Mrs May’s govern­ment is fail­ing mis­er­ably on rail, as on much else

The Sunday Telegraph - Money & Business - - Business - JEREMY WARNER

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.

In­ad­e­quate in­sur­ance

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

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