Posts Tagged ‘Jarvis’

Privatised Railways and the Failure of Popular Capitalism

March 23, 2015

One of the Ed Miliband’s election promises has been to renationalise parts of the rail network. As recent polls found, most of the population of this country would like to see the utilities returned to public ownership, including the railways. They’ve been marred with poor service and overcharging since they were first privatised by John Major back in the early 1990s. To make matters worse, the railways are receiving far more in government subsidies than they were when they were nationalised. The British public are paying through the nose for a worse service.

Anthony Sampson discusses the massive failure of the privatised railways in his book, Who Runs This Place: The Anatomy of Britain in the 21st Century. The book examines and describes how Britain has become less democratic, with politicians, government officials and industrialists more remote and unaccountable. He devotes nearly two pages to the privatisation of the railways, pp. 289-90, in which he states

The most disastrous of the privatisations was the last, British Rail, which was also the most visible to the public. Margaret Thatcher had shrewdly resisted selling it off, but John Major weakly gave in to pressure from bankers, and went ahead in 1996. The selling off of the vast railway network was devised by the Treasury to maximise the short-term gains, and was masterminded by Sir Steven Robson. The stations and the 23,000 miles of track would be run by a national company, Railtrack, while separate operating companies would buy and run the trains in different regions. The old railway managers were soon demoted: the chairman of Railtrack was Sir Robert Horton, who had just ben fired as chief executive of the oil company BP; and he chose as chief executive a finance director, Gerald Corbett, who had risen through Dixons shops, Redland cement, and Grand Metropolitan drinks. the track maintenance was delegated to private contractors.

By 2001 the whole railway system was in serious danger. Corbett was out of his field and Horton was in ill-health; he was succeeded by Sir Philip Beck, chairman (like his father) of the Mowlem construction company, whose experience came from the controversial Docklands Light Railway. The lack of effective accountability became tragically clear after a succession of train crashes, which revealed scandalous lack of supervision. The crash at Potters Bar was blamed on careless maintenance by the subcontractors Jarvis, whose chief operating officer blamed sabotage, of which no evidence emerged; he was then promoted to chief executive. The trail of accountability ended up in the sidings of a secretive private company.

The government at last intervened, withdrew support from Railtrack, thereby bankrupting it, and created a new non-profit company, Network Rail, chaired by Ian McAllister, the former chairman of Ford in Britain, with an engineer John Armitt as chief executive. The environment secretary Stephen Byers, who had responsibility for transport, resigned, and was succeeded by the Scot Alistair Darling, and Darling extended the government’s role in July 2004 when he abolished the independent Strategic Rail Authority – which had been created only four years earlier – and took over most of its functions.

The operating companies, which had been only granted short franchises, were more interested in quick profits than long-term planning, and most boards had little experience of railways. South West Trains was acquired by the bus company Stagecoach, built up by the combative Scots entrepreneur Brian Souter and his sister Ann Gloag, which the Monopolies Commission had earlier accused of behaviour that was ‘predatory, deplorable and against the public interest’. They made a new fortune by selling rolling-stock, and bought the magnificent Beaufort Castle in Scotland; but they soon made rash investments in America which brought down their shares and limited their investment in British trains. West Coast Trains was bought by Virgin, run by Sir Richard Branson whose background was in airlines and pop music. South Eastern and South Central trains were run by Vivendi, the French conglomerate which soon hopelessly overextended its empire, from water to Hollywood. The Great North-Eastern (GNER) was owned by the Bermuda-based company Sea Containers, controlled by its American founder-president Jim Sherwood.

The privatising of the network had undermined much of the traditional British pride in railways. The separate regional traditions and hierarchies of engine-drivers, signalmen and stationmasters were swept aside by the cuts and constraints imposed by accountants and financial directors at headquarters. Many of the cutbacks were necessary if the companies were to be made viable; but the upheavals in the operating companies and the collapse of Railtrack had left few people who understood how railways really worked.

The privatisation of the railways failed because the franchises were short-term, and the firms that bought them thus only interested in making a quick buck. They had no knowledge or experience of running railways, and refused to accept responsibility for the disasters and horrendous crashes that occurred. Margaret Thatcher herself recognised that privatising them would be a bad idea, but it clearly wasn’t bad enough to dissuade Britain’s bankers.

As a result, Blair’s government had to extend government power over the privatised railways, even though New Labour was enthusiastically pro-privatisation. Ed Miliband’s planned re-nationalisation of parts of the rail network will thus undoubtedly be an improvement.

From 2010: Private Eye on the Failures of Jarvis, Vertex, Liberata and other Private Contractors

April 10, 2014

This is the from the Eye’s issue for 17th -30th September 2010:

Outsourcing

A Private Dysfunction

Government cost-cutting plans to outsource more and more services could herald a series of cock-ups as companies running the services go the same way in tough economic times as PFI and rail maintenance company Jarvis and, last week, housing maintenance company Connaught.

Alongside the usual suspects of Capita, Serco et al, many previously unheard of outsourcers are eying up contracts even though they have limited track records and shaky finances. Several are owned by a private equity industry that sees outsourcing as the next quick buck and are accordingly borrowed up to the eyeballs. Fine if they succeed, quick disaster if they don’t.

One such outsourcer is Vertex, chaired by Sir Peter Gershon. As David Cameron’s productivity adviser before the election, Gershon counselled: “a new government faces a massive and complex agenda of driving savings to close the deficit. It ought to simplify this agenda by deciding that all back office transactional functions will be outsourced within 18 months …” Coincidentally, this will hugely benefit his employer Vertex, which already has “contact Centre” and other service contracts with JobCentre Plus and councils including Westminster and Hertfordshire.

Vertex needs all the business it can get. In the two years ended 31 march 2009 it lost £43m, largely because of £35m in finance costs brought about by the huge debts (£215m in 2009) that come with private equity ownership, and which leave Vertex with liabilities exceeding its assets. Since 2008 Vertex has been owned by a consortium of US private equity firms.

Another firm in even firer financial straits is Liberata, which runs finance, payroll, IT, maintenance and any number of other services for councils from Somerset to Manchester and in Whitehall for the Justice ministry and culture department, among others. it is owned by private equity outfits General Atlantic Partners Ltd and GAP-W International, and groans under liabilities exceeding its assets by £67m and losses in the last two years running to £91m. Most arose on its pension schemes, which by last year had run up a combined deficit of £81m. In September, Liberata brought in a Serco and Crapita veteran, Dermot Joyce, to turn things round.

When Jarvis failed to turn things round and went into administration earlier this year, 1,000 “outsourced” workers lost their jobs and there was no money left for redundancy payments. With public services thrown at the mercy of a volatile private equity market, they might well not be the last.

Several of the care homes, which were in the new a year or so ago for poor care and appalling abuse inflicted to their miserable inmates were similarly owned by private equity firms. These firms regarded them solely as a source of profit, and were not interested in providing good quality care to their disabled and mentally retarded wards. They may also have been in similar perilous financial condition.

As for Gershon’s relationship with David Cameron, this seems to be the norm with Tory party politics and privatisation. The Skwawkbox blogged earlier this week about the connection between George Osborne and one of the companies that made a massive profit from the privatisation of the Royal Mail. It’s time this was all stopped.