Magazine article New Statesman (1996)

Expect the New Railtrack to Cut Costs and Corners Even More, Because It Will Have to Keep the Bankers Happy

Magazine article New Statesman (1996)

Expect the New Railtrack to Cut Costs and Corners Even More, Because It Will Have to Keep the Bankers Happy

Article excerpt

Most of you, I imagine, are cavorting around the clapped-out shell of Railtrack, now that the most ill-starred of privatised companies is being taken out of service. And who can blame you? After all, Railtrack is the defective engine of an industry whose structure was botched at privatisation.

But do not be fooled into thinking its final journey to the corporate scrapyard will be some delightful idyll. As we leave the station, you will notice a big blot on the landscape called "Recession".

With so many big businesses enfeebled by substantial debts -- Marconi, Telewest, NTL, British Airways, Invensys, Corus, the list goes on-it does not do wonders for economic confidence that the government should undermine a household name so conspicuously, however much that name may be loathed.

To be fair, placing Railtrack into administration was not quite as crass as the big job cuts announced recently by the state-controlled Post Office. It is slightly odd that this government should not wish to use its clout to temper a lurch in the economy rather than exacerbate it.

As someone with a GCSE in new Labour economics, I would concede that old-fashioned demand management has had its day, that governments should not second-guess markets and should never even think about picking industrial winners. However, for ministers to choose to announce the worst kind of corporate news precisely when we are all at our lowest ebb shows a slightly unhinged attachment to free-market disciplines.

And there is also the pour encourager les autres factor. In the coming months, ministers will expect banks to behave responsibly when companies run into difficulties. They would prefer that creditors should not act precipitately to seize assets by calling in the receivers or administrators. Indeed, there is a code, with the resonant name of the London Rules and overseen by the Bank of England, which is supposed to ensure that banks show patience and understanding when the going gets tough for a big corporate borrower. The Bank of England's authority in these matters has not been enhanced by the actions of Steve "the Undertaker" Byers.

Anyway, this brings us to another ugly landmark, which is this government's distaste for share ownership ('fraid so, Tony Blair). It spiels a good spiel about shareholder capitalism, with an interminable stream of reforms to capital gains tax and savings schemes. But real sympathy and understanding for the plight of investors would have prompted ministers to make sure that the gravity of Railtrack's condition was more widely appreciated.

Something is badly awry when a share price goes from 280p to zero over a weekend, so that a company valued at [pound]l.4bn on a Friday night is priced at zilch on a Monday morning. …

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