The real story of the fall of Railtrack was not the Transport Secretary’s ‘murder’ of the company but its senior executives’ tame complicity in its own demise, claims CHRISTIAN WOLMAR
While researching my recent book, Broken Rails, I spoke to countless railway people across the industry, mostly on the record. Most were extremely co-operative, eager to talk about their experiences during and since the privatisation process and to put forward their views on what should happen. (Nobody, of course, quite predicted the events of the famous weekend of October 6/7.)
Mostly, the senior people would speak to me on an official basis, only going off the record when expressing controversial views. But one company stood out by refusing official co-operation despite repeated requests.
“We cannot talk to you because your book is about the Hatfield train crash and that is all sub judice,” was the line. I protested that I did not want to talk about the Hatfield train crash, which is only one chapter out of 12 in the book, but about all the other issues surrounding the recent history of the railways.
Sorry, they said, even turning me away at the door after having agreed initially to an interview with a senior executive, but we can’t say anything. Now, with 30 years’ experience of journalism, I am something of a barrack room lawyer and I know that legally, the position was ridiculous.
It becomes dafter. “What,” I asked, “if I want to do an interview in my capacity as a journalist on RAIL or a national newspaper?” Then, I was told, “we would be happy to co-operate.” Of course, I replied, I have this huge Chinese wall inside my brain which ensures that information gathered for one purpose is not used for another. Get real, I said.
The organisation, as you have probably guessed, is Railtrack, hereinafter known as the Silly Company. I tell this story not because I feel any personal slight – indeed, I like everybody I deal with in Railtrack – nor because I actually care very much since I get most of the information I need anyway, but because this little tale explains an important part of its downfall. It shows not only that the Silly Company does not behave like a grown-up organisation able to cope with the outside world and its uncertainties but also it does not understand that advice, whether from its lawyers or its consultants, does not have to be followed to the letter. Executives are paid to make decisions, not slavishly follow the advice of underlings.
Railtrack’s failings when dealing with the big wide world of nasty politicians and conservative lawyers emerges very clearly from the hearings of the Commons Transport Sub-Committee, about the weekend of October 6/7 when Stephen Byers, the Transport Secretary, staged his coup in forcing the company into railway administration. Let me just, as an aside, mention that Byers, whose position I consider below, does not have entirely clean hands.
However, the newspapers were so keen to scent blood and pursue Byers that they missed the real story, which is not the murder of Railtrack but its assisted suicide. When Railtrack’s rookie chairman, John Robinson, was summonsed late on that Friday afternoon to Byers’s office, he was told about the Government’s plan to apply for an administration order and he asked lamely if there were any alternative.
“No,” came Byers’s firm reply. Moreover, Robinson, who unwisely had gone alone to see Byers, left the office having been offered a bauble, the chairmanship of NuTrak, the body that was to replace Railtrack. A moment’s thought should have made him realise that he couldn’t possibly accept such a position, given that his primary duty was to bat for the shareholders. He duly turned it down on the Monday afterwards.
Byers had expected a fuss and a fight on that famous weekend. Instead, the Railtrack executives panicked and rolled under the pressure of a politician playing poker with a pair of twos but pretending he had a straight flush. They took 24 hours to do what they should have done immediately – speak to the Regulator, Tom Winsor, to see if he would initiate an interim review of the access charge regime. An interim review would have knocked a gigantic hole in the Government’s case that the company was insolvent because it raised the possibility of lots of extra cash.
Of course, Winsor had been nobbled already. He had been summoned to see Byers 45 minutes before Robinson and told that if he started an interim review, then his independence would be removed by emergency legislation. Until that happened, however, he was still a free man. When Railtrack’s call to Winsor was finally made on the Saturday evening, it was opened with Stephen Marshall saying that it was being made “as a matter of due diligence”. In other words, they were going through the motions rather than trying to save the company.
According to Winsor’s evidence to the select committee, Marshall asked what would happen “if we were to apply for an interim review?” Winsor asked: “Why, when and how much extra money was needed?” The answers took him aback: because of “Hatfield and the gap” [the £1.2bn between what the company had demanded for the five years starting April 2001 for access charges and what Winsor had agreed]; by Monday; and hundreds of millions.
Winsor replied that it was impossible to undertake such a review so quickly, but that he could start one provided he was given more information. Robinson, however, seemed defeated already and told Winsor it had to be done that quickly or not at all, because otherwise the Government would overrule him. According to a source close to Railtrack who is angry at what happened, Winsor tried to suggest that overruling him through legislation would prompt a much wider crisis across the City over the nature of independent regulation, but Robinson would have none of it: “I still think they will do it,” he kept on repeating. Railtrack never came back to Winsor and did not even oppose the administration order made on the Sunday, even though that would have bought two days’ delay.
The key point missed by Railtrack and its legal advisers is that it is very different for a minister to say “we intend to legislate to do such and such” and for the law to be on the statute books. Such emergency legislation wouldn’t have been passed with the co-operation of the Opposition. Far from it. It would have taken weeks, not days, to get through. In the meantime, Winsor would have been free to carry out the interim review and Railtrack would have stayed in business.
So why did Robinson and Marshall acquiesce in Railtrack’s demise and then make such a fuss afterwards? One explanation is that, as Winsor pointed out to the select committee, he is only under a duty to ensure that Railtrack had sufficient funds for the “competent and efficient operation, maintenance and renewal of the network”. Since Hatfield was unequivocally the company’s responsibility – indeed, remember those statements by Gerald Corbett after Hatfield saying that Railtrack would take the financial hit – and Winsor had already decided that he wasn’t going to pay Railtrack the full amount it had demanded in the access charge review, perhaps Marshall and Robinson knew they were unlikely to get any extra cash. And hence they were only going through the motions.
But even if that is the case, they goofed. Executives get their six-figure salaries because they are supposed to be good at making decisions and in this case they clearly did not justify their wages.
Bad boy Byers?
As for Byers, it becomes clearer from the evidence given to the select committee that Railtrack’s demise was prompted not by any immediate cash crisis, but by a political decision to force the company into administration. That is demonstrated by the incredibly complex story of the £162m that was never paid even though it was due on October 1.
This was part of the £1.5bn extra grant which had been brought forward from the 2006-11 control period in order to help bail out the company following Hatfield. Byers argues that the payment was not made because it was contingent on a deal being struck over Renewco, a joint Strategic Rail Authority/Railtrack arrangement which was to be the mechanism through which grants to the company would be paid. Negotiations over the creation of Renewco had become bogged down over technicalities, notably, according to Byers, over a way of ensuring that it was not included on the Government’s balance sheet.
According to Railtrack, it was the non-payment of this £162m which triggered the crisis. Otherwise the company would have remained solvent. This is somewhat disingenuous given its stricken state because of Hatfield, the West Coast project and the tougher penalty payments regime in the Regulator’s control period which started on April 1.
However, just because most of Railtrack’s whinges are self-serving and gloss over its own culpability, it is increasingly apparent the decision by the Government to push the company into administration rather than simply taking it over, even if only temporarily, was mistaken. The Independent on Sunday reported on November 18 that Byers was facing no fewer than seven possible legal challenges to his action. Nationalising Railtrack, even temporarily, rather than forcing it into administration, would have been much simpler – the shareholders could not have protested at being ripped off, there would be no need to consider bidders such as the German bank, WestLB which is adding complexity to the process, and the Government would not have had to put in expensive administrators while it worked out a new structure for the industry. The fudge of administration has gained nothing.
There were three reasons why Byers eschewed renationalisation: it went counter to New Labour’s expressed philosophy, it would have put the railways firmly on the Government balance sheet, and he had legal advice that the shareholders were entitled to the average price of the past three years, some £8 per share rather than £2.80. The first two are political and therefore not gospel, and the third could have been dealt with through negotiation.
Had Railtrack fought, it may well have been that Byers would have been forced simply to cough up and buy out the shareholders. Strangely, Railtrack’s craven contribution to its own demise might not have done Byers a favour.