In 1787, a splendid metaphor was born. Catherine the Great of Russia set out on a cruise along the River Dnieper to survey a new colony. To wow the empress, her lover, Prince Gregory Potemkin, organised fake villages along the bank and tricked out his men as honest serfs. As Catherine’s boat floated by, the serfs stood and cheered – then stripped off, dismantled their settlements and ran downstream to do it all over again. And so the world was gifted the Potemkin village – a byword for ruling-class deceit and disinformation. While the Kremlin has cornered the market in Potemkinism, dictators everywhere like to indulge.

Only, the more you look around today’s Britain, the more Potemkin villages you see. When Windsor’s council leader tells the police to clear his streets of homeless people before Harry and Meghan’s wedding, he speaks a language any tsar would grasp. When the NHS stops doing routine operations yet whistles that all is business as normal, it’s practising Potemkinism. And then there’s the way ministers act with our railways.

Britain’s privatised railways are rife with facades and fakery. Interviewed by Andrew Marr at the weekend, Theresa May claimed that private ownership of our train services had brought a flood of extra cash. Indeed it has – not from the businesses, but from us, the public. We’ve paid for all the real investment in the railways – whether in Pendolinos or on the track – which is how we’ve ended up with an extra £30bn in national debt. Ministers pretend that the woeful Southern Railway is a private train service. Yet Southern is controlled by the state, which hands it to a company to run. Southern’s ultimate managers are little more than government officials, paid billions by the state to leave stricken commuters miles from home.

As for Prince Field Marshal Potemkin, he has clearly been reincarnated as Chris Grayling. Quite a comedown, I’ll admit – from handsome swashbuckler to an oh-yes-he-is, oh-no-he-definitely-isn’t Tory party chairman. But what Russia’s commander-in-chief did with an army, Grayling attempts with bureaucracy and bullshit.

With one bungled decision, the transport secretary has shifted all the risk from the private sector to taxpayers

Consider: in the run-up to Christmas, the transport secretary issues a new rail strategy. For the most part neither new nor strategic, the 44-page document does have buried deep inside mention of an “East Coast partnership”. That, Grayling insists, is not a bailout. It turns out to be a bailout. Virgin Trains East Coast (Vtec) offered the government £3.3bn to run the services between London and Leeds, Edinburgh and Aberdeen from 2015 till 2023. Even at the time, that was silly money.

When Vtec’s baloney business forecasts turned out to be just that and the company began losing money, its managers and owners set about lobbying. It appears to have worked: Grayling is letting Vtec out of the contract in 2020, three years early. As for the £3.3bn Vtec promised taxpayers, we’ll be lucky to get half that. According to executives’ latest modelling, by 2020 they plan to have paid a total of £1.7bn. That leaves £1.6bn missing.

This stitch-up is, as former transport minister Andrew Adonis says, indefensible. It will put you and me hundreds of millions out of pocket; it is bound to disrupt commuters, and it has cost Whitehall more time and money to sort out the replacement.

Meanwhile, the billionaire owners of Vtec have just been rewarded for grotesque business failure with a ministerial card reading “get out of jail free”. When business is booming, the operators never offered to cough up an extra penny. Now that reality isn’t conforming with their fanciful forecasts, they cry on a ministerial shoulder and are offered a multimillion-pound concession. What’s more, any other train service in financial trouble now has the precedent to demand Whitehall cuts them a similar concession.

‘This debacle is big and important enough to warrant Chris Grayling’s resignation.’ Photograph: Rob Pinney/Rex Features

With one bungled decision, the transport secretary has shifted all the risk from the private sector to taxpayers, while leaving the businessmen with all of the cashflow and none of the recriminations. In Grayling-speak, this counts as a triumph. But remember: this same meathead once made it his job to stop prisoners getting books. He could have fined the Vtec managers. He could have prevented them running any new train franchise. He should certainly have done what Adonis did in 2009 to National Express, the last private-sector firm to run into trouble on the East Coast line: confiscate the business and nationalise it.

The best demonstration of Grayling’s leniency is the way Richard Branson has started doing the Tory’s PR, hailing his “pragmatic decision”. Meanwhile, shares in his partner company Stagecoach shoot up 12% on the ministerial announcement – a sure sign that someone is making money out of this deal, and that it’s not the taxpayer. Stagecoach, by the way, is on the shortlist for three other rail franchises – it will almost certainly score one or more of them.

For our Potemkin minister, the operators of East Coast mainline make the perfect fit. Both company and the trains bear the Virgin logo, but it is in fact 90% owned by Stagecoach; the Virgin group has only a 10% stake. These are two of the biggest transport names in the world. Both are involved in running the West Coast mainline. Yet neither have ever offered extra cash to the public purse when business is booming.

Naturally, Branson preens at photocalls for his new superfast fleet, claiming, “We’ve brought in the new Azuma train.” This, it is implied, is his much-trumpeted investment. What he fails to mention is that the entire £2.5bn fleet was initiated, commissioned and paid for by the government.

Neither Virgin nor Stagecoach need public handouts. Branson is worth £5bn, while Stagecoach’s founders, Brian Souter and Ann Gloag, are also stars of the Rich List. Last financial year, the CEO of Stagecoach got £966,000 in pay and benefits. More to the point, the academic researchers at Corporate Welfare Watch calculate that, between 2011 and 2014, Stagecoach took over £1.2bn in government grants while Virgin Trains received £834m in grants and subsidies. Stagecoach, responding on behalf of itself and Virgin Trains, says it “doesn’t recognise” these sums , but they are documented and sourced on the Corporate Welfare Watch website.

The message is: companies can milk the public for billions when they’ve got a good story to tell – but when the story has an unhappy ending, they can milk the public for hundreds of millions more.

The commentariat has paid next to no attention to this fiasco. But the East Coast mainline is a far bigger story. This is one of the largest contracts government has with the private sector. On the other side of the table, two of the biggest businesses in Britain have just been thrown one hell of a bone. This is a grade-A scandal. Labour should really go after this one. All they need is to be smart and fast – because this debacle is big and important enough to warrant Grayling’s resignation. The story of Potemkin, don’t forget, ended with him being rumbled almost immediately.

• Aditya Chakrabortty is a Guardian columnist

• This article was amended on 17 January 2018 to clarify that Stagecoach was also responding on behalf of Virgin Trains and on 15 March 2018 to replace a reference to Virgin with a reference to Vtec, the partnership of Stagecoach and Virgin.

