Martin Vander Weyer

Never mind the royals – the real national crisis is at John Lewis

Never mind the royals – the real national crisis is at John Lewis
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Asked to name British institutions they’d rather not see shaken to the foundations, many consumers would list the John Lewis Partnership and its Waitrose supermarket subsidiary just behind the House of Windsor. Indeed some might rank the employee-owned retail group ahead, on the grounds that Her Majesty’s family doesn’t sell Egyptian cotton sheets and organic celery juice. A fall into losses, a management bloodbath and a threat to John Lewis’s distinctive business model really is, in its way, a national crisis.

As you flick from one online retailer to the next, pondering how to spend the saving you just made on a load of Lidl groceries, you may ask why John Lewis still matters. The answer is not specifically to do with its ownership by 83,000 ‘partners’, even if that makes it a beacon for centre-leftists who dislike bloodier capitalism. It’s more to do with the fact that, until recently, John Lewis and Waitrose were ultra-reliable shopping destinations that seemed capable of weathering any storm — but now they’re struggling.

Discounting by competitors combined with rising import prices have killed profit margins on many household goods, while nervous consumers defer big-ticket purchases. General managers of both sides of the group have been ousted, partners are at risk of receiving no profit-share for last year, long-serving chairman Sir Charlie Mayfield is retiring and his successor, Sharon White, is an ex-civil servant with no retail experience.

How much worse can it get? The only consolation is a shrinkage of excess high-street capacity as other retailers retrench or fail; this week’s faller was the 22-store Beales chain. The John Lewis and Waitrose brands (now with ‘& Partners’ appended to them) remain hugely valuable — but the partnership structure itself creates a balance-sheet headache because the group cannot raise new equity, instead relying on debt.

So it’s not beyond imagination that the partners might one day have to put their whole business up for sale; there have already been whispers of a sell-off of Waitrose to bolster the John Lewis side. Remember the Co-operative Bank, once a beacon of mutuality, now largely owned by US private equity? And who’s the only British tycoon ever-ready to pick up once-mighty retail brands as they stumble? Mike Ashley as the proud proprietor of John Lewis would be a more startling outcome than anything our troubled royals might contrive.

The state of the railways

The year began with an average 2.7 per cent rise in rail fares and a more-than-average flurry of headlines about angry passengers and failing franchises. Strike-hit South Western Railway was warned by its auditor that it risks renationalisation if it cannot continue as a going concern. At PMQs, Boris Johnson declared that ‘the bell is tolling’ for West Midland Railways. Transport Secretary Grant Shapps started a process to strip the hated Northern operator of its franchise and was urged to do the same to Trans-Pennine Express. Meanwhile, Keith Williams (a former John Lewis boss, as it happens) is conducting a radical review that should eventually lead to what the Queen’s Speech called ‘a simpler, more effective system’, replacing the franchising model.

Don’t be surprised if that new system turns out to be a hybrid renationalisation. Network Rail, the track operator, and LNER, the East Coast mainline franchisee, are already owned by the Department for Transport; ScotRail will be taken in hand by the Scottish government by 2022. And the rest of the network is mostly under foreign state control: Arriva and Abellio, respectively owned by German and Dutch tax-payers, between them run seven of the current national total of 17 franchises; French, Italian and Chinese state entities have interests in others. Following the departure of Virgin, the last large-scale UK private-sector player is FirstGroup, with four franchises, while the only new entrant is the outsourcing giant Serco, running the Caledonian Sleeper.

In the 1980s and 1990s, privatisation was a huge positive change in many industries as well as a boost for the public finances. Any form of renationalisation would, in principal, be a retrograde step. The fragmented, Treasury-driven rail sell-off scheme adopted by John Major in 1994 was a botched compromise, but I’d argue that in its early years it brought real benefits. Not in this century, however. Passenger numbers continue to grow but satisfaction and service statistics have hit ten-year lows, and improvement projects advance at a glacial pace. RMT union leader Mick Cash over-eggs it when he says ‘The UK rail network is being used as a cash cow by speculative [foreign] state-owned outfits’, but the current system certainly doesn’t encourage continuous reinvestment to keep customers happy. Whatever the Williams Review comes up with, the state — our own state, that is — will surely have a large role to play in it.

Fingers crossed for Flybe

I’ve always liked Flybe, which I once called ‘the short-haul airline of choice for the English middle-classes… nicer planes, better manners and less hustle than Ryanair, at only slightly higher fares’. So I’m glad ministers have offered loan terms on overdue Air Passenger Duty payments to help this carrier of eight million passengers per year, mostly from smaller UK airports, survive its latest bout of financial turbulence. The point about APD, charged at £13 per standard-class passenger on domestic and short flights, is that it’s an ill-targeted ‘green’ tax that’s bad for commerce, tourism and ‘regional connectivity’ without (as the TaxPayers’ Alliance and others have persuasively argued) being particularly good for the planet. I suspect Tory ministers have long wanted an excuse to reform it; now Flybe has given them one. But I fear that won’t change Flybe’s ultimate fate, in a difficult market for small carriers, if the investors now bailing it out for a second time in a year — led by Virgin Atlantic and Stobart — eventually run out of patience. Then we’ll only have Ryanair.

Written byMartin Vander Weyer

Martin Vander Weyer is business editor of The Spectator. He writes the weekly Any Other Business column.

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