This article by Prem Sikka, appears in The Guardian.
"Privatisation" is the ideological mantra of all major political parties. It has been used to transfer huge amounts of wealth from the taxpayer to private companies, entrepreneurs, accountants, lawyers, bankers and sundry business advisers. Major industries built by taxpayers, such as railways, mines, buses, steel, shipping, gas, water, engineering, petrochemicals, airlines, motor vehicles, biotechnology, electricity, telecommunications, computers, armaments, space and pharmaceuticals have been handed to companies at knockdown prices. Many still receive public subsidies or rely on the state to buy their products. Yet governments seem to have learned little from the past and the routine fleecing of the taxpayer continues.
The most recent example relates to the privatisation of QinetiQ, Britain's defence research organisation. A report by the all-party public accounts committee provides a brief glimpse of conflicts of interests, failures and the private gains that can result from a coming together of the public and the corporate sector.
A stake in the company was bought in 2003 by Carlyle Group, a hedge fund with close connections with leading politicians. Former prime minister John Major was chairman of Carlyle Europe from 2002 to 2005. The company had close links with the family of US president George Bush. At the time of QinetiQ's privatisation, Carlyle was headed by Frank Carlucci, former CIA director and defence secretary under Ronald Reagan.
A stake in QinetiQ was bought at an initial investment of around £42m, and within three years it was worth £350m and floated on the stock market. For reasons best known to senior civil servants, Carlyle had been given preferred bidder status even though six other firms were competing for the defence contractor.
QinetiQ's top 10 managers, which included former civil servants, saw the value of their shares rise from £540,000 to over £107m, a near 20,000% increase. Overall, senior management received £200 for each £1 they invested. All this from technology that was entirely funded by the taxpayer who took the initial risks that the private sector was not willing to take. The government can always introduce legislation to claw back any excessive gains, but all political parties seem to be imitating Trappist monks on this issue.
The increase in value of the company was not due to some invisible hand of the market. Most of it came from the billions of pounds worth of contracts that QinetiQ signed with the Ministry of Defence around the time of its privatisation, including training for the RAF. Subsequently, the company was also the preferred bidder for the government's defence training rationalisation programme, estimated to be worth around £16bn over 30 years.
This guaranteed cash flow provided profits and higher market values. Wars in Iraq and Afghanistan have increased the potential for even more government contracts and profits. So the taxpayer funded the company, absorbed the risks, provided the contracts and guaranteed future cash flows, but the private sector took almost all the gains and profits. Unsurprisingly, the private sector wants everything privatised.
Business advisers also did very nicely out of the privatisation of QinetiQ. They included lawyers Simmons and Simmons, accountants Pricewaterhousecoopers and Arthur Andersen and bankers UBS Warburg, Merrill Lynch, Credit Suisse, JP Morgan Cazenove and ABN AMRO Rothschild, which between them managed to charge £28m (plus VAT) in fees. No doubt, there are considerable difficulties in valuing businesses, especially where the markets are thin, but how could the valuations in this case be so wide of the mark? At the very least, the government should refuse to give those involved with the valuation any more business until there has been a very thorough public investigation of the quality of their advice. It should amend the law so that the National Audit Office can investigate companies receiving public money. Even better, mobilise the public to scrutinise the privatisation deals by publishing all contracts, correspondence and reports. After all, the public has borne the risks and built the industries. What objection can there be to letting the taxpayer see the details?
The parliamentary committee reports are supposed to enhance public scrutiny and accountability. Yet there are other aspects of the QinetiQ story that deserve further investigation. QinetiQ is a story of political and economic elites combining to profit from war and doing so behind a wall of secrecy.
Wednesday, June 11, 2008
Tuesday, June 10, 2008
Energy bills to soar as British Gas announces 14% price hike
From the Daily Express, Saturday 7th June 2008
MILLIONS of families face being hit by spiralling energy costs after British Gas yesterday announced a massive 14% hike in its tracker bills. The huge increase- to be introduced with immediate effect- could see average gas and electricity bills rocket to £1,327 a year by 2009. News of the price jumps was greeted with dismay by groups representing the elderly, who said pensioners were already struggling to keep themselves warm in winter.
MILLIONS of families face being hit by spiralling energy costs after British Gas yesterday announced a massive 14% hike in its tracker bills. The huge increase- to be introduced with immediate effect- could see average gas and electricity bills rocket to £1,327 a year by 2009. News of the price jumps was greeted with dismay by groups representing the elderly, who said pensioners were already struggling to keep themselves warm in winter.
Wednesday, June 4, 2008
Water giants gush profits as bills soar
From The Sunday Express, 1st June 2008
MILLIONS SEE HIGHEST-EVER CHARGES AS FIRMS RAKE IT IN
Major water companies will this week unveil profits estimated at more than £1bn just weeks after anouncing inflation-busting price rises for householders. Quoted groups United Utilities, Northumbrian Water, Pennon and Severn Trent, which serve millions, are poised to post pre-tax profits adding up to an estimated £1.054 billion. This will not please consumers whose water costs have risen. This year's bills will be 6% up on last year's, at £330 on average. Since the water industry was privatised in 1989, householders have been clobbered with an increase in real terms of 42%.
MILLIONS SEE HIGHEST-EVER CHARGES AS FIRMS RAKE IT IN
Major water companies will this week unveil profits estimated at more than £1bn just weeks after anouncing inflation-busting price rises for householders. Quoted groups United Utilities, Northumbrian Water, Pennon and Severn Trent, which serve millions, are poised to post pre-tax profits adding up to an estimated £1.054 billion. This will not please consumers whose water costs have risen. This year's bills will be 6% up on last year's, at £330 on average. Since the water industry was privatised in 1989, householders have been clobbered with an increase in real terms of 42%.
Monday, May 19, 2008
More railway rip-offs
From The Independent, Monday 19th May 2008
A new pricing system for Britain's rail network has been criticised by unions and passenger groups, who accused train operators of introducing fare increases "by the back door".
The new system, partially introduced yesterday, was supposed to make buying tickets easier by reducing the number of reservation types available to just three. But passenger groups warned that a number of train companies had already used the changes to scrap some of their cheapest fares by cutting the number of off-peak services and said more may follow suit when wider changes take effect later this year.
Critics fear the overhaul, which has seen the price of many journeys rise, may result in fewer people using trains despite the Government's pledge to encourage environmentally friendly methods of transport.
Gerry Doherty, leader of the TSSA rail union, said: "Whilst we welcome any simplification of the ticket system we didn't want rail companies to use these changes as an excuse to reduce off-peak travel or bring in more expensive tickets. What we've been given are a number of fare increases by stealth. It is old people, students and families that will be hit hardest by any reductions in off-peak travel, as well, which seems particularly unfair."
Restrictions to some off-peak journeys, introduced yesterday by Virgin Trains, National Express and Cross Country, mean that an early morning train from Holyhead to London on Virgin is now be three times more expensive than it was last week because passengers who were formerly able to buy saver tickets now have to purchase more expensive standard and open return tickets.
Passengers who use National Express trains to commute between Essex and London will have to buy a full-price return ticket if they want to leave London between 4.30pm and 6.30pm, instead of a one-day travelcard, an increase of 63 per cent.
A new pricing system for Britain's rail network has been criticised by unions and passenger groups, who accused train operators of introducing fare increases "by the back door".
The new system, partially introduced yesterday, was supposed to make buying tickets easier by reducing the number of reservation types available to just three. But passenger groups warned that a number of train companies had already used the changes to scrap some of their cheapest fares by cutting the number of off-peak services and said more may follow suit when wider changes take effect later this year.
Critics fear the overhaul, which has seen the price of many journeys rise, may result in fewer people using trains despite the Government's pledge to encourage environmentally friendly methods of transport.
Gerry Doherty, leader of the TSSA rail union, said: "Whilst we welcome any simplification of the ticket system we didn't want rail companies to use these changes as an excuse to reduce off-peak travel or bring in more expensive tickets. What we've been given are a number of fare increases by stealth. It is old people, students and families that will be hit hardest by any reductions in off-peak travel, as well, which seems particularly unfair."
Restrictions to some off-peak journeys, introduced yesterday by Virgin Trains, National Express and Cross Country, mean that an early morning train from Holyhead to London on Virgin is now be three times more expensive than it was last week because passengers who were formerly able to buy saver tickets now have to purchase more expensive standard and open return tickets.
Passengers who use National Express trains to commute between Essex and London will have to buy a full-price return ticket if they want to leave London between 4.30pm and 6.30pm, instead of a one-day travelcard, an increase of 63 per cent.
Thursday, April 24, 2008
More rail rip-offs on the way
From The Times, Thursday 24th April 2008
Passengers will lose out from a decision by train companies to stop giving refunds for tickets bought in advance and to double the fee for changes to journey times.
The move is part of what the companies are calling a simplification of rail fares into three main types, which they claim will be easier to understand. More than a million leaflets will be distributed at stations from today explaining the changes but they fail to mention that many passengers will be worse off under the new national refunds policy.
First Great Western, Virgin, East Midlands Trains and TransPennine Express are among the companies that currently offer refunds on some advance tickets but will cease to do so. The no-refund policy comes into force today for tickets bought for travel from May 18.
The leaflets also fail to mention that the fee for changing journey times for return tickets bought in advance is doubling on many routes from £10 to £20, plus any difference in the price of the new journey. Train companies will make millions of pounds in extra profits because many people will throw away their tickets rather than try to change them.
Passengers will lose out from a decision by train companies to stop giving refunds for tickets bought in advance and to double the fee for changes to journey times.
The move is part of what the companies are calling a simplification of rail fares into three main types, which they claim will be easier to understand. More than a million leaflets will be distributed at stations from today explaining the changes but they fail to mention that many passengers will be worse off under the new national refunds policy.
First Great Western, Virgin, East Midlands Trains and TransPennine Express are among the companies that currently offer refunds on some advance tickets but will cease to do so. The no-refund policy comes into force today for tickets bought for travel from May 18.
The leaflets also fail to mention that the fee for changing journey times for return tickets bought in advance is doubling on many routes from £10 to £20, plus any difference in the price of the new journey. Train companies will make millions of pounds in extra profits because many people will throw away their tickets rather than try to change them.
Wednesday, April 9, 2008
Water company given record £35.8m fine for 'lying' to industry watchdog
From The Daily Mail, 9th April 2008
A water company has been fined a record £35.8million for lying about its performance and customer service.
Severn Trent, one of the UK's biggest water suppliers, knowingly changed its customer service data to cover up its true performance.
The company admitted misreporting its water leakage levels in 2001 and 2002, which implied it was working to a much higher standard than was actually the case.
This data was then used by industry regulator Ofwat to determine how much the company should be allowed to raise its prices until 2010.
Ofwat concluded that, had the deceit not been discovered, householders would have been overcharged by £42million.
The watchdog considered the lies so shocking that it referred the case to the Serious Fraud Office for a criminal investigation.
Ofwat has insisted that the entire fine is paid for by the company and its shareholders and not passed on to the eight million customers.
Separately, Severn Trent faces a further fine and a criminal conviction for covering up its failures to tackle leaks from its pipes.
Regina Finn, Ofwat's chief executive, said: "This sends a clear message to the rest of the water sector. "Ofwat will protect consumers and companies must comply with their legal obligations or pay the price."
Tony Wray, Severn Trent's chief executive, said: "Those who were responsible for the customer relations mistakes are no longer with Severn Trent and we apologise to our customers for their failings."
Other water companies have also faced heavy fines in recent months for deliberately covering up customer service failures.
In December, Southern Water was fined £20.3million while Thames Water faces a £12.5million fine, both for providing misleading information to Ofwat.
A water company has been fined a record £35.8million for lying about its performance and customer service.
Severn Trent, one of the UK's biggest water suppliers, knowingly changed its customer service data to cover up its true performance.
The company admitted misreporting its water leakage levels in 2001 and 2002, which implied it was working to a much higher standard than was actually the case.
This data was then used by industry regulator Ofwat to determine how much the company should be allowed to raise its prices until 2010.
Ofwat concluded that, had the deceit not been discovered, householders would have been overcharged by £42million.
The watchdog considered the lies so shocking that it referred the case to the Serious Fraud Office for a criminal investigation.
Ofwat has insisted that the entire fine is paid for by the company and its shareholders and not passed on to the eight million customers.
Separately, Severn Trent faces a further fine and a criminal conviction for covering up its failures to tackle leaks from its pipes.
Regina Finn, Ofwat's chief executive, said: "This sends a clear message to the rest of the water sector. "Ofwat will protect consumers and companies must comply with their legal obligations or pay the price."
Tony Wray, Severn Trent's chief executive, said: "Those who were responsible for the customer relations mistakes are no longer with Severn Trent and we apologise to our customers for their failings."
Other water companies have also faced heavy fines in recent months for deliberately covering up customer service failures.
In December, Southern Water was fined £20.3million while Thames Water faces a £12.5million fine, both for providing misleading information to Ofwat.
Monday, April 7, 2008
Let’s get over our silly fears of public ownership
By Will Hutton,
The Observer, Sunday 6th April 2007
Even 12 months ago nationalisation seemed a quaint notion from yesteryear - as remote from today's concerns as big band music, ration coupons and nylons. Nobody who wanted to be taken seriously by mainstream opinion could ever champion the self-evidently economically wasteful and amoral act of nationalisation.
But a credit crisis that has forced the reluctant nationalisation of one bank in Britain, Northern Rock, and the socialisation of some £15bn of loans of another in America, Bear Stearns, is forcing mainstream opinion to think the unthinkable. The chief executive of Deutsche Bank, Josef Ackermann, has announced that he no longer believes in 'the markets' self-healing power' and wants extensive government intervention. It was always true that companies, the market and the state are inextricably linked and that public action is crucial to a well functioning market economy. Now it is newly legitimate.
It is an important moment. Most of the electorate accepted the argument that a period of public stewardship for Northern Rock represented the best pragmatic deal for the taxpayer while safeguarding the financial system. If there was any complaint it was that the government had been too slow to act rather than that it was returning to the dark days of statist socialism - however hard the Conservative party tried to press home the attack.
Pragmatism and nationalisation may seem to modern eyes mutually exclusive, but, as I have discovered in exploring postwar nationalisation for a documentary, they have always been closely intertwined. There has been a mutual conspiracy of right and left to portray nationalisation as the ultra-ideological attempt to 'secure the full fruit of the workers' industry by hand or by brain through organising the common ownership of the means of production' as the now abolished Clause 4 of the Labour party constitution declared. It suited the left as proof that socialism was happening, and it suited the right as proof that privatisation dismantled socialism.
The sound and fury, though, disguised a more complex reality. In both Britain and France the coalition in favour of nationalisation after the war extended well beyond the left-wing parties and the trade unions. British Conservatives and French Gaullists, along with businesspeople and professionals, were strongly in favour for the same pragmatic reasons that lay behind the nationalisation of Northern Rock. In the circumstances of 1945, the idea that private companies, who had only survived the Thirties via trade protection and price-fixing cartels, and who, in France, had collaborated with the Nazis, were going spontaneously to spearhead the reconstruction of devastated war-torn economies was risible. The propositions of a Thatcher or Milton Friedman would have been met with gales of derision. The state had won the war. It now had to win the peace by mounting programmes of investment and modernisation that were beyond the capacities of the private sector.
The voices from the time are inspiring. The last train of Great Western Railways swept through Reading station on New Year's Eve 1947, its new owners the British people, and the station manager waved in his pleasure. Miners hoped that public ownership would open up the chance for more teamwork and partnership to create the profits that would give them the same living standards as other workers. Hope was in the air. The homecoming heroes, as Tony Benn says of his troop ship in 1945, were unprepared to return to the conditions of the Thirties. And they were right.
Nor were their hopes quite so comprehensively trashed as our folklore has it. The LSE's Professor David Stevenson told me that close examination of the data shows that throughout the Fifties and Sixties the performance of the nationalised industries in terms of productivity and growth matched or exceeded their private-sector counterparts. It was in the inflationary Seventies, when the Heath, Wilson and Callaghan governments compelled the nationalised industries to hold down their prices, and thus their profits, as core parts of ill-considered prices and incomes policies, that things began to go seriously wrong.
These industries needed to be more arm's length from government, rather as the BBC is today. Then they would have had a better chance of sustaining their earlier success. But, amazingly, when nationalisation was being implemented in 1945 there was no worked-out plan to hand. The default option was to run the newly nationalised industries as de facto arms of central government, so that in the Seventies they became locked into public investment cuts and price controls with such disastrous results.
France had thought through the practicalities of nationalisation more carefully. It was evident that the postwar French private sector needed support in every way - with finance, markets and capacity-building - that only careful state planning could provide. Planning was the pragmatic response to French capitalism's chronic weakness.
In this age of globalisation, the symbiotic relationship between the state and private companies remains, even if more subtly than in the Forties. It is not just that companies need the skills and public infrastructure that the state provides, it is that important parts of how they do business are also licensed or helped by the state, as is inevitable in a democracy. Margaret Thatcher used this power when, for example, she gave the radio spectrum to mobile phone operator Vodafone for free; but banks, retailers, oil companies, drug and defence companies are helped similarly. Nationalisation is but an extreme example of this more general truth.
In Britain we refuse to accept the proposition, chasing after the chimera of 100 per cent private-sector solutions and regarding nationalisation as a prohibited taboo. As a result we have never invested in making public ownership work, despite its necessity. After all, Northern Rock was preceded by the renationalisation of the railway infrastructure and the nationalisation of one of London Underground's contractors, Metronet. If we want the best from our public utilities and infrastructure, these may well be the pragmatic precursors of more. How much better to try to do public ownership well, rather than follow the British fiction that it should not be done at all.
· Nationalise It is broadcast on Radio 4 on Monday 7 April at 8pm
The Observer, Sunday 6th April 2007
Even 12 months ago nationalisation seemed a quaint notion from yesteryear - as remote from today's concerns as big band music, ration coupons and nylons. Nobody who wanted to be taken seriously by mainstream opinion could ever champion the self-evidently economically wasteful and amoral act of nationalisation.
But a credit crisis that has forced the reluctant nationalisation of one bank in Britain, Northern Rock, and the socialisation of some £15bn of loans of another in America, Bear Stearns, is forcing mainstream opinion to think the unthinkable. The chief executive of Deutsche Bank, Josef Ackermann, has announced that he no longer believes in 'the markets' self-healing power' and wants extensive government intervention. It was always true that companies, the market and the state are inextricably linked and that public action is crucial to a well functioning market economy. Now it is newly legitimate.
It is an important moment. Most of the electorate accepted the argument that a period of public stewardship for Northern Rock represented the best pragmatic deal for the taxpayer while safeguarding the financial system. If there was any complaint it was that the government had been too slow to act rather than that it was returning to the dark days of statist socialism - however hard the Conservative party tried to press home the attack.
Pragmatism and nationalisation may seem to modern eyes mutually exclusive, but, as I have discovered in exploring postwar nationalisation for a documentary, they have always been closely intertwined. There has been a mutual conspiracy of right and left to portray nationalisation as the ultra-ideological attempt to 'secure the full fruit of the workers' industry by hand or by brain through organising the common ownership of the means of production' as the now abolished Clause 4 of the Labour party constitution declared. It suited the left as proof that socialism was happening, and it suited the right as proof that privatisation dismantled socialism.
The sound and fury, though, disguised a more complex reality. In both Britain and France the coalition in favour of nationalisation after the war extended well beyond the left-wing parties and the trade unions. British Conservatives and French Gaullists, along with businesspeople and professionals, were strongly in favour for the same pragmatic reasons that lay behind the nationalisation of Northern Rock. In the circumstances of 1945, the idea that private companies, who had only survived the Thirties via trade protection and price-fixing cartels, and who, in France, had collaborated with the Nazis, were going spontaneously to spearhead the reconstruction of devastated war-torn economies was risible. The propositions of a Thatcher or Milton Friedman would have been met with gales of derision. The state had won the war. It now had to win the peace by mounting programmes of investment and modernisation that were beyond the capacities of the private sector.
The voices from the time are inspiring. The last train of Great Western Railways swept through Reading station on New Year's Eve 1947, its new owners the British people, and the station manager waved in his pleasure. Miners hoped that public ownership would open up the chance for more teamwork and partnership to create the profits that would give them the same living standards as other workers. Hope was in the air. The homecoming heroes, as Tony Benn says of his troop ship in 1945, were unprepared to return to the conditions of the Thirties. And they were right.
Nor were their hopes quite so comprehensively trashed as our folklore has it. The LSE's Professor David Stevenson told me that close examination of the data shows that throughout the Fifties and Sixties the performance of the nationalised industries in terms of productivity and growth matched or exceeded their private-sector counterparts. It was in the inflationary Seventies, when the Heath, Wilson and Callaghan governments compelled the nationalised industries to hold down their prices, and thus their profits, as core parts of ill-considered prices and incomes policies, that things began to go seriously wrong.
These industries needed to be more arm's length from government, rather as the BBC is today. Then they would have had a better chance of sustaining their earlier success. But, amazingly, when nationalisation was being implemented in 1945 there was no worked-out plan to hand. The default option was to run the newly nationalised industries as de facto arms of central government, so that in the Seventies they became locked into public investment cuts and price controls with such disastrous results.
France had thought through the practicalities of nationalisation more carefully. It was evident that the postwar French private sector needed support in every way - with finance, markets and capacity-building - that only careful state planning could provide. Planning was the pragmatic response to French capitalism's chronic weakness.
In this age of globalisation, the symbiotic relationship between the state and private companies remains, even if more subtly than in the Forties. It is not just that companies need the skills and public infrastructure that the state provides, it is that important parts of how they do business are also licensed or helped by the state, as is inevitable in a democracy. Margaret Thatcher used this power when, for example, she gave the radio spectrum to mobile phone operator Vodafone for free; but banks, retailers, oil companies, drug and defence companies are helped similarly. Nationalisation is but an extreme example of this more general truth.
In Britain we refuse to accept the proposition, chasing after the chimera of 100 per cent private-sector solutions and regarding nationalisation as a prohibited taboo. As a result we have never invested in making public ownership work, despite its necessity. After all, Northern Rock was preceded by the renationalisation of the railway infrastructure and the nationalisation of one of London Underground's contractors, Metronet. If we want the best from our public utilities and infrastructure, these may well be the pragmatic precursors of more. How much better to try to do public ownership well, rather than follow the British fiction that it should not be done at all.
· Nationalise It is broadcast on Radio 4 on Monday 7 April at 8pm
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