Nationalisation isn't he answer to government failure - Credit, public domain via Wikicommons

A reasonable enough contention is that if someone has just lost money then someone else, elsewhere, has just made money. This is something which actually is true as we consider Stagecoach and that mess which was the East Coast line. The company has just reported its losses as a result of the ending of that contract – it’s back in government hands now, the running of the line – and those losses are indeed what has accrued to taxpayers.

Stagecoach has slashed dividends to shareholders by 35 per cent after being ignominiously dumped by the government from running the trains on the east coast main rail line into and out of London King’s Cross.

With profits down in the past year and expected to fall in the current year by as much as another 20 per cent, Stagecoach has cut the dividend for 2017-18 to 7.7p from 11.9p.

That’s a fair old dent in the pocket book there:

Stagecoach has revealed an £85.6m hit on the back of the government’s decision to take back control of the East Coast mainline.

The company – which held 90% of the Virgin Trains East Coast venture – used its annual results to reveal the sum, admitting it was disappointed but arguing it was “significantly influenced by factors outside of our control”.

We’ve definitely got the loss at the company. So, where’s the gain to the taxpayer? That venture agreed to pay the government some amount of money for the right to run those trains over those lines. That’s the franchise fee. This is an amount agreed upfront. Some of that has been paid over and is now lost. So, taxpayers – that’s the government – have the money and Stagecoach doesn’t.

Note that this doesn’t change according to why this all happened. Whether nationalisation is the best thing since sliced bread or the very devil itself, it’s still true that money has moved from the Virgin Trains thingie over to the government. One side lost it, the other gained.

The why we do in fact all know. The bid, the fee agreed for the franchise, was based upon the idea that Network Rail (the government just wearing a different hat) would upgrade the lines making faster trains capable of running more often. More passengers, more tickets sold, lovely! It didn’t happen so that price, conditional upon the upgrade, was too high given the absence of the upgrade. Why it failed was Network Rail’s – the government’s – fault. But that doesn’t change the fact that Stagecoach shareholders are out of pocket, taxpayers are in-.

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jgh
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jgh

When I let out a shop I charge the tenants for heat and hot water *after* it’s been installed not before. How come the government gets to do it the other way around?

BB01
Member
BB01

But you own the shop, the Government does not own the railways, they were privatised, or….

Quentin Vole
Member
Quentin Vole

I think this situation is more like a tenant taking out a lease on a shop on the understanding that the owner will carry out improvement work to encourage more customers. This never happens, so the tenant (Stagecoach) ends up paying too much.

Spike
Member

No, it sometimes happens, but even when it does, the landlord wins by pinching pennies, while the tenant complains that the implementation does not deliver the benefits implicitly promised. I don’t know why it was permissible for the railway upgrade not to get done, nor why the parties did not agree to a contract modification in this contingency. Why doesn’t Stagecoach have a cause of action against the government, which despite sovereign immunity was here acting as a landlord? PS — Will politicians now say, “We tried to pursue privatization, but we cannot get private businesses to contract with us!… Read more »

Quentin Vole
Member
Quentin Vole

Sorry for my ambiguous wording. I meant to say: “in this (hypothetical) case, it doesn’t happen” so the tenant ends up paying too much.

Spike
Member

But, as relevant here, your rent is probably due toward the start of the month in question, not after the month is over.