Margareta Pagano: Happiness, Mr Cameron, is a new British Rail

Privatisation produced complication not competition. It let commuters down
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The Independent Online

I suggest David Cameron and his cabinet cronies get out of their chauffeur-driven cars and hop on to some of Britain's overcrowded and overpriced trains if they want a truly realistic response to their latest wheeze, the happiness survey.

They should start by talking to commuters on the 6.34 from Audley End to Liverpool Street Station – jam-packed, and often without working loos or running water, who pay £3,604 a year for the privilege. After last week's news that rail fares will go up by an average of 6.2 per cent next year, I guarantee they will tell officials with their clipboards where to run and jump.

The latest uproar over fares follows the Government's decision to change the way it funds the railways. It has lifted the cap imposed by Labour that limited train operators to increases of not more than 1 per cent above the retail price index. From 2012, fares can rise by 3 per cent above RPI, which is now around 5 per cent.

Commuters won't like it but there is logic to the coalition's decision; the Government is allowing the train operators to raise more money from travellers so that it can reduce the subsidies paid by the taxpayer. While this seems fair, the upshot of the decision by Philip Hammond, Secretary of State for Transport, to lift the cap means that some train operators could push up fares by as much as 30 per cent over the next few years. In these tough times, such hikes could be the last straw for many commuters and travellers, although it's interesting that passenger numbers shot up by 9 per cent in the third quarter of this year, and are predicted to double by the end of the decade.

In return for the fare increases, George Osborne, the Chancellor, agreed to Hammond's request to honour Labour's £8bn investment plans for new carriages, Crossrail, Thameslink and other projects. This, at least, is good news.

But all the squabbles over fares disguise the real truth about Britain's railways, which is that the system introduced by the Tories is over-complicated and inefficient. There isn't a railway system in the world that makes money but the UK's network is more expensive than most. This is how it works: the railways cost £12bn a year to run. Half of that comes from money raised from fares and the balance comes from the taxpayer. Network Rail – the state-backed company with £24bn of government guaranteed debt – spends £6bn a year on maintenance; £3.5bn of this comes from the Government and the rest from the franchise operators who pay access charges to use the track.

Another £1.5bn of public money goes to the seven companies that, between them, operate the 20 franchises around the country.

The Tories broke up the railways because they wanted more competition but the structure they created is so incoherent this has been impossible to achieve. Instead, we have a nightmarish situation of cross-subsidisation. On top of that, short-term operating franchises ensure the private companies have no incentive to put in long-term investment.

There is only one way to repair this and that's to restore vertical integration, renationalise the railways and create a new British Rail company. One of the ironies of so-called privatisation is that the railways are more regulated than ever before; so a new BR should be run at arm's length, through an independent trust. As Christian Wolmar, the UK's rail guru, told me last week: "It's time to face up to the truth: make an honest woman of Network Rail; and bring in the train operators and let them run down their franchises, so we don't have to pay compensation. Then we can start up again with a new British Rail."

What we need now is joined-up, long-term strategic thinking; not knee-jerk politicians tinkering with one of the nation's most prized pieces of infrastructure. If Cameron really wants to make us happy, he should admit that his Tory predecessors got it horribly wrong and put Wolmar in charge of a new commission to bring back British Rail – complete with all those lovely uniforms.

At the same time, he should ensure that the bankers are taxed heavily on this year's bonuses and use the money to subsidise the fare increases. The bankers have taken us for a ride, now it's their turn to pay for ours.

Adam Posen called Mervyn King 'excessively political'. What's his real agenda?

Does Adam Posen know something we don't? Why did the American economist feel it helpful to attack the governor of the Bank of England, Mervyn King, in public at this week's Treasury Select Committee and accuse him of political bias immediately after the election. In a stunning intervention, Posen, a member of the Bank's Monetary Policy Committee (MPC), claimed he and "at least one other" had not wanted to support King's statement on the coalition's fiscal austerity package – in May's Inflation Report – which Posen said was "excessively political". Who is the other committee member? We should be told.

One thing is for sure, this was no off-the-cuff remark at a banker's cocktail party, although there is no doubt that there will be no shortage of bankers offering to send him a case or two of Krug. A glance at Posen's CV reveals a few clues. He is a fellow of the Peterson Institute – budget of $10m – has advised banks and governments around the world, and sits on the Panel of Economic Advisers to the US Congressional Budget Office. He's close to the Fed's chairman, Ben Bernanke, and with economist Paul Krugman, backs Bernanke's expansionist monetary policies.

So what's he up to intervening in UK domestic life? Could it be – it's only a theory – that Posen is against some of the banking reforms being discussed that Mervyn King is so enthusiastic about? And could it be that, knowing he cannot speak publicly about his differences with King on upcoming policy, he's making himself famous in advance of the bloody battle that is to come, when the Independent Banking Commission reports, over splitting up the banks? Or is his intervention really a warning shot across the bows for the Republicans in the US, warning them not to intervene in financial matters there. While Posen is hailed as a great economist – Krugman says he's a must-read – at no stage did he warn us about the financial collapse. Whatever the reasons driving Posen, I think he's one to watch.