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Railways come into focus
For the defined benefit schemes of companies in the rail and other sectors, the discussions about nationalisation might not be viewed negatively, as government support would enhance the covenant.
But for the rail sector, the pension scheme itself could be part of the reason why operators are struggling – Stagecoach and Virgin Trains were disqualified from three franchise competitions last year for their unwillingness to underwrite a £6bn scheme deficit, and the latter left the market as a consequence. Some have pointed out that those competing for franchises nowadays are often the national operators of other states.
A review of rail franchising has been delayed because of the current crisis, but some believe it could suggest something like the management contracts currently in place.
If it were to nationalise railways, the government could subsume the assets of the Railways Pension Scheme under its consolidated fund and show this as a nearly £27bn credit, whilst not having to disclose liabilities as a debt; this is a specialty of public sector accounting and has happened to other schemes. When the government took on the deficit and liabilities of the Royal Mail scheme in 2012 in preparation for the group’s privatisation, it took over the assets but did not have to show the liabilities in its accounts, which under IAS19 were at £44bn in March last year.
This year’s Budget revealed the government is also due to sell the assets of the Bradford & Bingley and Northern Rock AM schemes, as they equally become unfunded central government schemes with liabilities largely invisible to taxpayers.
Is the public mood turning towards state control?
Some believe renationalisation of the railways to be inevitable, particularly as Network Rail, responsible for maintaining tracks, bridges and tunnels, is already publicly owned.
“Some of the arguments against fragmentation which led to nationalisation in 1947 are equally valid today,” said Ian Neale, director at policy specialist Aries Insight.
He criticised the continued privatisation of public services, saying that “a fairly recent example was the unquestionably disastrous privatisation of the probation service” by former minister for transport Chris Grayling, where out of 10 firms in the sector, eight were rated inadequate in a subsequent review. Neale added that the creeping privatisation of parts of the NHS have also been exposed as problematic.
The pandemic, and the public’s support for the NHS, could be a catalyst for people demanding more state involvement, he thinks. “With the appreciation of keyworkers, people have discovered the extent to which we are actually interdependent, which increases the appeal of collective solutions under public control,” he argued, suggesting that even an increase in national insurance contributions would not be opposed given that some previous increases were passed without any issues.
“In the light of current events I think the public is ready to increase funding for the NHS,” he said. However, for anything else, it will depend on what exactly is proposed and how it is presented. Generally, NICs increases tend to be more readily accepted than tax hikes, as “presentationally, ‘national’ and ‘insurance’ are much more comforting than ‘tax’”.
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