The decision to place Railtrack plc, the privatised rail company responsible for the upkeep of the system's infrastructure, into administration last weekend would normally have been the main item on the national news. However the beginning of the US/UK bombing raids of Afghanistan conveniently put paid to that. Nevertheless the effective insolvency of a major privatised company - and a high profile one at that - has had serious repercussions as we shall see.
The company had been in deep financial trouble for some time. A shortfall of over 2 billion pounds had been identified in its future 5 year investment budget, with existing projects already way over the limit. The upgrading of the west coast main line, to give one example, has already gone 5 billion pounds over the original estimate for the job.
Of course the most serious problem to come Railtrack's way has been the fallout from a series of major rail crashes, notably Paddington and then towards the end of last year, Hatfield. The immediate effect of Hatfield was to throw the whole rail network into crisis as contractors were hired to work night and day up and down the country to repair lines which Railtrack had suddenly 'discovered' were not up to standard. Cancelled trains, nonexistent services and speed restrictions on virtually all lines left the whole network in chaos for months. Rail companies were being forced to pay out - and are still paying out - millions of pounds in compensation to passengers for failing to meet service targets. This money was in turn being recovered from Railtrack.
In the face of all this, Railtrack's attitude had been one of arrogance and bluff. Having failed to notice that the network's infrastructure was falling to pieces they acted as if it was a minor irritant which certainly did not merit any criticism falling on their shoulders. Such an attitude quickly earned Railtrack the title of Britain's Most Hated Company.
Privatisation deeply unpopular
Rail privatisation - involving the creation of a myriad of different companies and franchises from the corpse of British Rail - was the last in a series of such privatisations of public utilities carried out by the Tories during their 18 years in government. All had been marked by a policy of selling off cheap with the bulk of the shares ending up in the hands of the big corporate investors. Directors ended up making millions in the form of handouts and share options - the age of the so-called 'fat cats' had arrived. The other side of the coin was the methods used to generate profits from these privatised firms: cutting corners, reducing staffing levels and generally forcing more work out of those workers who remained. These firms were not adverse to asking for cash from the government whilst at the same time making large dividend payouts to shareholders and, of course, to their own directors. By the mid Nineties, the poor performance of these companies had helped make privatisation deeply unpopular with the mass of voters, who duly kicked the Tories out of office in 1997 as severe disillusionment set in.
Needless to say the incoming Labour government has ignored all this and has been looking for new privatisation options, despite widespread public disquiet. Most recently they have been looking at private sector 'input' into public services such as education and health. They have also been pushing ahead with plans to, in effect, partially privatise the London underground system using the controversial and much criticised Public Private Partnership (PPP) system.
Strangely enough for the last year, assorted experts and City analysts have been calling for the renationalisation of Railtrack. This was not because of a sudden influx of socialists into these positions but rather a realisation that Railtrack's position was becoming untenable. Far better they said, before more 'investors' money was lost, to let the government buy the company back, pay off the shareholders so that they come out ahead, and then set up a new company, no doubt with all the existing management still in place on nice new inflated contracts and then carry merrily on as before with the government footing the bill. Well that was their plan but things didn't work out quite like that.
Railtrack management decided to bluff it out in the hope that the government would write them an open cheque. Given that Sir Alastair Morton, outgoing chair of the ineffectual Strategic Rail Authority (SRA) had stated that it could be 15 years (at least) before Britain could have a safe, modern, reliable rail system, this was always going to be a mighty big open cheque indeed!
So the government decided on a course of action which had not been predicted and, after refusing to hand over any more subsidies to Railtrack, went to the High Court last Sunday to effectively put the company into administration. The company's bankers, HSBC, followed this up by freezing its bank account with 351 million pounds cash.
The plan is now to reform Railtrack as a Not For Profit trust, an idea which assorted think tanks have been floating around for a while now as a means of avoiding having to renationalise and still get private investment. They also hope that the 'sacrifice' of Railtrack will distract attention from the other privatisation projects, both past and future.
This was not what the City wanted. With a passion that was sadly lacking from these people when it came to dealing with safety and levels of service they have been fighting to get something back from their now largely worthless shares. Despite all the talk about acting tough, the government has been quick to start caving in. It now looks like the frozen bank assets will be released allowing shareholders to get 70p per share. But for the big corporate shareholders this is not enough, they have grouped together and hired a team of lawyers to start action against the government to get what they consider the full value of their shares back. Given the tendency of government ministers to bend the knee to big business when ordered to do so, the signs are not good that money won't be used to bail these speculators out at the expense of the public good.
What should be done? Firstly the Labour government should forget about such pseudo-nationalisation ideas as Not For Profit trusts, especially since they seem to be reliant on the private sector still coming up with the cash. The collapse of Railtrack is the clearest sign yet that privatisation has failed in every way apart from making a few rich speculators even richer at our expense. Labour should immediately renationalise the whole rail network; Railtrack, the operating companies, the lot. This should be done on the basis of compensation only to those small shareholders who can demonstrate real need with nothing at all going to the corporate shareholders and fat cats. We do not want a repeat of the sort of nationalisation which the City were calling for in relation to Railtrack, the sort of nationalisation we saw being carried out by the post-war Labour government in which the largely bankrupt rail and mine owners suddenly saw themselves being bailed out at great cost to the public.
The network should then be run as part of an integrated, publicly owned and controlled transport system for the benefit of all. The old system of setting up boards packed with management types, old relics from the City of London and the House of Lords and so on, acting as if the nationalised company was still private, should be replaced by a proper system of workers control and management with all sections of society (employees and passengers) having a say. This process should also be repeated with all the privatised utilities, most of which are in financial trouble and all of which are failing to meet the standards which they promised.
The government should also stop all plans to extend privatisation in to other new areas. Big business are already threatening that any cash they stump up for PPP projects will now come with a much higher premium, given the danger that the government might not cover their backsides should things go wrong. We should take them at their word and abandon any use of PPP as a means of funding public projects. A socialist programme based on the releasing of the tremendous financial resources now locked up in the greedy mits of capitalism would enable all the problems of Britain's crumbling infrastructure, its railways, its roads, its schools and hospitals and so on, to be upgraded and brought into the 21st Century. The renationalisation of all the privatised companies should therefore be linked to the immediate nationalisation of the big monopolies, banks and finance houses. These bodies should be run under workers control and management as part of a socialist plan of production. This is the only way forward. The fall of the house of Railtrack shows us just how failed a system capitalism and the so-called free market really is.
London October 11, 2001