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SOLOMON HUGHES reveals how Chris Grayling did over small businesses under railway arches to benefit two big finance groups for short-term gain

CHRIS GRAYLING sold off over 5,000 railway arches worth around £1.4 billion to big investors, without caring that all the small businesses renting the premises face being squeezed by big rent rises from their new owners. 

Grayling’s plan gave the Treasury a big injection of cash in the short term, but it only looks like a good deal in the longer term on fiddled figures. 

What the deal shows is that the Tories are the party of big finance. But they are also the party of screw the small businesses and of grab the short-term cash. They are also the party of jobs-for-the-boys, as senior Tories worked for both firms who bought the arches.

The railway arches are owned by Network Rail, the state-owned operator of the railway tracks and stations. Network Rail need money to invest in upkeep, but in 2017 Chancellor Philip Hammond and Transport Minister Chris Grayling decided they could not follow the normal procedure of borrowing money, because their debt would go on public-sector borrowing totals. Instead, they pushed Network Rail to sell off any “spare” assets.

The Morning Star reported the sale in 2017, quoting RMT general secretary Mick Cash saying this was “selling off the family silver” in the short term and losing long-term rental. 

Transport Salaried Staffs Association general secretary Manuel Cortes also told the Star that “if this crazy sale goes ahead we hope that the new landlords do not rack rents causing misery to the many small businesses that currently let the arches.”

This month government spending watchdog the National Audit Office (NAO) looked at the sale. It shows Cash and Cortes were right.

The NAO says that Network Rail got £1.46bn for the sale. All the arches were sold to two big investment businesses: US private equity firm Blackstone and Telereal Trillium, a British property investor owned by the Pears family — the 41st-richest people in Britain, according to the Sunday Times rich list.

Tory Lord Griffiths, a former adviser to Thatcher and a director of Times Newspapers, is a Telereal consultant. 

Former health secretary Andrew Lansley was working as a Blackstone adviser at the time of the arches sale in 2018.

The government decided the sale was good value for money because they “valued retaining the portfolio in public ownership at around £950 million.” 

However, the NAO says the government figure is not the market rate. This £950m figure “discounts future earnings more heavily than the market.” 

If a typical “market discount rate” is used then “the value of the portfolio is £1.4 billion.” So on actual market figures, the sale only made a £60m profit. 

Which sounds like a lot, but only represents 4 per cent of the total value. Network Rail was getting around £82m a year in rents from all these small businesses, so they have given up a long-term asset for a small gain.

Network Rail actually only got to keep £500m of this money for investment anyway, as the rest went on debts it already owed the Treasury.

So the main beneficiaries were the two big finance groups who bought the arches and the Treasury.

The big loser is set to be all the small businesses that work in the arches. 

The NAO says that “the department and Network Rail did not explicitly seek to deliver wider government policy objectives. Objectives, such as business support, tenant protection or community cohesion, do not form part of Network Rail’s licence conditions.”

Under Grayling, Network Rail didn’t consider looking after these thousands of small businesses. Worse, Network Rail did some calculations and actually “highlighted to prospective buyers the upside potential of rents: it estimated a 54 per cent rental increase for a sample of properties over the next three to four years.”  

So to help flogging off the railway arches, Network Rail told the big money investors they could jack up the rents.

The sale “offered investors the opportunity to become the largest landlord to small- and medium-sized enterprises in the UK.” 

Under the Tory plan, the big investors were offered the chance to squeeze this large number of small businesses.

The lesson of this sorry tale is that the Tories are not the party of small business. They are the party that tells British billionaires and US hedge funds to put up rents for small businesses. 

They are the party that wants to sell off public assets, grab the cash and let the hard-working people who run garages or workshops or cafes underneath the arches pay the cost.

Housing sell-off

THE NAO also issued a simultaneous report into the Tory strategy for selling off public land, showing it is not working — for housing.

The Tories claim they will “boost housing” by forcing the sale of “spare” public-sector land owned by departments and bodies like the NHS. But the NAO found the target for housing isn’t working. 

The Housing Ministry expect departments to have released enough land for around 65,000 homes by 2020 against a target of at least 160,000. 

The NAO questions if even this many houses will get built on ex-public land.

However, the target for raising money from land sales looks closer — the government expects to raise its target of £5bn income from land sales by 2020. 

It looks like this land sale is more about selling off public assets to raise cash than it is to do with housing.

One of the two biggest sales makes this obvious: in 2016 the Ministry of Defence sold the Old War Office (57 Whitehall) for £357m — that’s a big income but does very little for housing. The buying consortium, including the billionaire Hinduja Brothers, are turning it into a luxury hotel and just 50 super-expensive housing units.

The very biggest slice of the “public-sector” land sales won’t help housing at all. £1.46bn of the “housing” sale target was made up of railway arches sold off by Network Rail.

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