The transport secretary, Chris Grayling, unveiled his “new vision for our railways” a week ago and gained a few favourable headlines for the modest commitment to reopen a few lines closed in the Beeching cuts of the 1960s. Forget that crowd-pleasing diversion, however, because it’s not what the rail industry is talking about.
Instead, rail bosses are dumbfounded that Stagecoach is being bailed out of its onerous contract on the East Coast main line. And they struggle to understand how Grayling’s new “public-private partnerships” are supposed to work. The model – to be adopted on some lines but not on others – just seems to add complexity to a franchising system that is already baffling.
First, the Stagecoach affair: as Lord Adonis, former transport secretary under Labour, has been saying loudly, the soft-shoe shuffle looks outrageous. Stagecoach, in partnership with Virgin Group, won the East Coast franchise by promising to pay the Treasury £3.3bn under a contract that was supposed to run until 2023. Now that contract – currently loss-making for Stagecoach – is being ripped up early, to be replaced in 2020 by the new-fangled public-private arrangement.
The net effect is that Stagecoach is off the hook, more or less. It may still forfeit £165m, but there’s no chance of it being asked to honour the original contract. Instead, new terms will be renegotiated to run until 2020 and, hey presto, the company can also bid to be part of the public-private show that will follow.
It’s a sweetheart deal, rivals complain privately. You can’t blame them. They have had their fill of Stagecoach preaching about other firms bidding aggressively to win contracts. They were looking forward to seeing the tables turned.
Why aren’t they saying so out loud? Partly, one suspects, because they may wish do business with Grayling themselves one day. Adonis claimed on Wednesday that FirstGroup is consulting its lawyers to see if, post-Stagecoach, it can get help with its loss-making TransPennine Express franchise. The company says not, but Adonis’s underlying point remains: Grayling may have set a costly (for taxpayers) precedent on the East Coast line.
The wider picture is also alarming. Grayling’s big idea of getting train operators to work more closely with Network Rail is widely seen as sensible, but the franchising system now seems more muddled than ever. Sometimes franchises are awarded via competitive tender; sometimes they are just handed out via a “direct award”; and now public-private partnerships will enter the mix.
Even before last week, some of the results seemed perverse. Govia, the firm controlled by Go-Ahead Group, made a mess of its Southern franchise but was well regarded on the London Midland line, not least because it forced genuine competition and lower fares on the Euston to Birmingham New Street route. Yet Govia has been booted off, to be replaced by a consortium that includes a Dutch state-owned firm that presumably enjoys lower costs of capital.
How does that work? Govia performs well and loses London Midland to save the Treasury money, but Stagecoach over-bids on the East Coast and gets bailed out. Where is the rhyme or reason?
Adonis should keep pressing. The government’s “new vision” looks suspiciously like a short-termist approach designed to silence Labour’s nationalisation chant. Coherent, it ain’t.
Christmas sale for Intu
Little has gone well for Intu since it changed its name in 2013 from Capital Shopping Centres, which was a better label for a company that owns the Trafford Centre near Manchester, Lakeside in Essex and Gateshead’s Metrocentre. The share price in those days was pushing 330p. Now, at a moment when the stock had dipped under 200p, Intu is selling itself to Hammerson for £3.4bn.
Intu gets Hammerson paper worth 238p a share, which is an improvement of sorts, but the terms hardly count as a triumph when the assets, according to the last valuation, are worth 403p when adjusted for debt.
Why sell? One assumes John Whittaker, the billionaire who controls 27% of Intu, would prefer to spread his financial risk, which would be logical. Intu’s debt load is heavy and an impediment to buying more properties, say analysts. Hammerson should be able to refinance at better rates.
Yet, in the age of internet shopping, the deal hardly screams confidence on either side. Hammerson is only jumping because it’s getting a relative bargain. Intu looks as if it’s running for shelter. The duo are also taking that risk that the customers – retail tenants – head straight to the Competition and Markets Authority. Given that Hammerson-Intu would own 17 of the 25 biggest shopping centres in the UK, that risk is real.
Still, at least the irritating Intu name will be dropped, if not from the centres themselves. That would be an improvement.