Train fat cats receive £1.2 billion in share payouts as rail network crumbles

Taking back the railways is going to be a tough track but there is an argument for Nationalisation even the Tory’s can’t ignore

Nearly 30 years ago the Spitting Images show forecast exactly this, “Down go the standards, up go the fares and only fat bastards will soon own the shares.

Out go the regions, the unprofitable routes, just leaving commuter trains crammed full of suits….. the private contractors making their pitch, the Tory supporters all making it rich. The bankers, the brokers, the PR men too, the only ones who will lose out are YOU”

Today “Firms who provide trains for the country’s crumbling rail network have paid out a staggering £1.2billion to shareholders, an investigation has revealed. The little known companies have links to a tax haven and make a fortune from leasing the rolling stock to train operators across the UK.

The huge payments come as millions of passengers are suffering delays, overcrowding and rocketing rail fares”

If a satire program knew this would happen, then so did the Tory politicians who drove it through. Today, Tory donors are making a killing betting against British companies in the Brexit debacle created by the Tory government. Nothing has changed.

How Dutch and German train and bus firms are taking UK taxpayers for a ride
The UK government has poured money into transport infrastructure. And thanks to privatisation, state-owned European bus and rail operators reap the benefits.

James Meek’s book on the privatisation of Britain, Private Island, highlights the perverse outcome of an energy industry sell-off that saw vast tracts of our power infrastructure fall under the ownership of the French government-owned EDF. “France in effect renationalised the industry its neighbour had so painstakingly privatised. Renationalised it, that is, for France,” he writes.

EU forced Électricité de France popularly known as EDF a state-owned EPIC, it became the main electricity generation and distribution company in France, enjoying a monopoly in electricity generation, although some small local distributors were retained by the nationalisation. This monopoly ended in 1999 when EDF was forced by a European Directive to open up 20% of its business to competitors.

Note the fact that EDF was forced to open up to competitors due to EDF’s monopoly. Nationalisation of utilities and rail in all senses of the word is a Monopoly and can be no other, it is on this bases that EU rules and regulations will not allow Labour’s manifesto to be implemented in full.

If privatisation was designed to introduce the rigor and efficiency of the market to the operation and ownership of public infrastructure – with the private sector generating profit for its constituents in exchange – then the presence of EDF in our energy landscape is a rebuke to that notion. EDF is a state-owned business making money from an industry that started out under state control and is perhaps better off staying there given its strategic importance.

It’s a golden goose the shareholders will hold on tight while taxpayers keep feeding it.

Since the railways were privatised in the early 1990s, punctuality and safety have improved from the chaos of the Railtrack era. That cannot be ascribed to the risk-taking and innovation of franchise operators, but to the billions of pounds invested by Network Rail, a government-controlled entity. London’s world-class transport system is the consequence of a multibillion-pound investment programme funded by the government and carried out by the publicly owned Transport for London authority.

Depending on where you stand on the privatisation issue, there can be a debate over how you describe a privatised rail system that has been renationalised by fellow EU states. Ironic is probably too generous. An ideological failure, certainly. The most tangible results achieved under rail privatisation – improved safety and punctuality – are down to a government-funded investment programme under the auspices of Network Rail.

If we follow the logic of what is happening to the franchise system to its conclusion, then nationalised rail operators are the most efficient owners of rail routes. In that case, there is a solution already waiting.

Nationalisation 

The Labour party’s 2017 manifesto included a pledge to bring private rail companies back into public ownership as their franchises expired.

However, some franchises are set to continue for many years and the party has said it could use break clauses in contracts to take control sooner. There are currently 18 franchises in England, Scotland and Wales.With the odd exception, the shortest contracts run for seven years, although 10 years is more common.

Labour’s 2017 manifesto pledged to bring passenger rail services back into public ownership as rail franchises expire and repeal the 1993 Railways Act, which privatised our railways.

Yet the Fourth EU Package of Rail Liberalisation Directives embeds an identical competitive structure to the 1993 Railways Act introduced in Britain, in order to open up domestic public rail services to compulsory competitive tendering across all EU member states and regions by December 2019.

Public operators may continue to operate passenger rail franchises under EU rail liberalisation rules, but only on the basis of competitive tenders.

This rules out reconstruction of a coherent, integrated public monopoly responsible for passenger and freight services, rail infrastructure and public accessibility, such as British Rail.

Beyond rail sector-specific EU Directives, the rail market is policed more generally by EU competition law, to ensure market competition between firms, including state-owned firms.

In 2011 Dutch rail operator Abellio, a subsidiary of Dutch national railways, launched a legal challenge to the German regional government of Nord-Rhine Westphalia (NRW) over its award of a regional train operating contract to German national rail operator Deutsche Bahn (DB).

Germany’s Federal Competition Authority found the NRW government had breached EU competition law by awarding the contract for regional train services to DB.

Significantly, Abellio argued that EU general rules on public contract tenders should apply over and above sector-specific railway rules. The German court upheld Abellio’s claim, but further prevented the firm agreeing an out-of-court settlement with DB since EU law prohibits “cartel behaviour.”

In this way, EU competition and liberalisation rules enforce the breakup of nationalised rail monopolies to the benefit of emergent transnational, (often) state-owned rail operators, which EU state aid restrictions make increasingly dependent on private finance for capital investment. Single market rules bequeath a vicious circle of market liberalisation, privatisation and corporate monopoly.

A future Labour government renationalising passenger rail services in Britain would face legal challenges for infringing general EU competition law as well as rail-specific EU liberalisation legislation under single market rules.

Research by the Rail, Maritime and Transport (RMT) union has found that three firms have been been paying massive dividends to their shareholders and using companies based in the tax haven state of Luxembourg.

The opening to competition is one of the main justifications of the advocates of the privatisation, as competition will force the SNCF to align its standards on the private sector in order to maintain price competitiveness. The reform, if adopted, will organise a gradual phase-out of the SNCF’s passenger rail monopoly, starting with competition on high-speed lines in 2020.

The regional train lines will follow until 2023, except for the Ile de France region which will have until 2033 due to the specificities of France’s most populated region. The obligation for every public administration to organise call for bidders for any public market related to the rail industry will be fully enforced by 2033.

In addition to the risk of a privatisation in the medium term in the wake of the completion of the opening to competition, such an opening will most probably disorganised the rail services, increase the prices of the tickets and led to the deterioration of the infrastructures and the closure of non-profitable train lines.

Such consequences are not fantasies but based on the observation of the railway industry in several European countries after the opening to competition was completed.

This was the case here in the United Kingdom which was the laboratory where for experimenting neoliberal reforms in the last three decades. The opening to competition and the privatisation in the 1990s led the British rail transport to become a disaster to such an extent that a large majority of British people are in favour of its renationalisation.

The comparison with other countries in Europe where opening to competition, deregulation and privatisation have been implemented brings us to look at the origin of these processes: the European Union’s fourth railway package.

The involvement of the EU in the railway industry started in the end of the 1990s with a White Paper advocating for liberalising the rail sector and introducing market-based logics. In 2001 a first package of European directives were adopted by the European Council imposed the organisational and accounting separation of the rail infrastructures form the rail companies.

This led to disorganisation and additional charges for the maintenance of the railway lines that caused a lack of investment in the infrastructure and extra charges for the rail companies due to rail tolls. The second package (2004) intensified the opening to competition of the rail freight while the third (2007) extended the opening to competition to the international passenger railways which took effect only in 2010, in order to give some time for the public railway companies to be prepared for competition.

These reforms turned out to be ineffective and very costly: they raised the prices of the tickets, the number of accidents increased while the freight railway continued its decline. Regardless of any evaluation of the previous changes to rail transport regulation, the European Commission persisted with its ideological goal of completing the liberalisation of the rail and produced a fourth railway package which was voted by the European Parliament in December 2016.

The technical aspect of this aims at systematise the interoperability of the rail system among the whole EU, unify safety standards and authorisation for rolling stocks. On the other hand, the political aspect consists in one single objective: the opening to competition of the market for domestic passenger transport services by rail.

The fourth railway package took effect in 2018 and therefore the opening to competition has to take place by the end of 2020. In other words, France has to comply with this set of European directives and modify its legislation for integrating these rules in 2018 and enforce them before 2020.

Such a legal obligation tends to confirm the thesis according to which the EU is responsible for all neoliberal evils among Europe. The spectrum of the EU competition dogma EU is widely seen, among the opponents, as the true origin of Macron’s rail reform.

The implementation of the fourth railway package during Macron’s five years term was inevitable unless the French government was ready to engage a harsh power struggle against the EU’s directives, which is a very unlikely possibility given Macron’s neoliberal stances.

The little known companies have links to a tax haven and make a fortune from leasing the rolling stock to train operators across the UK

The RMT is calling for the rolling stock to be taken back into public ownership

Millions of passengers use trains owned by the firms every day, but few would have heard of the so-called ROSCOs – rolling stock companies; Porterbrook, Angel Trains and Eversholt.

The firm’s own 87% of the rolling stock on Britain’s railways and were formed after the Tories privatised British Rail in 1993 and handed BR’s stock of 11,250 vehicles, assets which had been funded by public investment.

When the then Tory PM John Major privatised the railways, travellers were told fares would fall, but the cost of some tickets has risen by 250% in the 26 years since.

The RMT is calling for the rolling stock to be taken back into public ownership – along with the rest of the rail network – and claim the dividends paid out could have funded 700 new trains.

A detailed study of the ROSCOs accounts shows the companies paid £1.2 billion in dividends to their shareholders between 2012 and 2018.

Mick Cash, RMT general secretary, said:

THESE FIGURES SHOULD BE A WAKE-UP CALL FOR THE NEW TRANSPORT SECRETARY GRANT SHAPPS.

“For years, we’ve known that the Rolling Stock Companies have failed to deliver new investment in vehicles for a modern railway, leaving passengers paying the highest fares in Europe to travel on clapped out, overcrowded trains.”

Bruce Williamson, spokesman for campaign group Railfuture, said: “This is what you get for privatisation and involving private companies who want to make a profit.

“It plays badly to the public who perceive rail travel as expensive. Clearly we would always ask for investment in the railways which have suffered from under-investment for decades.

“It is overpopulated with outdated rolling stock and track.

“Passengers might look at this and not see the money going into investment. It fuels the argument for nationalisation of the railways in the eye of the passenger.

“I can understand why passengers seeing these sorts of figures would feel like that. It prompts the question of whether there is effective competition in the rolling stock market.”

Punctuality on the rail network fell to a 13-year low last year with one in seven trains delayed by at least five minutes.

Recent government figures showed that more than 230,000 people were standing on trains during peak hours in London.

The next highest was Birmingham with 17,300 standing.

And the percentage of passengers standing has grown across seven major cities.

The RMT’s report says the business model means the firms operate an “effective monopoly” of leasing to the Train Operating Companies (TOCs) with little incentive to invest in new rolling stock.

It says for rail passengers the average age of rolling stock has risen since privatisation, while high leasing costs are passed onto the taxpayer through subsidies demanded by TOCs and onto passengers through higher fares.

ROSCOs revenues have risen steadily since 2012, from around £800 million in 2012 to around £1 billion in 2017.

Meanwhile, Department for Transport data shows the average age of rolling stock has risen since privatisation, from 16 years in the last year before privatisation to almost 20 years in 2017/18.

An analysis of company accounts showed three companies paid dividends worth as much as all the dividend payments TOCs managed across more than 20 franchises over a five year period between 2012 and 2017.

The report concludes:” We will probably never know exactly how much money the ROSCO’s and their owners have made out of our privatised rail system.”

Porterbrook, which employs more than 120 people, states on its website that it “has been at the heart of the UK rail network for 25 years and owns almost a third of the national passenger rail fleet.”

A Porterbrook spokesman said: “Porterbrook is proud to be UK tax resident and support British workers. Since 1996 we have invested £3bn in new trains, almost all of which have been built in Derby.

“We also spend more than £100m annually with supply chain companies across the UK, including SMEs, to maintain and upgrade our existing fleets.”

And Eversholt Rail leases trains to 12 train operators and 2 freight operators within the UK says it has invested £3bn.

The firm says:”We procure and finance new rolling stock and have invested more than £3 billion in new trains since privatisation.”

Britain nationalises Northern Rail after years of disruption

A spokesman for the Rail Delivery Group, which represents train operators and Network Rail, said: “Record investment by the private sector means that by 2021, passengers will see the equivalent of half the nation’s train fleet replaced old for new, reducing overcrowding and enabling thousand of extra trains to run each week.”