I'm not trying to score points off anyone - but I cannot sit by and watch people write such propaganda without making sure others realise the holes in it.
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Lets face it. Privation for basic services has not been the answer to all our prayers.
Maybe the "New Tory party" needs to come out and say they will renationalise all key services and correct the faults they made last time they were in power
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129. gordonsc4lk
Sorry - I will simplify my posts. I believe that it is wrong for the Government to take money from me to subsidise people who live in Norwich to get to work in London on a train. It is about persoanal freedom to choose. All else is detail.
Writing on Wall - just because there are no free markets does not mean that they are a bad idea - they just upset powerful vested interests.
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Grimble22350 wrote:
So no-one at the DfT (or DafT?) thought through the consequences of allowing (or as National Express implies, obliging) franchisees to set up 'special purpose vehicles' to be the legal parties to the agreement?
Just how incompetent can these clueless civil servants be?? It stands to reason that a company of National Express's size will obtain the best possible legal advice, and will have closed-off every liability loophole. Is the government of the UK really run in such a third-rate and amateurish fashion? It beggars belief.
------------------------------------------------------
It doesn't beggar belief, if these civil servants were any good they would be working in a private company.
I'm surprised anybody has any faith whatsoever in government interference in industry. Yes the railways are better in other countries but only because they have been invested in over many years and are not used as a political football. Party politics yet again.
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One joyful thing has come out of this.
We will now be able to say with delicious certainty that the "Government" can't even get the trains to run on time!
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I'm probably far too late to be read on this, but I can't help jumping into the obvious differences between Steadda #24 and Rugbyprof #25.
Rugbyprof is right that the Government takes money from the operators for use of the track - but maintaining the track (infrastructure) must be, by far, the biggest fixed cost of running the system. This could only be called a "tax" if the operators were paying this cost directly. If they are not, then it's hard to see that the Government is taxing them - particularly if, as I recall, they are still costing the Government more in terms of subsidies.
That having been said, I admit that I am instinctively with Steadda and believe that we have gained nothing from the privatisation of the railways (or any other public utility). It's all an accountacny gimmick designed to take the cost of running the service off the Government's balance sheet - with the operators then making their profits because they are able to squeeze the quality of the service and/or their staff while pushing up prices.
On the other hand a return to nationalised industries could only work if they were then run for the benefit of their customers/users rather than for the employees. The problem with nationalisation is political - in that Governments become responsible for the service and can be held to ransom by the service providers: then, since Government is also responsible for the price, they avoid unpopularity by keeping prices down and borrowing/subsidising to bridge the gap. (And they reduce the gap by putting off investment).
It need not be so - but to be otherwise there would have to be a more imaginative solution than the current model of nationalisation.
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The line is clearly a loss-maker for National Express.The next bid-money for the line therefore is likely to be significantly under the £72m put up by Nat Ex(Ex Nat).
The Queen gets CL of £41.5m plus the use of a further £21m .Maybe she would like to make a bid. Travel free, for over 400 royal engagements, included any time Ma'am.
Prince Philip,Pince Charles,Prince Andrew,Prince Edward,Princess Ann.
e.t.c.
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#133 lordBeddgelert
Actually you quite often find that the real intelligence does not normally reside in the public domain until after the event. Nobody wants to listen - of course you're immediately labelled a doomsayer because it's a good defence mechanism for those who don't wish their view of the world to be changed.....
I don't take my cues from journalists though I do publish a lot in my domain. Unfortunately, I'm not revealing who I am here but your rather snide remarks show up the bankruptcy of your previous comments....
I would prefer to focus on the issues rather than me personally as it doesn't add value to this blog....
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If ever there was any more proof needed that we have the most shambolic, embarassing, and pitiful railway network of anywhere in Europe then surely this must be it.
Not that I expect much better given that there was recently a time where our trains had difficulty in travelling from A to B without leaving the tracks. I well recall a tastless- but apt- French joke from the 1990's- 'how do you find a railway station in England? You follow the ambulance.'
So the taxpayer gets the bum end of the deal when NE suddenly begin to realise that travellers don't always readily tolerate an inflexible, extortionate fare structure to pay for a derisory service -often on rolling stock over 30 years old? You couldn't make this sort of ineptitude up! Our neighbours in France and Belgium have a nationalised railway service which is an absolute joy to use and always offers a clean, fast, safe, reliable service compared with our desperately poor showing on this side of the channel.
You could argue that the new Southeastern high speed service in Kent could mark a break with the past, but did the SRA foot the bill for the Japanese bullet trains before GoVia were offered the Southeastern franchise? And besides, we will ever see another domestic high-speed service that relies on the most advanced forms of safety-driven, in-cab signalling? Certainly not in the short-term, that's for sure.
For as long as it will be more conmfortable, cheaper, and hassle-free alternative to taking the 'strain' (by this I mean the car and London- Manchester/Glasgow flightpaths), then the government will utterly fail in it's drive to encourage us to use a greener, more sustainable form of transport.
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writingsonthewall (various entries)
You're doing a great job of convincing yourself......keep those entries coming....
By the way I question everything and weigh up the evidence - thus we may not be so different after all....
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#146 chris-w
Good observation...
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In the blog it says the government insists the firms operate as SPV's, if so there must be benefit to the government to this, I can only speculate that this is limited recourse to the franchise if national express went insolvent, which may have meant a non-government approved operator were able to buy the franchise or other more plausible reasons.
Also National rail put in subordinate debt, which implies there are senior debt holders whom I assume will lose money also - meaning net loss by the private sector would be higher than the 72 mil of Nat express. Perhaps National express even has seperate deals with senior investors, and as such were willing to pay the 100 mil as opposed the 72 mil hit they were taking.
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#John_from-Hendon Post 110
Absolutely...I am not arguing with the argument that it's possible to take the view that the Govt are so craven/useless or just slipshod in negotiating so many of these 'PFI' , NHS computer, service outsourcing , and franchise licensing etc... etc...etc....deals that one suspects veniality, or some other hidden agenda to be the 'real motive'....because 'nobody CAN be that stupid!'.
The difference (and I don't want to labour it because it ain't THAT improtant in the grand scheme of everything post-Lehman)... is that Banks did things that weren't 'contract covered' but which I (for what that's worth) suspect they KNEW very well WERE a moral trade off between unimaginably large . bankable and crystallised mega-bucks now and an unimaginabley large smash up that would wreck real lives in the real world in vast numbers.
The dishonesty there is basically moral... the 'I didn't realise what would happen...and everyone was doing it.....' types of excuse (even the Nuremberg excuse updated to "My objective was only to deliver shareholder value....")---- er!! Run THAT one past me again MR Applegarth, Goodwin,Hornsby, please.....
These cause me real anger because (to use the old line) EITHER they were so monumentally dumb that they actually honestly believe their excuses, in which case the dumbness itself ranks as proof of total unfitness for office (and so should have been sacked without compensation ) or they didn't honestly believe it and were acute enough to realise their was going to be a hell of a price to pay---in which case they were venial...and again should have been sacked without compensation.
Nat Exp is different in that the company (if so it does turn out) have simply taken advantage of a 'Bloomin heck I didn't think they would go for ANY of that...let alone ALL of it!" negotiating moment---- but the blame in this case has to be with the Government totally.
What the company didn't do here is stop the signing to say "You do realise this is a fabulous heads we win, tails we don't lose deal don't you?... Do you want to rethink it???"
That's the difference that I feel is enough to make the 'Bankers' and the 'Train drivers' two different cases, and therefore , for me different levels of anger .......
But... yes..... from the point of view of the 'plaintiffs'(That's the people who foot these bills in all cases...us) the level of ineptitude shown by the Govt in the form of the Ministers and deputies (and the bureacracy) is of the order that you do begin to suspect 'nobody CAN be THIS stupid...'
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Robert,
You write that National Express claims to have received advice "that the government would have no right to take back the other two profitable rail franchises operated by National Express (East Anglia and c2c)."
However, I think you may be missing the wider context of the cross-default issue: that every recent franchise agreement has written into it a clause that says that the DfT can terminate the contract if the franchisee _or any affiliated company_ defaults on _any_ franchise agreement. It's written into the agreement that National Express East Anglia (NXEA) signed - I checked - and I imagine it's written into the c2c agreement, too. You can view redacted copies of the franchise agreements at http://www.dft.gov.uk/pgr/rail/passenger/publicregister/
In the case of the NXEA agreement, Schedule 10.2 says:
"1.1 The Authority may, on and at any time after the occurance of:
(a) an Event of Default (subject to paragraphs 1.2 and 1.3) which is unremedied or continuing and which the Authority considers to be material; or
(b) a Termination Event which is unremedied and continuing,
terminate this Agreement by serving a Termination Notice on the Franchisee. This Agreement shall terminate on the date specified in any such Termination Notice."
And Schedule 10.3 says:
"2. EVENTS OF DEFAULT
Each of the following is an Event of Default:
[...]
Other Franchises
2.8 Termination, as a result of an event of default (excluding termination as a result of non-satisfaction of a condition precedent), of any other franchise agreement to which the Franchisee or an Affiliate of the Franchisee is a party."
Now NX may or may not have been advised by leading counsel that their other franchises are safe, but from my (lay) reading of the above it seems like the DfT has a pretty strong case if they decide to strip National Express of their other franchises. Somehow I don't see Lord Adonis letting them hang onto those franchises out of the goodness of his heart...
-roy
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The Ego has landed, or should I say arrived at the station! Will the BBC please review some of Mr Peston's blogs and calm him down a bit?
Pesteco? the pest bit seems appropriate.
Come on Robert, how about some proper balanced journalism for a change?
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I do wish that railways were run with the customers in mind not by political dogma. What has happened is that a company has walked away from a franchise that is suffering from the same political interference that was present in the times the railway was fully Nationalised (you MUST make money for the government). The only difference is that the trains are much nicer because they are owned by the Banks, which are the only people currently making money on the railways (and who owns the banks?)
The real scandal is that for cancelling many road programmes 10+ years ago we were promised new stations and re-opened lines, but we got virtually nothing apart from the West Coast upgrade, the Channel Link and much higher fares. It is nothing to do with spending plans or competition; the politicians don't understand that they either run the railways properly or don't get involved at all.
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#154 you have it right. I expect that the government will require some investment by NX to hold onto East Anglia for a start. NX is not running a very good service there, and I know that they've been hauled over the coals a few times when the DfT could have taken stronger action.
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Gerrardswhiskers @ 21
Might the reason why it is often cheaper to go one-way London-Paris than London-Edinburgh by train have something to do with the fact that Paris is 213 miles away from London, but it is 332 miles from London to Edinburgh?
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#157 pete_in_halstead: I think the DfT will seek to terminate the NXEA and c2c agreements without any further negotiations. We saw he wasn't prepared to go for an agreed NXEC termination: he's playing hardball here and he wants to make an example of National Express. He will want to make it clear to anyone else who's thinking about handing in the keys that he's not going to cut them any slack...
-roy
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The website domain nationalexpresseastcoast.com - the main portal for booking train tickets is registered to errrrm National Express Group plc
http://samspade.org/whois/nationalexpresseastcoast.com
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Robert, this is a good train service and the Government should have renegotiated the deal in the current recession affecting all of us in business. Too simplistic to criticise the operator. I went on it a month a go London to Peterborough and it was the best train service I had been on for a long time.
Government is too greedy to take royalties and should revisit this problem. Nationalisation is not the answer and this Government cannot run its own finances let alone take on more financial management.
Chris
Peterborough
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#154: It will depend on the precise legal definition of "affiliate" (and hence "control") given in the franchise, and how the SPV is actually set up.
It's quite possible that it's structured so that NXEC doesn't meet any of the criteria - does National Express have any control over it beyond, say, NXEC paying a license fee for the trademarked name? That fee might be in the tens of millions of pounds a year and - with the government's franchise fee - sufficient to cream off the majority of the profits. There's no need to own shares if the company will never be sold/floated (dividends come in on taxed profits, but why do that if you can extract pre-tax cash?); there's no need to be able to replace directors if the people you put in charge at the start are Sound - if they're loyal to you then they'll pick loyal replacements for themselves; and, really, what interest does the "parent company" have beyond a cheque turning up every so often?
I'm certainly not a lawyer, but the contract has a set of easy-to-verify criteria and I wouldn't be in the least surprised if someone had been able to keep to the letter of the law but not its spirit and ring-fence NXEC. If so, I expect they've just earned every penny they were paid to advise on the contracting...
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#162 RussWilliams:
I don't believe that's the case, though. The recent trading statement from National Express refers to NXEC Trains Ltd as a subsidiary of National Express.
But that's not their argument. In the trading statement they explain:
"Cross default can only be applied where the Secretary of State can reasonably expect that the default under one franchise within an owning group has a material impact on the other franchises within that group."
Well, the franchise agreement doesn't say that is so many words; what it actually refers to is "an Event of Default [...] which the Authority [DfT] considers to be material".
It seems to me that the wording gives the DfT the upper hand here, as it seems to make the DfT themselves the arbiter of what is and is not material. Lord Adonis's statement certainly seems to suggest that his department believes they can trigger the cross default clause. No doubt much money will be spent on lawyers by both sides and the uncertainty over National Express's financial situation will continue for some time to come.
http://www.nationalexpressgroup.com/nx1/media/news/corp_news/pr2009/2009-07-01/
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#163 roybadami:
I think we can both agree that the lawyers will win and everyone else - particularly the passengers - will lose.
Describing NXEC as a subsidiary in a press release doesn't really mean much. It clearly *is*, but there's (AFAIK) no IR35-style rule that says "if it looks like a subsidiary then it is". The important facts would be the ones Companies House holds on the structure of NXEC - shareholders, directors and the memorandum & articles.
I agree that the wording does look like it goes the DfT's way, but this could be one of the all-too-common cases where a layman's view misses out some subtle legal detail which makes it worthless...
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24. At 11:15am on 01 Jul 2009, steadda wrote:
"By the end of the day I expect Dave, the peoples champion, to be condemning the nationalisation of the railways; after all, if theres a bandwagon passing by, Mr Cameron is surely behind it trying to catch it up."
Trouble is the bandwagon is late, dirty, too expensive and don't expect a seat. he waits all day and then three turn up at once and the through ticketing will be a nightmare...
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