Jarvis rides high on rail industry's gravy train

Jarvis is one of a new corporate breed that makes the lion's share of its profits from the taxpayer.

Jarvis is one of a new corporate breed that makes the lion's share of its profits from the taxpayer.

Apart from its interest in rail, which makes up about a third of its billion-pound turnover and comes largely from public subsidy, the company is involved in several other state-financed projects.

It does work for the Ministry of Defence, builds roads for the Highways Agency and halls of residence for universities. It has also been heavily involved in the Public Finance Initiative (PFI) to build hospitals for the National Health Service.

Dave Prentis, leader of the public service union Unison, believes PFI costs taxpayers more in the long run and only serves to "line the pockets" of shareholders of businesses such as Jarvis.

The company's business has expanded rapidly with privatisation and with the new form of public-private partneships (PPPs) favoured by New Labour. It has also mopped up contracts from state enterprises that are increasingly enlisting the services of contractors rather than employing their own engineers and maintenance workers.

Jarvis is involved in the controversial PPP to run London Underground. Here, the company stands to make an "obscene" return from the public purse according to Bob Kiley the transport commissioner appointed by Ken Livingstone to run the network.

Tube Lines consortium – of which Jarvis is a member – estimates there will be a 15 to 20 per cent return on equity. But Mr Livingstone's Transport for London says there is a guaranteed minimum surplus of 25 per cent, climbing to 45 per cent on a "best case scenario".

The biggest single contribution to the company's turnover at the moment, however, comes from the rail industry. Passengers may be forgiven for questioning how a company can increase its profits at a time when its competency is in doubt because of the Potters Bar disaster.

The privatisation of British Rail and more particularly the creation of Railtrack, which has sub-contracted work to Jarvis and others, was the least popular sell-off by the Conservatives.

It has also proved to be a monumental failure, needing at least £300m of taxpayers' money to placate shareholders and remove it from the private sector, due to happen this week when Alistair Darling, the Secretary of State for Transport completes the deal to bring it out of administration. The Treasury will also act as a guarantor if Network Rail, the not-for-profit company created by ministers to take over from Railtrack, defaults on its debt. Many regard it as renationalisation by another name – an expensive one.

There is another dimension to all this. The blurring of lines between public and private enterprise has led to a flow of officials from government departments to the very companies they dealt with during their time as civil servants. In some cases, the same can be said for politicians. Steve Norris is a director of Jarvis and he was also a transport minister in the Conservative government that privatised British Rail.