When Railtrack was effectively re-nationalised last October, I wrote here that there were dangers attached to distinguishing between the interests of creditors and the interests of shareholders in the company (MW October 11, 2001).
My point was that the Government – indeed, any government – depends to a significant extent on the goodwill of institutional investors to manage the relationship between public and private sectors.
When both sides are collectively trying to shore up public-private partnership (PPP) schemes, it is imperative that there is an understanding between the two as to what their roles are and what they both want out of the relationship. We’re almost in the territory of marriage guidance here – and the raw material is every bit as volatile.
Taking the mickey out of Transport Secretary Stephen Byers looks like becoming a replacement blood-sport for fox-hunting.
So I’m not going to go for him again. There’s no point making him look like a clown – he does an excellent job of that himself, ably assisted by his erstwhile communications colossus Jo Moore, and the more reflective Martin Sixsmith (still on the Transport Department’s payroll).
But it’s worth recalling what Byers actually said – and I quoted him as saying – last October. “Railtrack is finished,” he railed, somewhat meaninglessly. Then: “I can say for certain that there will be no taxpayers’ money made available to support shareholders.”
We now know that these were words loudly spoken, while Byers carried a little stick. The City dropped into conversation the dreaded word “misfeasance” – lawyer-speak for the principle that you can’t sell investors a proposition and then renege on your prospectus undertakings by closing it down when you don’t like the expense.
So, the Bozo is for turning. Some &£500m of taxpayers’ money, in a mixture of Government grant and debt, will be swung at Railtrack’s shareholders, as part of an &£8bn plan to buy them out and relaunch the company as Network Rail.
This successor company will miraculously make the trains run on time and make commuters burst into spontaneous songs extolling the brilliant achievements of Byers and his Government in putting the UK in the vanguard of European railway developments.
Or perhaps not. Perhaps we’ll stay in the guard’s van of European development instead.
Whatever, I make no apology that this is the third week running that I’ve noted, in different contexts, that this Government is exhibiting a misunderstanding of the workings of capitalism.
First, it was in relation to the framework of corporate social responsibility (CSR) that was built on the principle that companies are obliged to give their wickedly generated profits to charity (MW March 14). Second, it was Chancellor Gordon Brown’s shockingly naive attack on the retail banks’ “excessive profits” (MW last week).
Now we see a senior member of Government belatedly realising that you can’t just confiscate shareholder value when it suits you to do so.
I reiterate these events, because I think we’re witnessing a sea-change in New Labour’s love affair with business, and it’s important to record it for posterity as it happens. To return to the marriage-guidance metaphor, a relationship is always doomed where one partner pretends to be something they are not, in order to win affection.
That’s where we are at the moment. And when Chancellor Brown does something draconian, by way of indirect taxation, to UK industry as early as next month’s Budget, in order to subsidise some sort of plan for public services, then we will be at the divorce courts.
As a prediction that’s not good enough. You may reasonably have reached this conclusion yourself. So, I have a further prospective development of this trend to draw to your attention.
Consignia – formerly the Post Office Group – announced on Monday that it was contemplating 15,000 job losses, restructuring its loss-making parcels business, and tightening its transport infrastructure – allegedly to create a more efficient single network.
The group is losing &£1.5m a day and Parcelforce Worldwide is losing &£15m a month on its own. Consignia chairman Allan Leighton, ex-Asda and a proponent of “going plural” with a portfolio of management interests, is a private-sector retailer through and through.
The Government, Consignia’s sole shareholder, is allowing Leighton full rein to recover Consignia’s position. In the background, the Government is also trying to deregulate postal services and introduce competition to a function that many users consider a privatised utility, formerly obliged to run a comprehensive service at a universal price.
What does the Government want out of its shareholding? Does it consider that it has a conflict of interest in introducing competition? Does it, indeed, understand the principle of shareholder value, as and when it invites others to invest in Consignia?
Will it “re-nationalise” it if it gets bored with it? If so, will it compensate itself as a shareholder? Will it consider putting public money in, from which it would benefit as a shareholder?
Does this have all the makings of another crass piece of mismanagement, like Railtrack? I only ask.
George Pitcher is a partner at communications management consultancy Luther Pendragon