Mrs May’s government is failing miserably on rail, as on much else
For the Government, the new year has started much as the old one ended – in a sea of headline-grabbing trouble. This is a business column, so amid the multitude of public discontents, I’ll focus primarily on the privatised rail industry. Part of the purpose of privatisation was to absolve the Government of responsibility for the many sins of the railway, and put the private sector on the hook for them instead.
So far, it has not worked out that way, nor was it ever likely to, for until the advent of driverless cars – still realistically a long way off – rail will remain a vital public service.
To see the railway paying private investors big dividends, and its executives fat salaries, at a time of stagnant wages and some of the biggest fare rises in five years only multiplies the sense of public grievance. Unlike Labour’s hard-left high command, I’ve no nostalgia for the days of publicly owned rail. The only things I miss about it are the British Rail sizzler and carriages with compartments, both of which had largely gone by the time the railway was privatised. On the plus side, punctuality has improved enormously, rail usage has soared and public subsidies have been substantially cut.
Even so, the system plainly isn’t working as it should; fast-rising fares and deficient service have gone soaring up the political agenda. Chris Grayling, the Transport Secretary, conveniently found himself on a trade mission to Qatar when last week’s storm broke. This might have been personally sensible, but politically it was inept, and somehow symbolic of a government incapable of functioning effectively amid the distractions and fantasies of Brexit.
Any discussion of the downsides of rail privatisation must start by recognising that the infrastructure, Network Rail, is in any case no longer in private ownership. In effect, the railway itself has already been re-nationalised. It’s the train operating companies where the primary fault lies. Some of these have wildly overpaid for their franchises, with the active encouragement of a Department for Transport determined to squeeze as much as it can from the system.
Notoriously, the East Coast Mainline has managed to impoverish three separate franchisees so far, most recently Stagecoach/virgin.
Profits are privatised, but when there are none to be had because the franchisee has agreed to pay too high a premium, the keys are handed back and the Government is forced to pick up the pieces. To the public, it looks like a racket.
The problem of increased fares arises because the less money that comes from franchisees, the more that must come from passengers. Labour offers no kind of convincing alternative. If the railway was taken wholly back into public ownership, and fare rises limited to inflation, it would only require more subsidy and higher taxes. Nonetheless, perception is all, and if the public think the railway is failing, it is. There are so many problems that need fixing in Britain today – from the NHS to pensions and housing. The problem Theresa May has got is that other than delivering Brexit, she doesn’t seem to have answers to any of them. This is going to be a major problem at the next election. Brexit was meant to be an opportunity for radical change; right now, it seems to be an excuse for doing nothing.
For all involved, any house fire is a pretty traumatic experience, even if, as in my case over the new year, everyone emerges unscathed and the damage, beyond leaving the premises a soot-filled, uninhabitable mess, is primarily limited to one room. That trauma is, however, significantly reduced by insurance. “Are you covered,” the fire officer inquired after dousing the flames. “I believe so, yes; why, isn’t everyone,” I asked. “You’d be amazed how many aren’t,” he said.
Yet for most people, and companies, the problem is not so much lack of insurance as failure to insure adequately, or “under-insurance”. In recent years, the problem has reached epidemic proportions.
Research commissioned by QBE Insurance Group found that almost half of all UK businesses were concerned they didn’t have adequate cover, and only one in five thought their insurers would pay in full if their premises became blighted. The findings were equally concerning at a domestic level. A significant proportion of people never check that their insurance details are up to date, and an even greater number never bother to inform the insurer of a change in circumstance, possibly for fear of higher premiums.
In one case cited by QBE, a painter-decorator left a drying machine on overnight, thereby burning down a £2m house. His indemnity insurance was nowhere near adequate, and he nearly lost his own house in the ensuing claim and counterclaim. The extra premium involved for covering him up to £2m would have been a mere £10 per annum.
As in many walks of life, the internet has a lot to answer for, making transactions increasingly anonymous and encouraging the lowest-cost deals.
With a lack of a proper interface, intermediaries are no longer asking the right questions. “Big data” has also given insurers the power to disaggregate risk, so that certain premises and individuals become essentially uninsurable. This defeats the whole “communitarian” purpose of insurance, which is at root a way of sharing risk, or distributing the cost of individual, catastrophic loss among a large group of people.
Today’s big insurers are global businesses, primed to maximise profits, and highly cash generative they can be too. Just ask Warren Buffett, who built his fortune on insurance. As with the major banks, any duty of care owed to customers is all too frequently forgotten.
Fortunately for me, my own insurers could not have been more helpful and understanding, thus far at least. Would that it was always so.
‘Perception is all, and if the public think that the railway is failing, it is’
Despite public anger over the privatised railway system, ministers appear powerless to act