Outlook: LCR gives taxpayers Chumbawamba treatment

When the bicycling baronet, Sir George Young, awarded London & Continental Railways the Channel rail link concession in 1996, it must have completely skipped his mind that the whole idea behind such projects was to transfer risk from the public to the private sector.

With the consortium about to go belly up and Eurostar ripe for renationalisation it transpires that, far from picking up the tab, LCR's well-heeled shareholders look like passing pounds 800m of liabilities back to the taxpayer.

At the very worst, the eight shareholders (SBC Warburg Dillon Read, Bechtel, National Express, Virgin, SNCF, London Electricity, Ove Arup and Sir William Halcrow and Partners) will end up shouldering losses of pounds 100m. With balance sheets the size of SBC's such a sum is hardly likely to break the bank.

More importantly, this surely cannot have been the sort of risk-reward ratio that the Conservative government had in mind when it invented the Private Finance Initiative. When it came to the rail link, there was plenty of initiative on display, but sadly not much of it came from inside the Department of Transport.

Is LCR contrite? Not a bit of it. With breathtaking chutzpah, the consortium cheerily suggests it has actually done the taxpayer a giant favour. Had it not come along two years ago and taken Eurostar and the rail link project off the Government's hands, then the losses being funded out of public money would be a lot bigger today.

Given LCR's ability to get a two-year traffic forecast wrong by a margin of 150 per cent, some people might be inclined to take such assertions with a pinch of salt. Certainly John Prescott is unimpressed. LCR has pulled off the financial equivalent of what Chumbawamba achieved with an ice bucket.

At the very least, the LCR debacle demands that the Treasury examine all the other PFI projects so far let to see whether the playing field is tilted in a similar direction. LCR's shareholders are contractually within their rights to pass the buck to the taxpayer. But equally, governments have all manner of things in their gift - such as airport slots, rail subsidies, public sector contracts and mandates for investment banking advice. Revenge, Mr Prescott may reflect, is a dish best served cold.