Shock, horror - private companies can go bust

What a lot of tosh has been spouted about the collapse of construction company Carillion last month. So much that I thought I ought to join in (sorry it's taken a while).

The saga will rumble on for a long time - the appearance of the former Carillion board members before a joint session of the House of Commons Work and Pensions and Business committees this week being just the latest round.

I was driving on the Monday that the news broke and listened to an enormous dollop of tripe on BBC 5Live, some of it from Lord Adonis who really should know better. Actually, he probably does but was trying to make political capital for Labour out of it.

The two biggest concerns while I listened that day were for the jobs of 19,000+ people in the UK (Carillion employed at least as many in other countries by the way) and why the government had awarded contracts to a struggling company. The point about the risk to companies that supplied Carillion started to be made later in the day when I'd got back in the car.

Companies going bust isn't fun and is very unsettling for everyone concerned. But if the work is needed then other companies will pick it up and, as there really isn't much spare capacity anywhere in the economy at the moment, those 19,000 people will essentially all be needed. After all, if they aren't, then there wasn't enough work for them anyway and there was a different problem. So I can empathise but most of these worries will turn out to be no big deal. (Apart from pensions - see below). The "creative destruction" of capitalism acts here to place the work with better managed companies. The people who lose their jobs are the directors. Mind, it looks as if they'd done the best they could to soften that blow in advance, including paying themselves some fancy bonuses having removed clawback terms in the event of the company going bust, but recently departed directors will find that there is no company left to complete payment of their golden goodbyes. Still, this is an area the government may well usefully look into.

The question of why Carillion continued to win contracts when it had issued profits warnings started to be asked immediately. I'm not up to date with the latest interpretation of stock exchange rules but when I was with a FTSE 250 plc the rule was that a profits warning should be issued if the company's forecast profit for the next period (half year for our company, quarter for the largest plcs) deteriorated by more than 10%. So though a profits warning might mean a company has tilted into loss (as Carillion had) it doesn't necessarily mean that - it can simply mean that a company is going to make a smaller profit than expected.  Moreover, just because a company makes a loss in a financial period that doesn't mean it is about to go under. These rules exist to ensure that all investors have the benefit of a fair market, reducing the risk of insiders knowing share price sensitive information not available to everyone. Companies hate making profits warnings because the market reaction is predictable and brutal - the share price typically halves in an instant; witness the impact of the latest profit warning by Capita last week which had almost exactly that impact, even though the company is still expected to make nearly £300M profit in the year (the forecast had been £400M).

It doesn't take much to hit profit - generally a small difference between two big numbers - by 10%. I recall nervous days in the run up to a half or full year result when the company couldn't be certain it would meet the expected profit having decided a warning wasn't necessary. And the difficult days following a warning when investors were understandably apoplectic. And the attempts to talk down the market expectation of the company's performance, in an attempt to avoid the need for a profits warning, while not frightening the horses. And the opprobrium when the result fell just short of 10% below forecast, meaning that there should have been a profit warning when one hadn't been issued. ("You have destroyed sentiment" was the term the a major shareholder used, I seem to recall).

I recall the advice given to the company the first time it had to give a profits warning - the "rule of two". This was to get all of the bad news out into the open because the market reaction wouldn't be any worse. But it was coupled with a comment "of course managements never do admit to all the problems". So it was with the company I was with: eventually, over a period of years there were several profits warnings but the second did follow the first quite quickly. Just as Carillion had two very close together last year, only two months apart (which does seem careless).

Anyway, the point is that a profits warning is a long way from meaning that a company is about to go bust, though it's very uncomfortable for the management and often leads to changes in senior personnel, usually the CEO or the finance director.

So I was gobsmacked that Jeremy Corbyn was dumb enough to run with this point in PMQs two days later, saying that because there had been profits warnings then further contracts shouldn't have been let to Carillion. Theresa May simply made the same point that I had been saying to anyone who would listen (ok, that would be Mrs H who has no choice): not proceeding to let the contracts to Carillion would probably have sunk the company sooner.

Indeed, if Carillion had put in the best bid and had convinced the people responsible for letting the contract that they were a sound, going concern then they probably would have sued if the contract had been let to another supplier. Yes, I know it turned out that the company was on the edge but that isn't always easy to tell: reputable auditors hadn't challenged the going concern issue. The government might have been briefed that Carillion was flaky but that it was better to take the risk on them surviving by continuing to place contracts with the company rather than being accused of driving the company under by not giving it the contracts when it had bid the best price. You can just imagine the headlines in that scenario. And Corbyn's reaction.

So who really does lose out as a result of Carillion's collapse? Well firstly, the shareholders, but that's a risk shareholders knowingly take. As well as those evil speculators casually disparaged by the left, Carillion was a large company so quite a few pension schemes may well have held Carillion shares. They ought to have been sufficiently diversified for the hit to be slight, but I suspect some invest in all major companies without too much analysis, like tracker funds do.

Secondly, all the members of the Carillion final salary pension scheme will lose out under the rules of the PPF, the Pension Protection Fund lifeboat for bust final salary pension schemes. Most existing pensioners will continue to get 100% of their pension but will generally get smaller increases in future: service before 1997 doesn't get indexed and post 1997 service can only be increased by a maximum of 2.5% a year, even if the scheme rules provided for higher increases. Current employees and employees who have left the company in the past (so-called deferred members of the scheme) will get 90% of their expected final pension if they were due to retire at 65 and also reduced increases thereafter. There is a "but". The scheme won't pay out to anyone above a cap, which is currently £38,505 for people taking their pension at age 65. If they were due to retire earlier the cap is lower, £32,770 at 60 for example. And they only get 90% of the cap. The cap applies to people drawing their pension, so someone who has retired aged say 60 would find their pension reduced to £29,493 even if the pension they had been receiving was much higher. Cases like that have been highlighted in the press previously.

Now I accept the cap affects people with substantial levels of occupational pension, requiring the employees or ex-employees to have final salaries of around £70k p.a. or more. While that's a pretty good wedge, to put it in context it's only what a train driver earns. There will be a significant number of  managers and technical experts whose pay would have exceeded that. (I'm not talking about directors or the most senior managers here, whose pay would have been much higher again). It will be a very unpleasant shock to a number of current and former senior project managers for example. The Telegraph gave examples last year, including a former accountant with Turner and Newall who was one month from retiring on a pension of £50k p.a. when the company went bust. His capped pension from the PPF is £20k.

There are knock on victims of the Carillion pension fund collapsing.  The collapse of yet another final salary scheme means a smaller pool of active final salary schemes will have to carry the burden of higher premiums for the PPF. The PPF was created by the government but is funded by a levy on companies with final salary schemes. Bigger PPF premiums  will hit companies already feeling pain from having to make increased contributions into their pension scheme. These companies already pay a PPF levy of over £600M a year, as well as having the additional cost compared to some of their competitors of funding their final salary schemes. And, as more and more of these schemes expire - BHS and Carillion have been biggies but there have been plenty of others - the point may come where the PPF isn't viable and pressure would fall on the government (and taxpayers) to bail out any further schemes going under. This isn't close at the moment - the PPF is sitting on a few billion quid - but as more companies subscribing to the PPF fail and fewer pay in I can't see any other than that one day the money will run out, or the scheme will become completely unaffordable to the remaining companies.

The third group of losers are the companies who were suppliers to Carillion, many of whom will have had invoices outstanding and so will not get paid for goods or services which have been supplied. This could cause serious problems for small companies especially.  In a case I had personal experience of, the company was offered an important chunk of work sub-contracting to a prime contractor on a large construction project. The prime contractor had a reputation for paying late and we had other reasons reason to believe it was dodgy. We made representations to the end customer, a quasi-governmental body who had effectively made us a nominated supplier, asking to work directly for them. We failed, so plan B was to front load the payments profile so that we weren't owed money at any point. Fortunately our initial milestone payment, to cover equipment we had to buy up front (which we didn't actually need to do) was plausible and was not challenged. The prime contractor did indeed go bust during the contract. Without our gambit to protect ourselves our company's annual profit would have been hit by 10% at a stroke. Very few companies are in a position to insulate themselves this way.

Of course, companies can insure against bad debts. Premiums for a whole business can be steep but, while more affordable on an invoice by invoice basis, the simple fact is that Carillion's smaller suppliers will have had neither the negotiating muscle to get advantageous terms nor feel that they could afford to insure against a large customer defaulting. It seems likely that some companies will be dragged under with Carillion, though the government has arranged for credit for small Carillion suppliers with banks.

A fourth group of losers are the customers for the facilities Carillion was building, like the Royal Liverpool Hospital, which will be delayed for a year. Mind, it was going to be delayed anyway because Carillion had found that eight cracked beams were going to need to be replaced, adding £20M to costs. This discovery has been described as tipping Carillion over the edge**, coming on top of delays to the £550M Aberdeen by-pass contract and difficulties in convincing the Qataris that 2022 world cup related building work had progressed enough for the next payment to be made. This last item had £200M of cash trapped. So Carillion had what I recall being called a "WIP mountain" because of contract delays, WIP being work in progress, i.e. work done and money spent but not yet able to be invoiced and collected as income. Carillion had become notroious for this - it had £1.7bn of "receivables" - work done but either not yet invoiced or invoiced and not paid - in 2016, up from £1bn in 2011. This wasn't the only warning sign - Carillion had specialised in over-paying for acquisitions and then having to make write-downs, for example. And it had been getting increasingly bad at paying its suppliers, though it had eased that and massaged its balance sheet at the same time by implementing an early payment facility, which allowed suppliers to get paid early in return for a small fee to the bank, shifting the debt Carillion owed its suppliers to the banks. This facility had swelled by a factor of over 3 between 2013 and 2016 - another warning sign.

So there were plenty of signs. When Frank Field and his select committee colleagues grilled the former Carillion executives this week they clearly could not understand how the board was asleep at the wheel. But the thing is, the company was at great risk of going under for many years: one industry expert was quoted in the Sunday Times*** as saying that Carillion had been "a slow motion train crash for the last 10 to 12 years". The board had always found a way to avoid disaster. And they probably would have done so again if they could have got the Qataris to agree to make a payment against the work done. The directors will always strive to the very end to keep the ship afloat and will only throw in the towel when at risk of trading insolvently.  Arguably, it is their duty to the shareholders to do so. And so, when these crashes happen, they are big ones, the analogy being a train on a collision course thundering towards the last set of points which could still move up to the last moment. This time they didn't.

The select committee asked the obvious question about why large dividends continued to be paid to shareholders instead of  making up the pension fund deficit. But that would have weakened the company's share price which can have undesirable knock on effects. The Daily Mail's Alex Brummer admirably summarised the problems this causes companies:

A serious problem for sinking firms like Capita is that as the share price tanks, so the covenant to the pension fund becomes less valuable, the debt to equity ratio soars and bank lenders seek to renegotiate agreements. The ground shifts further beneath their feet and recovery retreats ever further into the distance."

Although the select committee tried to give the former Carillion directors a tough ride, I don't think many politicians - and certainly not the admirable Frank Field who was asked to "think the unthinkable" by Tony Blair (but then got sacked) - have the first clue about the issues facing directors of large companies and their so their criticism rang hollow. I accept that the Institute of Directors accused the directors of failing to provide appropriate oversight and said the collapse suggested "that effective corporate governance was lacking at Carillion" but this is very easy to say with hindsight. Yes the directors were paid a lot - the IoD referred to "highly inappropriate" pay packets but so are the directors of every similar company - they are all paid too much. Richard Howson, the Carillion CEO who stepped down last year was paid £1.6M in 2016 including £591k of bonuses. That is less than the preposterous £1.7M that the boss of Motability is getting for sitting on a £2.4bn cash pile and not much else. Unlike Carillion in Motability's case it's ALL public money.

While not claiming to be an expert on how companies fail, I did have experience at group executive level, one rung down from the main board in a substantial plc which had to issue a number of profits warnings and had a very large pension deficit. So I suspect I know a lot more than most MPs would about the problems of managing a struggling company. In such a situation, even if the company is still profitable, suppliers immediately seek to renegotiate terms and banks change their terms of lending. I can recall having difficult discussions with major suppliers who wanted payment up front, which would immediately have drained millions from the company's already under pressure bank account. And those suppliers who have taken out insurance against non-payment find the insurers pull the cover if they think it might actually happen. This has happened recently to House of Fraser and was a contributory factor to the demise of Woolworths, Comet and BhS. When things get really bad the banks send in teams to vet the company - for which privilege the company has to pay at a handsome hourly rate of course - before they will decide to renew the overdraft at higher interest rates.  All, in our case, because the company was saying it would make maybe half the profit that it had forecast a few months earlier. All sorts of problems rain down on management and it is easy to see why the directors try to keep the show on the road, expressing confidence until the very last moment.

One thing you can guarantee - the directors and senior managers at a struggling company will be working harder than almost anyone else as they get besieged by one problem after another.

The company I was with got through these traumas, that time at least. But several years after I had left it did go into administration, due to the pension fund becoming an unsustainable burden. Once free of that (it went into the PPF) a large part of the company is now continuing as a profitable business, albeit with lots of trauma for pension scheme members. But until the final crunch it was a high wire act for many years, just like Carillion. Even as the signs were getting more negative, only the directors (and maybe not all of them when it gets really hairy) know the full situation and how close the company was to failing on previous occasions. I can quite believe that the Carillion directors felt that, with a bit of help to tide them over until the Qatari money came through, they could escape once again. Not that I am suggesting the government should have done that.

So the chap who was CEO until a year ago really couldn't be blamed that much - he wouldn't know anything of what had happened subsequently. And the FD who had been there a few months clearly came into a difficult situation. No wonder these chaps and their colleagues sat in glum silence while the MPs threw the equivalent of rotten tomatoes at them. It was their duty to the shareholders, the employees and the pension fund to keep the show on the road as long as they could, while hoping that the Qatari money turned up, allowing them to live for another day, week or maybe year. Remember they had tried to secure the future by merging with Balfour Beatty (good decision tgat by the Balfour board, by the way), but something else might have turned up. The one thing they couldn't do was say to the world "if we don't get that cash by the weekend we are sunk" else sunk would immediately become a self-fulfilling prophesy. The whole spectacle of the select committee grilling was somewhat unedifying and didn't help to understand how better to deal with these situations in the future.

Isn't there a fifth group, the taxpayer, I hear you say. Surely the exchequer will now have to pay a lot more to complete the contracts? Maybe, though not necessarily. If, as I suspect, Carillion were bidding low, then the eventual cost may not necessarily be any more than if Carillion had not been given the contracts and they had been awarded to other, higher price bidders at the outset. This won't be known for some time, though whether we ever get told I rather doubt.

Jeremy Corbyn has of course tried to make hay from the collapse, in his ususal spectacularly economically ignorant way, saying " if these are public contracts we should be the manager and not have a middleman like Carillion creaming off the profits"*. One doesn't really know where to start with Jeremy as he is so far off the planet he is hardly in the solar system. But Carillion obviously wasn't charging enough for its services or it wouldn't have gone under. And given the fancy salaries that university vice-chancellors and council chief executives pay themselves, the pay levels of senior people probably wouldn't be materially different if the contracts were managed by the public sector.  And public sector procurement, for example the Ministry of Defence or Network Rail, has an outstanding record on delivery to cost and time - outstandingly bad. Given the notorious inefficiency of the public sector (see The Not For Prophet, 27 October 2017), there is no reason to believe the total cost would be anything other than a lot higher.

Indeed, PFI deals involving construction, like many of Carillion's, are proving so risky that few companies will bid for them any more. The operational phase of a PFI contract is generally low risk and so is a cash machine for the companies who run them. But companies will be even less inclined to bid for the risky construction phase if there isn't an operational phase afterwards to pretty well guarantee getting their money back. Why should they take that risk, Jeremy?

I despair of the Tories who don't seem willing, let alone able to defend capitalism from Corbyn's nonsense. It was left to the Sun to say " Jeremy Corbyn’s clueless on Carillion because he despises job-creating private firms"; "the Labour leader sees the private sector, which feeds the families and pays the rents and mortgages of 84 per cent of all UK workers, as the tool of a wicked capitalist conspiracy" and "Labour's failure to land a glove on the Government over the Carillion collapse exposes its utter cluelessness. Its more sensible MPs support private firms running public services because they generally do so efficiently, which is why Labour once encouraged it."

Quite. However, I suspect Jeremy's childlike diatribes probably go down well with a large chunk of younger folk. Us oldies may have to relive the 1970s in order that the youngsters can experience the fact that full blooded socialism never (as in never, ever, anywhere in the world) works for any other than a brief period of time before everything inevitably goes to rats. Then maybe they will understand like we do.


P.S. Carillion was formed when Tarmac demerged into two companies in the 1990s. At the time I was on the board of a joint venture company with Tarmac being one of the other players. The Tarmac technical director (who I remember telling a wicked joke about Joan Collins definitely not appropriate for here) explained to me the logic of the split: Tarmac were going to keep doing the long, straight flat things like roads while Carillion were going to do the things that got built upwards, like buildings and bridges. So the fact that Carillion built Liverpool FC's new main stand fits. But not the fact that, when I joined a railway business I found Carillion was a major player on the railways.....

I recall telling the JV partners about my company's first profit warning, in confidence after the markets had closed the day before the announcement was to be made. The Tarmac guy, soon to be with Carillion, said "no big deal, we've had lots of those...."

Sources:
https://www.theguardian.com/politics/2018/jan/18/corbyn-on-carillion-well-end-outsourcing-racket-in-rule-change
http://www.constructionenquirer.com/2018/02/06/cracked-beams-at-liverpool-hospital-sparked-carillion-collapse/
The great Carillion con trick: Sunday Times Business, 21 January 2018
Alex Brummer, City Editor, Daily Mail 1 Feb 2018
https://www.thesun.co.uk/news/5366796/corbyn-clueless-on-carillion-opinion-sun-says/
Carillion's 'highly inappropriate' pay packets criticised:  https://www.theguardian.com/business/2018/jan/15/carillion-highly-inappropriate-pay-packets-criticised
Former Carillion directors branded delusional at MPs Q&A: https://www.theguardian.com/business/2018/feb/06/carillion-director-mp-executives-collapse
http://www.dailymail.co.uk/news/article-5355225/Boss-car-scheme-disabled-1-7million.html
House of Fraser faces cash squeeze, Sunday Times Business 4 Feb 2018
My company pension paid £70,000 - now it pays just £17,500. The Telegraph 16 March 2016

The "not for" prophet

Would you like your taxes to be collected by a private company acting on behalf of the government under contract? No, me neither. I'd be concerned about tax collectors behaving a bit like aggressive private car clamping companies, while mindlessly pursuing targets set by their public sector bosses.

But would you prefer to have the option of hiring a builder, a removal company or even a hairdresser who works for a not for profit, public sector organisation rather than a private company? The very idea seems a bit bizarre, I know. But I ask because "profit" is a dirty word for many in our society. And it was for me as a socialist-leaning long-haired student in the 1970s, when Stevie Winwood sang "The percentage you're paying is too high a price/When we're living beyond all our means/ and the man in a suit has just bought a new car/with the profit he's made on your dreams"*.

The example of a removal company wasn't randomly selected. The first time we came to move house we decided to do the equivalent of buying IBM, so we couldn't go wrong. But we did, because we chose Pickfords, then the leading national removals company. They were poor. Now this was a while ago - 1980 - but our things were literally packed into tea chests. Many folk won't have seen a tea chest but they're made of rough plywood and, unsurprisingly, are used to ship tea. Indeed the scruffy chests that Pickfords used still had a fair bit of tea in them! This wasn't the only aspect of the service we weren't impressed with. Having made a mental note to take more care in future, get multiple quotes and ask questions etc, we moved house several more times and I thought no more about Pickfords until I was reading Ken Clarke's autobiography last year. What I hadn't realised was that Pickfords, until much later in the 1980s, was still owned by the people, as John McDonnell might put it, being part of the enterprises nationalised by Labour in the 1940s, along with coal, steel, railways etc and was still in the public sector. Clarke happened on this as a government minister and proposed it should be one of the Tories first privatisations. Hmm, I thought. That explains a lot, in particular why they didn't seem to care very much and provided such a poor take it or leave it service at the time.

Now I accept 1980 is a long time ago, but human nature and behaviour patterns don't change much. I take the view that public sector organisations are institutionally less able to provide good customer service. They are often very large, so senior management is remote from the coalface. They are usually highly unionised, so middle managers have little empowerment, indeed they generally have less power, influence and knowledge of what is going on than their team member who is a union rep. That doesn't mean the public sector can't provide good service. But decisions to 'flex' the system to meet specific situations in real time are problematic in such organisations, especially where there is a jobsworth culture. But where the service is fairly standard there's no inherent reason why public ownership should result in a less efficient or responsive service. Apart, of course, from the obvious dynamic that private companies can go bust, so the employees naturally think about what is good for the business. In contrast, state owned enterprises can't go bust and, more importantly for customer service, public sector enterprises tend to be very poor at performance management, being slow to take action when employees under-perform and generally unwilling or even practically unable to sack people who aren't doing their job. There is no fundamental reason why this has to be the case, but it just is.

The public-private mixed economy is ubiquitous throughout the world. Well maybe not in North Korea, but in countries like Russia and China there are quite significant private sectors, albeit in Russia overwhelmingly owned by a small group of oligarchs. If you count black market activity, I'd venture there must be private "business" even in north Korea. The question is all about the mix - what should the state do and what should be left to the market?

I hold the view that the shift towards private provision made by the Thatcher government was a colossal improvement. That doesn't mean everything the privatised companies do is perfect - clearly it isn't. Some private supply arrangements haven't worked at all well, though there are always provisions for the contract to be rescinded if that is the case. And it doesn't mean that more private provision is necessarily for the best, though it would be odd if we just happened to be at the optimal point.

Of course, the real issue isn't whether the operation is publicly or privately owned, it's competition. I recall reading my favourite journalist in the early 90s, Norman Macrae, who used to say "don't throw money at it, throw competition at it" about everything from education to the railways. I suppose you could have competing publicly owned companies, but it wouldn't be for real: everyone would know they couldn't fail in the sense of going bust. It would be sham competition, not red in tooth and claw as they say.

The left accuses the right of pursuing privatisation through dogma. I think it's the other way round. It seems to me that most people on the right want to get it right - make the services work well and cost effectively. But they are prepared to make a case and listen to argument. And few of them think everything should be run by private firms. It's the left who are actually totally dogmatic on this issue, always raising scares about privatisation of the NHS, crying wolf and seeing plots everywhere when there usually aren't any. And remember, the NHS was set up as a public-private partnership - most GPs are self-employed private suppliers providing services to the NHS under a commercial, not employment contract, that pays them to provide the surgery and employ the people who work there, none of whom are generally NHS employees. It's been this way since 1948.

As noted above, one of the reasons why the private sector is generally more efficient is the simple survival motive - lose money on a sustained basis and the company goes out of business. It struck me in the 1970s, organising football club socials, that if you planned to break even you usually lost money. It didn't seem to work out 50-50 and balance out. There are always unexpected costs, often lower revenues, etc. If you set out to make money, you generally didn't lose money. And, when you did well, you created the financial scope to put on a better event next time. Now there is no reason why, given a cost budget to manage to, managers shouldn't succeed in any type of enterprise. It doesn't have to be about making a profit. Except in a public sector organisation there is often an implicit, or even explicit, driver to "spend the budget", for many reasons amongst them that, otherwise, next year's budget will be smaller. Which is lazy management, but tends to happen. Guess what happens if you make sure the budget is spent? There aren't savings, anywhere in the system, to balance the inevitable higher costs that occur in some places. However hard the managers try, overspends for the enterprise as a whole are culturally hard wired into the system.

And there is the feeling in those organisations that it doesn't really matter to overspend; it just shows there weren't enough "resources" (i.e. money) for the task at hand. Commenting on the fascinating underground "Mail Rail" that Royal Mail operated underneath London's streets from 1927 to 2003, Alan Johnson noted that it cost twice as much to build as envisaged and incurred an initial loss of £100,000 a year (a whacking great sum in the 1920s). "Yet the principle objective of the Post Office was not profit but public service"**. So that's alright then? This just confirms for me that it's a good job Johnson, upright member of society and all round good guy that he seems to be, only ever made it to Home Secretary and that, while shadow chancellor for a period, he didn't become chancellor or PM. I expect he'd  be a fascinating and very pleasant chap to talk to, but I also expect I'd conclude that, while his heart was in the right place, he'd have the wrong solutions for every economic issue that we face, every time.

The issue of the public-private mix is sharper than it has been for many years, with Labour's plans to "take back" all sorts of activities into the public sector and Nicola Sturgeon's plans for a public sector energy company in Scotland. In the case of the railways, many reports say that it's a popular policy. Not with those of us who used to commute into London in the 1980s, where I remember the refrain on the platform when trains were late: "Privatise the bastards, it's the only thing that will sort them out". While not claiming that it did "sort them out" I would argue that it is probably not a coincidence that rail passenger journeys have doubled since privatisation, after 50 years of decline before that. The railway has problems but they are, relatively speaking, problems of success now (e.g. far more overcrowding) rather than failure. (OK, apart from cost which remains a big issue).

Many of the problems the railway has are due to the failure to tackle union power. So the unions get away with concealing their insistence on outdated working practices  behind an unprincipled smokescreen on safety. Pay levels are stratospheric compared with broadly equivalent jobs elsewhere, partly because management won't take on the medieval guilds of drivers and signallers. And, even though the train companies are privately run, the culture is still very public sector. It can take a long time to get people in a privatised entity thinking in ways that aren't steeped in public sector culture. (I have an allegorical story, about monkeys and bananas, which my boss often made me repeat for people, as it showed how attitudes can persist through generations of change. But not now, I can't type that much on the tablet). The issue with Train Operating Companies is the unions know the franchise will be re-bid eventually, so they view all management as 'empty suits', temporarily in charge till the next round of changing the cap badges. (Cap badging being the phrase used in BR for the initial separation into units that would become new entities).

As another example, many of Corbyn's young supporters would have extreme difficulty in understanding what it was like being totally dependent on British Telecom for your phone service in  the days before mobiles and broadband. If they really would prefer to go back to 1980s BT and wait many weeks for their phone line to be installed, I'd eat my hat.

Nevertheless, for some, the idea that someone is making a profit out of providing a vital service sticks in their craw. I can understand that, but only a bit. All that matters to me in these situations is the total cost and actual quality of the service. While I don't think utility type services should earn high profit margins (and some of them have been pushing their luck on this), I've never seen why I should care if part of the cost I pay is someone's profit, as long as the total price I pay is as low as it can be. I am much more agitated about an under-performing non- profit making service I rely on paying huge sums to their Chief Executives. This is the case for some local authorities, for example. I'm sorry, I can't accept poor quality and high cost just because the organisation isn't making a profit when I can see a lot of high paid individuals in a management team that I think is taking the mickey. (Polite choice of word there.... but the fact that they aren't making a profit doesn't mean that they aren't, effectively, profiting from us and ripping us off big time through their pay levels.)

And where do the profits of privatised utilities go? Into the pockets of rapacious shareholders? Substantially into pension funds actually.

So, if you think something should be totally owned and operated by the public sector and not privately operated under any circumstances I issue a challenge. Aren't you the one being dogmatic? Where is the evidence that running that particular activity in the public sector will make it better in terms of service delivery to customers and cost? I accept that some might say it would be better for the employees of the business and other stakeholders such as unions, but that surely can't be the primary concern. And, having spent around half of my career in the public sector and half in the private, mainly in former public sector enterprises, I would reject as untrue the idea that employees are happier in public sector enterprises. I have seen too much frustration in public sector teams in organisations I have belonged to and in enterprises that were customers, where the employees know things could be done better and can't get anything done about it. As a result they don't enjoy their jobs as much as they should and many end up indulging in organisational game playing rather than getting on with satisfying their customers.

However, all current evidence shows that pay levels are probably higher in the public sector, though there is an issue about like for like job weight comparison, the public sector reputedly having more higher weight jobs, though I've never seen any evidence for that. What is clear is that when the value of pensions is included, the pay levels in the public sector are much higher. (Please don't try to tell me pensions are in some way separate - they are simply deferred pay and their value should always be counted in comparisons of employment packages).

My experience trying to make former public sector companies competitive and responsive to customers was fascinating, tough and only partly successful, which I'm sure is typical. Relapses in behaviours by the teams could happen at any moment for no apparent reason, years after  change appeared to have been embedded. But I don't think this is an argument for not attempting to privatise enterprises.

It doesn't need a crystal ball or the powers of the oracle to see that taking back water, energy and rail into public hands will increase the power of the unions and decrease competition. It is very unlikely to improve service delivery and will probably increase cost in the long term, even if shareholders aren't there to take out dividends.

That's why I'm the not-for prophet. Because it's a very easy prophecy to make.

*from Traffic's song The Low Spark of High Heeled Boys from the eponymous album, released in 1971. With sound quality what it was in those days I'd always thought he sang "beans" not "dreams", which also kind of works. Either way, not the most risible lyric I sang along to - or still do!
** Alan Johnson's fascinating column on the Mail Rail was in the Sunday Times on 3 Sept 2017