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The Rail Privatisation Scam

After taxpayers were scammed out of tens of millions of pounds, the train company responsible has just been rewarded with a lucrative new contract – definitive proof that the rail privatisation racket must end.

A southeastern high speed train leaving St Pancras London (Photo by Julian Finney/Getty Images)

Since its renationalisation last October, the allegations of fraud directed at Southeastern Railway have more than doubled in scale. The total amount of money wrongly claimed by the train operating company stands at a staggering £64 million—resulting in a £23.5 million fine announced at the end of last month.

The penalty notice for the fine confirmed at least thirteen years of irregularities going back to the foundation of Southeastern. Rail privatisation is notoriously complex, and this complexity was allegedly exploited by the company to defraud the public purse of tens of millions of pounds.

The Scam

In 2007, Southeastern discovered that they could easily manipulate the system and hide public subsidies meant for the maintenance of trains. They escalated the scam in 2014, when through various sleights of hand, they falsely retained vast amounts of HS1 subsidy that should have been returned to the taxpayer. After being found out by civil servants in March 2020, Southeastern continued to actively conceal their accounting history until mid-2021. There is evidence that this took place with the full knowledge of parent company Govia Ltd—all of whose directors are also on the boards of both Govia Thameslink Railway (GTR) and Southeastern. Even the companies’ auditors had long-term knowledge of the potentially criminal practice.

Despite the seriousness of these allegations, Govia’s owning groups Go-Ahead and Keolis were allowed to conduct the fraud investigation themselves, with limited oversight from the Department for Transport (DFT). Given this clear conflict of interest, it was unsurprising when the investigation concluded that the alleged corruption at Southeastern was entirely separate from Govia and GTR; however, no evidence was provided in support of this claim. Citing commercial confidentiality, the DfT has now buried the results of the investigation. None of the information has been open for scrutiny by parliament, the Serious Fraud Office, or any other agency—and if the government gets its way, it never will be.

Within a few days of issuing the Southeastern fine, the government awarded a new lucrative six-year contract to GTR for Britain’s biggest rail franchise: Thameslink, Southern and Great Northern (TSGN). Having held the franchise since 2014, GTR is best known for its catastrophic performance record—culminating in the 2018 timetable collapse. In 2019, The National Audit Office found that the company had failed to deliver value for money to the taxpayer, and the Public Accounts Committee concluded that ‘the franchising model is broken and the Department’s management of the TSGN franchise was completely inadequate.’  Nothing but the Tory zeal for privatisation has kept this company afloat.

Privatisation failure

In the absence of any economic case for the new GTR contract, the only explanation is that the government is desperate to uphold the failed experiment of rail privatisation at all costs. With 25 percent of the railway already in public ownership, the renationalisation of Britain’s biggest rail franchise would have finally proven the argument.

In March 2020, all railway costs and revenue moved to the taxpayer, with private train companies trusted to handle billions in public subsidy. The two years since have been beset by legal disputes and contractual chaos, with private train companies now on the third version of their Covid ‘emergency’ agreements. Meanwhile, publicly owned LNER and Northern were easily awarded new multi-year contracts, and the Welsh and Scottish governments opted out of the chaos by renationalising their networks.

‘Great British Railways’—the government’s half-baked plan to address problems created by rail privatisation—has now been delayed until at least 2024, and will not be ready before the next general election. Despite almost four years’ work, the DfT has failed to come up with any concrete plan for rail reform, or even how to manage the new private contracts. What’s really going on is an endless negotiation between the government and private industry—with train companies pushing for longer contracts, lower risks and higher rewards. 

Yet even the government recognises that relationships with train companies cannot operate in good faith. Their mistrust is apparent in the way they are micromanaging the post-Covid rail contracts—requiring amounts as low as £500 to be authorised by civil servants. This costly and fragmented approach is set to get worse, as the DfT has committed to tightening the controls across all private franchises in the wake of the Southeastern scandal.

Publicly owned franchises are free of government micromanagement because they are already trusted to operate in the interests of the taxpayer. When the publicly-owned ‘Operator of Last Resort’ takes over, all that changes on an operational level is the rebranding of trains and a few new faces in management—coming straight through a revolving door to the private sector. Yet the increased autonomy, flexibility and cost savings can transform a franchise. Private train companies have no value to offer in this equation—the only purpose they have left is the artificial construction of shareholder profit.

The Dangers Ahead

The government has now begun to enact a huge scale of cuts to railway spending. The latest 3.8% fare rise—the steepest hike in 9 years—and poor value ‘flexi ticket’ scheme are a sign of things to come, as the government and industry plan to extract maximum revenue from captive commuter markets. 

It’s no secret that the railway’s workforce is the government’s biggest target, and there is major industrial conflict on the horizon. Expect to see renewed attempts to destaff trains and stations, all at the cost of safety, security and accessibility—further endangering the right of disabled people to travel without the need to pre-book.

This is fundamentally an attempt to make workers and passengers pay for maintaining private profit—and much will be done by stealth. In February, the DfT quietly made changes to the National Conditions of Travel; removing passenger compensation rights, while granting increased flexibility to train companies to get off the hook for their performance requirements. Off peak fares could be next in the firing line, as train companies continue to lobby for their long-held desire to equalise prices over the course of each day. Like most of the pledges made by ‘Great British Railways’, fare reform is now more of a threat than a promise.

The Southeastern scandal has shown that the DfT will go to any lengths to preserve shareholder profit—and can do so without the fear of scrutiny, or any significant parliamentary opposition. Despite two years of contractual chaos, the Labour Party has stayed virtually silent on these issues and ignored every opportunity to make the case for public ownership. As spending cuts and favours to private companies escalate, it’s sure to be trade unions who will form the last line of defence.