Cash loss in railway depot sale lambasted by MPs

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The Independent Online
The sale of seven railway maintenance depots, one of the first parts of the rail privatisation process, was handled so badly that the Department of Transport was unaware that large amounts of cash were given away with the businesses.

A report by the all-party Commons Public Accounts Committee is highly critical of the way the sales were carried out in a number of ways, including the fact that the businesses were not valued in advance of the process and bidders were not all provided with the same information. The MPs criticise both British Rail for the way the sales were carried out and the Department of Transport for not monitoring them properly.

The report on the sale of depots at Chart Leacon, Ilford, Doncaster, Wolverton, Springburn and Swindon at the beginning of 1995 says that the companies were unexpectedly cash-rich when they were sold. Instead of having cash balances of pounds 1m when bids were being sought in September 1994, they had pounds 17m by the time they were sold and pounds 13m of this was not recovered by British Rail. It was unclear whether the taxpayer received the full benefit of this cash.

The MPs, who grilled Sir Patrick Brown, the Permanent Secretary at the Department of Transport late last year, criticise the fact that valuations were not carried out before the sale. The MPs conclude that valuations are not only a useful way of ascertaining probable receipts, but that "experience suggests that the process of considering how a business should be valued enhances the vendor's understanding of the enterprise and its underlying assets". In subsequent sales, British Rail changed its policy and tried to ensure that cash was removed from businesses before the sale and that valuations were carried out.

The bidders included management buy-out teams and a report published by the National Audit Office last year into the sale suggested in-house bidders may have received fuller information than external bidders. The MPs are concerned "all bidders did not receive the same information". These breaches were "serious flaws in the sales process".

The MPs find it remarkable that the National Audit Office, the public finance watchdog, did not have access to papers relating to the conduct of a government department's business with the National Audit Office and the Public Accounts Committee. Such files were marked "Not for NAO eyes". When this first came to light, in November 1993, the Department of Transport held 684 files which were barred to the NAO and after a review this was reduced to 86. Subsequently, in August 1996, the Department abandoned the classification entirely.

The MPs conclude very strongly: "We consider that it is an extraordinary and unacceptable state of affairs for government departments to use their resources, funded from money provided by Parliament, to organise and classify papers so that they are kept away from the auditors appointed by Parliament."