SIMON JENKINS The Times November 9th 2001

Britain is more like a banana republic with each passing day

Britain is more like a banana republic with each passing day. Its ruler rewrites the constitution at will. He packs the national assembly with his friends. He roams the world declaring war. He hires Concorde to be photographed with the most powerful man on Earth. What will he do next? I hope the Life Guards are in place round Buckingham Palace. There is no clearer symptom of banana republicanism than the "parastatal corporation". Such outfits are run by cronies of the regime, funded by lucrative monopolies and by banks underpinned by government. Their chief exponent now is Her Majesty's Secretary of State for Transport, Stephen Byers. This man could not a run a bath.

Mr Byers is trying to set up parastatal corporations to run Britain's railways and the Tube. His squabble with the outgoing chairman of Railtrack over who said what to whom is undignified. His row with the Rail Regulator, Tom Winsor, is astonishing. Mr Byers apparently forbade Mr Winsor from using his powers to rescue Railtrack, threatening to sack him if he did. Mr Byers was grossly abusing the regulator's supposed independence. He then denied the whole business to Parliament.

Ministers no longer care what they say to Parliament because nor does Parliament. As in a banana republic, MPs might as well be sunning themselves in the Cayman Islands.

During the 1990s the world flocked to Britain to greet the birth of a new baby called privatisation. They marvelled at its perfect fingers and toes and went home to try some of their own. Visiting South America at the time, I noticed the result. Across the continent, telephone, railway, gas and electricity companies were "sold" to banks run by friends of the regime. Thousands of workers were sacked and there was a one-off rise in productivity. Things soon settled back to their old ways. Companies behaved like the parastatals of old, their borrowing underwritten by central banks, their prices fixed, their profits creamed and their rich ever richer.

Nobody studies privatisation in Britain any more. The world therefore missed the instructive appearance of the Rail Regulator, Mr Winsor, before the Transport Select Committee on Wednesday. The Treasury's beloved "private" railway was on show in all its misery, companies cursed with outside meddling, shareholders bankrupted by regulators, services failing, everyone at each other's throat.

Even the pessimists could not have forecast the past month, with ministers, chairmen and regulators screaming "liar" at each other while railway stocks slither to junk bond status. There is no more devastating comment on the Westminster collective than to have brought what was Europe's most cost-efficient railway to its knees in just five years. The Treasury, once a jewel in the crown of public administration, is now unmistakably the "stupid" department. It is still trying to parastatalise London Underground.

Mr Byers claims to want a railway run by a not-for-profit board under a Strategic Rail Authority. The board would be composed of the great, the good and the politically correct. He jeers at Railtrack that his concern is for his passengers not their shareholders, yet he has spent his term of office rigging then collapsing the Railtrack share market. He now expects the same shareholders to stump up further cash, as yet unsecured, to rebuild a railway for which he intends to take credit. Not even Papa Doc would try this one.

Only a lunatic would give Mr Byers a penny. His recent treatment of both Railtrack and Mr Winsor shows that he does not believe in privatisation, regulation or the truth. He wants a political railway, at the mercy of his whim and his career. This is far more unstable than old-style nationalisation. That was an arm's length contract between minister and board. This is anarchy.

The problem with "calling the British constitution's bluff" ' the Blairites' present boast ' is that ministers lose all protection for their decisions. They want both Houses of Parliament to be adoring poodles, but that means having to shoulder the blame for everything. No decision of Mr Winsor or his successor to make or break a rail company's revenue will now carry weight since Mr Byers may choose to overrule it. A railway shareholder must therefore investigate not just the competence of managers and regulators but the murky processes of Mr Byers's mind. I would rather back a three-legged horse.

Since the advent of privatisation, regulation has swung back and forth between over-lenient (water and telecoms) to over-tough (water again and railways). This year Railtrack was plainly bankrupt, but there was much argument over whose fault this was. Was it the board, the Government or the regulator? John Prescott and his colleagues terrorised the board with "crisis summits", and bribed them with large grants. The regulator did likewise with access charges, fines and investment demands. His annual decisions determined Railtrack's profit and loss. He was therefore within his rights to help to rescue Railtrack from bankruptcy.

Shareholders in privatised utility companies are at the mercy of these intrigues. They cannot make decisions in a free and open market. They cannot any longer rely on the independence of the regulator. They own a railway which a minister clearly regards as his plaything. Their only defence is never again to buy a railway share.

The essence of privatisation was to free British public service from such meddling. Services were to be put in the private sector and subjected to competitive discipline. Nigel Lawson in the 1980s trumpeted that "nationalisation has not worked and in practice was positively harmful". The strong arm of the market would achieve what ministers never could. Profit was the best incentive to service delivery.

From the start even the privatisers were sceptical. Public utilities, Margaret Thatcher warned her Cabinet, would always remain of political concern. She found more comfort in Nicholas Ridley's justification that public utilities "are more easily controlled when they are in the private sector". She wrote that the virtue of privatisation was that, properly regulated, it "provided a better and clearer discipline". The operative word was properly.

In the booming Nineties all was well. But any system as delicate as "regulated privatisation" must be tested in the fire of recession. Most of these utilities had, after all, been nationalised only because earlier regulation had failed. The fire is now blazing. British Airways is pleading with government for regulatory relief on slots and mergers. British Energy is pleading for relief on nuclear clean-up. The water companies are reacting to regulation by "going mutual" to avoid conservation liabilities. The new air traffic control company is seeking relief from its investment obligation. Railways have been shunted into a government siding. These are all utilities and most are quasi- monopolies. They can raise private investment and retain public confidence only if regulated with the lightest touch, a political art at which Britain used to excel. Not any more. An early regulator, Clare Spottiswoode of Ofgas, admitted to Parliament in 1995 that her reports were "not worth the paper they were written on" and her accountability was "in truth, very little". Small wonder ministers soon stepped into the vacuum. Mr Prescott and Mr Byers stepped on the railway with hobnailed boots. Every bone is now broken.

Saki wrote: "Never be a pioneer: the Early Christian gets the fattest lion." So it has proved with private utilities. The denationalisation bluff has been called. Ridley meant to replace one form of state control with another, but he did not mean a worse one. With the railway it has been worse. Regulation and political interference have reduced long-term planning to chaos. Small investors were bribed and then cheated.

Watch what happens next. A friend of Mr Blair will be named boss of the railway, his pocket stuffed with options. City banks full of yet more friends will stump up the cash, reclining on beautifully embroidered Treasury cushions and belching fees. Small shareholders will be mugged and regulators silenced. The railway will get no better, but the price of yachts will mysteriously rise. That is what I call a banana republic.

simonjenkins@thetimes.co.uk