Imposing ‘market discipline’ on public services

There’s an absolutely cracking article by Aditya Chakrabortty in today’s Guardian reflecting on the privatisation of the railways. I was astounded to hear John Redwood cite the railways a couple of months ago as evidence in support of the privatisation of the royal mail. I’m fascinated by the question of how much, if at all, people believe this stuff. Or is it simply the case that the present system is straight-forwardly in the interests of too many influential people?

I asked academics at the Centre for Research on Socio-Cultural Change (Cresc) to calculate how much companies such as Virgin and First Group are investing in their services. They looked at their return on capital employed, which is to say the amount train operators made on the money tied up in their business. A low ratio would indicate an industry doing as Norris and his colleagues foretold: ploughing cash into delivering a better service. A really high ratio would indicate the opposite: barely any cash going in.

The figures are astonishing. In the financial year ending in March 2012, the train companies gained an average return of 147% on every pound they put into their business. Forget about high: that is stratospheric. It suggests that – despite all the promises made by the freshly rehabilitated John Major – the train operators are investing barely anything, but making bumper returns.

If you’re a pensioner, imagine a savings account that promised to give you next year a 147% return on your cash, rather than the 1% you’ll typically get now. If you’re a first-time buyer, imagine selling up next year at a 147% markup – impossible even in primest, most central London.

Other businesses would kill for the kind of low-investment, high-returns that Arriva, Stagecoach and the rest are making from their train sets. Big supermarkets get about £1.08 back for every quid they put in: all that stock ties up a lot of cash. Even the supposed profiteers over at Barclays would punch the air at a 10% return. For every pound the railway barons put in, they get £2.47 back.

And that most recent figure isn’t a fluke. The Cresc team went back all the way to the start of the electronic database in 2004, and found that year after year the pre-tax return on capital employed was never less than 100%. Just as remarkable are the train operators’ dividends: pretty much all the profit after tax was paid to shareholders.

No wonder Richard Branson is a billionaire with his own private island. No wonder Tim O’Toole, boss of FirstGroup, and Brian Souter, head of Stagecoach, are on more than a million quid a year each. They are rewarded handsomely for handing over every spare penny to their shareholders.

But by the same token, no wonder passengers in cattle class can’t get free Wi-Fi, or even a seat on the evening train out of Euston: there’s no cash left to make the services worth the often excessive fares. The really big improvements, such as the west coast mainline upgrade now enjoyed by Branson’s business, are funded by taxpayers. Heads they win, tails we lose.

My defining image of the abstract concept of privatised railways is the long walk past a sequence of near empty first class carriages which so frequently greets those travelling to the midlands from Euston prior to their boarding a packed standard class. It is wasted capacity of a form so ridiculously gratuitous that it would be possible to inductively derive a thesis on the operation of neoliberal ideology from seeking to explain how invocations of public sector waste are taken so seriously yet something like this rarely even enters into the conversation, let alone becoming a part of the common sense which would see waste of this particular form as endemic to a ‘market’ of this type.

This line of thought has also crystallised into an increasing objection to HS2 in my own mind. At some point I would like to read about how capacity on the WCML is calculated because the long-term underuse of many first class carriages at peak times leave me slightly baffled as to how the cited capacity figures can be true. It would also be interesting to know what the 1st class to standard class capacity ratio was at varying times throughout the day.

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