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Volume 50 Number 8, March 7, 2020 ARCHIVE HOME JBCENTRE SUBSCRIBE

Workers' Forum

Government Ignores Lessons of Rail Privatisation

Virgin Trains, which took over the privatised rail franchise of the West Coast Main Line in March 1997, ran its last train from Euston to Wolverhampton last December. Virgin Trains, which was co-owned by Sir Richard Branson's Virgin Group and Stagecoach, had their bid to continue running trains on the line disqualified by the Department for Transport (DfT) in April of last year because they refused to meet the pension rules for rail staff. The same company had already ended its contract on the East Coast Main Line in June 2018, due to run to 2023, because the companies said they had failed to "achieve revenue targets".

Then in May last year, the Virgin Group lodged a Judicial Review against the DfT on the loss of the franchise, Patrick McCall, senior partner at Virgin Group, said. "The DfT has ignored this [Virgin's] track record and instead focused on which bidder is reckless enough to take on various unquantifiable risks, such as pensions."[1] The same report pointed out: "Virgin Rail Group Holdings, Virgin and Stagecoach's joint-venture company, will have taken more than £600m in dividends from Virgin Trains by the time the west coast route is handed to a new operator within the next 12 months." In fact the figure, according to research by the Rail Maritime and Transport Union (RMT), was £720 million. Putting this in perspective, the RMT points out that this "is a lot of money in anyone's books, but for a sense of scale, this represents 76 per cent of the operating profits made by Virgin on the West Coast Mainline. That means that precious little of the profit they made was being re-invested directly in the railway. This confirms the candid view expressed by the CEO of FirstGroup recently when he said that 'Rail is cash generative, with profit after tax equating to dividends available for the Group, albeit with some phasing of the funds flows'."[2] RMT also points out: "Nor did Virgin invest much in the franchise at any point."[3].


Page of the RMT submission to the Williams Review

The franchising and the pay-the-rich schemes in the national railway system have not only put the whole railway system at risk, wrecking services and fleecing passengers with high fares, but they have jeopardised railway workers and all to who work in the rail industry and their pay, conditions and pensions. Far from putting an end this system, the government has issued a new franchise to precisely FirstGroup in August last year in spite of its ongoing rail review undertaken by Keith Williams. The new company that has taken up the franchise is Avanti West Coast, owned by First Trenitalia, a partnership between FirstGroup and Italian state railways Trenitalia. FirstGroup also runs the South Western Trains in partnership with another company, MTR, and this year its own auditors, London Deloitte, have said that South Western faces "material uncertainty" over its South Western Railway franchise.

In addition, The Williams Rail Review and its recommendations described by the RMT in its own report this February, Reanimating the corpse[4], prioritises "commercial models for the provision of rail services". The recommendations do nothing to resolve the railway crisis because it does not address the pay-rich-scheme that is taking more out of the economy than is being put in. It does not address the neo-liberal agenda that is wrecking the railway system. It does not recognise the voice of rail workers, who are speaking out that an integrated rail system operating across fragmented privately-competing parts has reached the point of a sheer inability to function given the demands of a modern socialised economy. The necessity is for working people, not the monopolies or competing private interests, to control the railway network. These private interests must not be allowed to seize the value created by the workers engaged on the rail network. This value, far from being paid for by the rich who benefit from the transport of working people, is lost to the social economy; it is lost as investment in social programmes. When this value is expropriated to pay the rich, public enterprises are starved of resources. Workers are raising their voices against such privatisation and are emphasising the need for control over and decision-making about the railway network. Investment must be provided to benefit the people, not the competing private interests which are causing such havoc.

Notes

[1] Mark Sweney, "Virgin Trains takes government to court over West Coast route", The Guardian, May 24, 2019, https://www.theguardian.com/business/2019/may/24/virgin-trains-takes-government-to-court-over-west-coast-route

[2] RMT News, Vol. 23, No. 2, February 2020, https://www.rmt.org.uk/news/rmt-news/

[3] RMT News February 2020. One of the ways we can see this is by looking at its Return on Capital Employed (ROCE), a measure that investors use to assess how hard the money they put in is working to generate profits. The higher the ratio of profit to capital invested in the business, the better for investors. West Coast Rail Ltd's "ROCE" averaged 102 per cent. What this means is that it was making as much if not more in profits than it was investing in the business as capital. And as we saw above, more than 75% of that profit was turned into dividends for Virgin. So, for all the flash and fanfare associated with Virgin, it was in fact taking very few risks and getting a lot of money out for what it put in.

[4] RMT, "Reanimating the corpse: How the Williams review will attempt to resuscitate rail privatisation", February 2020, https://www.rmt.org.uk/news/publications/reanimating-the-corpse25220/

For further information on the Williams Rail Review, see:
https://www.gov.uk/government/collections/the-williams-rail-review

Total dividends 1995-2018: £718,100,000. Dividends a/the-williams-rail-reviews a percentage of Operating Profits 74%. Average ROCE: 102%


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