Rail 406: The core question of the rail crisis – what is Railtrack for?

Railtrack is a paradox: a capitalist company without a definable product. Based on such a false premise, its structure is fundamentally flawed, but those who call for ‘evolution not revolution’ are kidding themselves. CHRISTIAN WOLMAR argues for Railtrack to be replaced by a more capable custodian of the network, and for reintegration of the trains and the track they run on.

What do Railtrack executives think they are going to achieve when they stumble out of bed every morning? This might seem a trite question, but it is actually one of the most compelling reasons why the railways need radical restructuring and not the slow evolution which some industry insiders are suggesting. It also explains why Railtrack cannot find a Chairman. The real problem is that Railtrack does not know what it is for.

The hugely embarrassing fiasco over the withdrawal of Sir John Parker as Chairman-designate after much leaking by Railtrack to the Sunday press just goes to demonstrate the impossibility of solving the company’s problems without a major rethink of its structure – which in turn leads to a radical restructuring of the industry, not just tinkering about.

Railtrack is structurally dysfunctional. Its demise is not just the result of bad management, greed and avarice, but the fundamental flaws in the way it was established. The question in the introduction is crucial. What is Railtrack for? It is a capitalist corporation without a definable product. Capitalism works well when a company has an obvious goal. To be successful, Coca-Cola sells more coke, Corus more steel. Railtrack sells train paths, but the price is fixed by the Regulator, so it cannot respond to increased market demand by raising prices. Moreover, it cannot boost supply except through massively expensive and long-term enhancements which require Government subsidy.

So the only way to boost profits is to make cuts in maintenance or investment. Or, as Gerald Corbett achieved, Railtrack gets the best possible regulatory regime in order to maximise profits. And at the back of Railtrack managers’ minds, they know that if anything goes really wrong – such as Hatfield – the Government will foot the bill.

Moreover, Railtrack customers are not the passengers but some 30 passenger and freight companies. Would the massive post-Hatfield disruption ever have been allowed had Railtrack’s livelihood depended directly on the number of passengers? Undoubtedly not. Its offices would have been besieged by furious commuters burning their season tickets in anger.

Therefore, how do you motivate managers in such a company? And is it surprising that young graduates, like potential Chairmen, are not exactly flocking to the Railtrack’s HQ, the Black Tower?

Ah, you may say, but surely the same applied to the old civil engineers who worked for British Rail. All they did was keep the trains running for other people. Wrong. BR was a unified organisation where all staff had a stake in the safe and punctual operation of the trains. Railtrack managers, on the other hand, are trained to maximise income through the fault attribution system, performance regime and screwing maintenance contractors. Not the same thing at all.

Actually, there is a fundamental dishonesty at the heart of this debate. When senior rail executives make speeches or write articles on the need for ‘evolution not revolution’ – I will throttle the next person who says ‘we are where we are’ – they tend to set out a number of ideas which, taken together, would really mean a revolution. For example, David Begg, Chairman of the Commission for Integrated Transport, in a recent paper with Jon Shaw of the University of Aberdeen, has suggested a three-step approach starting with the simplification of the structure; then a regulatory reform with the merger of the Regulator and the Strategic Rail Authority; and finally refranchising.

Step one would include the Government taking a stake in Railtrack and a reduction in the number of TOCs; step two would involve merger of the two main regulators while step three would change the industry incentives, handing over responsibility for the track and possibly signalling to the operators with the distant prospect of vertical reintegration.

In his Sir Robert Reid lecture in February, Virgin’s Chris Green suggested Railtrack should rationalise into five groups that largely fit into the 1923-48 Big Four plus Scotland. Ultimately, this too would move to a more vertically integrated model, through what Mr Green calls ‘strategic franchising’ where the operating regions would fit in with the Railtrack zones. He also wants to see Railtrack split into operations and development (an idea which I first touted in this column two years ago in RAIL 360).

Richard Brown, the head of National Express, in a paper which forms part of a Transport 2000 report, The Railways: Where do we go from here?, goes further by suggesting that parts of the infrastructure be taken over immediately by operators, leaving other sections with Railtrack.

But they are all fooling themselves if they think their ideas do not amount to a revolution and more upheaval. Let’s remind ourselves of how we ended up in this mess. The current structure of the railways was based on a false premise – the encouragement of competition which now the SRA, in one of the only cogent parts of its Agenda, has effectively said is a waste of resources.

Secondly, the current structure involves train operators paying very high access charges to Railtrack to ensure shareholders get a high rate of return and that there is money for enhancements. In Sweden, there are low access charges because the infrastructure owner remained with the state and this encourages new services to be introduced. And, thirdly, the current model involves the separation of operations from infrastructure, which has proved disastrous both from a safety viewpoint and financially by massively increasing costs in the industry, such as those armies of clerks checking fault attribution and the complexity of implementing investment schemes.

We have ended up with the unedifying spectacle of a near-bankrupt Railtrack announcing it has no money for improvements and then begging for £1.5bn in subsidy to be paid early (at a cost to taxpayers of, say, £300m) – all because it failed to run the railway. And, thanks to Tom Winsor’s generosity, Railtrack is, since April 1, earning 8% on its (arbitrarily-determined) asset base to compensate for the risk of paying for these now non-existent enhancements. Indeed, the longer there is no investment in railways, the better Railtrack will do.

And this dire situation just needs a bit of gentle tweaking – e-volution? As John McEnroe used to say, ‘you must be kidding’. We will just end up with the same mess again. In fact, people like David Begg, Chris Green and Richard Brown, all substantial figures, at heart know that the present situation is unsustainable and that the current set-up of Railtrack is at the root of the problem. Their contributions are actually more radical than their presentation suggests but they somewhat gloss over the sheer impossibility of being Railtrack. So let’s instead, unify behind a consensus: the industry needs radical reform, which involves sparing Railtrack the need to satisfy shareholders, the integration of the wheel-rail interface and the return of a ‘fat controller’. And since the taxpayer is footing much of the bill for the railways, the issue of government’s involvement must be sorted out, too. Railtrack could either be split into zones and integrated with mega-operators, or run as a non-profit making trust, or simply handed over to the operators. Every solution has associated problems, but none of the new scenarios would be anything like as bad as today’s mess.

This article has focused on Railtrack because it is the most pressing and obvious problem. But to pose a wider question – which rail organisation has covered itself with glory in the past year: the SRA, whose long-awaited agenda was a soaking squib? The Rail Regulator, who maintains steadfastly that all would be rosy if only people obeyed the legal contracts? The Health & Safety Executive (see below)?

The big question is whether government is taking notice of this debate over the future of Railtrack. Lord Macdonald clearly has his eyes closed as he trots out the loyal line that further restructuring would be a mistake – what a disappointment that man is, given that he is far too intelligent just to be the party hack that he has become. John Prescott is eyeing the quieter life that he will enjoy after the election. But, interestingly, No. 10 has been touting round for ideas and, indeed, had it not been for the foot-and-mouth epidemic, we may well have got a major pre-election speech from Tony Blair himself. There may well be something in the manifesto, though I suspect it will be woolly words to keep the options open. That may not be a bad thing.

Those who care about the railways must not be timid. They must argue with one voice that Railtrack cannot survive in its present form. The debate should be about what should replace it, not whether the change is necessary.

Interims – not the right connections

Another crash. Another Health & Safety Executive ‘interim’ report, this time on Great Heck. Another major omission. What is it with the HSE and its inability to see the wood for the trees? As I have commented already (RAIL 401), on Ladbroke Grove it did not consider the track layout and the way the points interlocked; on Hatfield, there was no mention of whether there was any indication to signallers about a rail break from the track circuits; and now on Great Heck, there is the issue of whether having the DVT at the front made a difference. Not a word about that, even though the issue caused fierce debate in RAIL 405.

I’m not saying this was necessarily a contributory cause but I would like the question “would the locomotive have just knocked the Land Rover out of the way?” to be considered. (I am not suggesting that having the locomotive in the front would have made any different to the power of the impact; indeed, it might have made it worse.)

On at least two of these occasions, the HSE played a rôle in the decisions that created these particular circumstances. At Ladbroke Grove, it was the HSE which approved the layout created for the Heathrow Express (though the HSE claims it does not approve anything but merely does not object to decisions placed before it). And the issue of trains being pushed from the rear has been much discussed since the Polmont accident in July 1984 when a train hit a cow.

I have every faith in the integrity of the HSE and its head, Vic Coleman. But, like Caesar’s wife, it must be seen to be above suspicion. Therefore, the case for an independent Rail Accident Investigation Board becomes more unanswerable by the day. The body which oversees the day-to-day regulation of safety cannot be expected to investigate its own decisions that may have contributed to the accident. Simple as that.