Rail 463: Figures expose fragility of Network Rail Experiment

These are bad times for the railway and they’re going to get worse before they get better, warns Christian Wolmar after the latest torrent of negative news for the industry.

In the last week of May, the bad news for the railways poured out like ballast off the back of a hopper. First there were Network Rail’s appalling figures and the following day the interim report on the Potters Bar crash. Then we had reports, unconfirmed but from ‘well placed sources’ that fares are set to rise by 4 per cent.

All this has serious implications for the future of the railways but it is Network Rail that clearly raises the more important issues. We are, of course, less than a year into the great experiment of having this not-for profit organisation at the heart of the railways, but already its medium term future looks uncertain.

From the Right, there are questions being asked about why Railtrack was ever taken over; and from the Left, there is the issue about why the company was not simply renationalised. In The Times, for example, in a business comment piece under the title ‘Railtrack needed more money but not this much’ Joanne Hart quoted John Armitt reporting that the company had spent £5.7bn this year, and would spend over £6.2 in the forthcoming three years. Yet, Railtrack had only been allocated around £3bn per year by the rail regulator. So, she points out, ‘the company needs double the amount of money made available Railtrack, rather more than Railtrack itself ever demanded’.

It is a telling point and one which the Treasury will be keen to have explained. The issue of soaring costs is the most fundamental problem facing the railways and Network Rail’s target of cutting £1.2bn in costs over the next three years seems singularly unambitious given the rise in costs since the Hatfield train crash. It is, perhaps, the problem of having the company run by engineers. A quote in the Independent on Sunday on 1 June in an article suggesting Network Rail may sell off its retail outlets – that would be a bad mistake, incidentally, as it would not only remove a useful consistent source of income but inevitably lead to rows over the placement of shops on concourses – was revealing: ‘We are principally an engineering company’, a spokesman for the company said.

Well, yes and no. Of course engineering is the company’s key activity and its neglect contributed much to Railtrack’s demise. But Network Rail has to be a lot more than that – it is running and managing the whole infrastructure and if you allow engineers to dominate then they will set engineering criteria which do not necessarily fulfil commercial or, indeed, wider social objectives. That is surely one of the reasons for the massive overspend. Engineers like engineering schemes, and, given Railtrack’s sad history, they are now in a dominant position at Network Rail. Has the pendulum swung too far?

Of course, The Times is mistaken when it suggests that all would have been well had Railtrack been left in the shareholders’ hands. Ms Hart seems to have forgotten that the share price was plummeting before Stephen Byers made his now infamous intervention and that there was no chance of the company raising any extra funds for investment. Byers’ act may have been mistimed and ill-thought out, but Railtrack’s demise was inevitable.

It is, therefore, naïve of the rail regulator, Tom Winsor, to hark back to the days when Railtrack’s finances were ‘disciplined’ by shareholders control. Winsor was appalled by Byers’ action and has not minced his words about it since. But does he seriously think that Railtrack/Network Rail’s spending was not heading out of control anyway? Hatfield, the West Coast Main Line Modernisation and the Southern electricity supply would have wrecked the railways’ finances anyway. Winsor’s dream of a return to shareholders’ control where he, the regulator, determines the levels of profits, is a nightmare we have already endured. Of course his anger is prompted by the fact that he knows his interim review is ultimately an irrelevance. The government will have to step in if he does not offer enough money which, given his public criticism of Network Rail, seems inevitable.

So, to the other end of the political spectrum and the questions about renationalisation. In the same issue of The Times, the ubiquitous Ms Hart, under the headline ‘Ministers “wasted £80m on Network Rail”‘ quoted the Liberal Democrats’ treasury spokesman, Lord Oakeshott as saying: ‘Gordon Brown could have cut Network Rail’s huge interest bill of £415m last year by up to £80m by issuing gilts, the cheap and honest way to fund this vital public service’. Instead, even though Network Rail’s debts are underwritten by government, the company has to borrow on the money markets, paying more to preserve the fig leaf that the company has not been renationalised.

This issue is going to become of greater concern every year as the debt rises, especially if the historically low interest rates increase. The company’s debt has risen to £9.4bn and is set to rise at the rate more than £3bn per year as it gets through money like the Vivian Nicholson of ‘spend, spend, spend’ fame.

As an aside, the same is true of the rolling stock companies. Again, it would be far cheaper if the state simply underwrote their borrowing, which effectively, through the franchising, it does anyway. Sure, there is a small risk of a fleet being left unused, but that is an artificial risk that could be obviated by the SRA behaving sensibly. Yet, if the government overtly underwrote the deals, it would mean they were included expenditure figures, which is anathema to Gordon Brown. Therefore taxpayers and passengers are paying more for the privilege of pretending that the railways are in the hands of risk-taking private entrepreneurs.

Network Rail’s financial situation and its problems will dominate the industry over the next year or two. Network Rail is spending staggering amounts of money with no end in sight. Somewhere in the post Hatfield debacle and the collapse of Railtrack, the railway went out of control and no one seems in any rush to reinstate a sensible financing regime.

The Potters’ Bar report by the Health and Safety Executive throws further light on the damage caused to the railways by fragmentation. There is plenty on the report elsewhere in this issue, so I will not dwell on its contents, but suffice to say that while the report is unable to ascertain the precise circumstances that led to the accident, it suggests strongly that there was a long term failure to look after the points properly. Moreover, it talks of failings of communication between the permanent way and signalling people responsible for the maintenance. There were, too, difficulties over the fact that Jarvis had just inherited the contract from the previous contractor, Balfour Beatty, themselves implicated in the Hatfield crash, and some expertise seems to have got lost in the change.

While not ruling out sabotage, the HSE report lists a series of inadequate maintenance procedures which certainly point strongly to the cause of the accident. Jarvis’s ill-thought out attempt to raise the issue of sabotage in the aftermath of the crash was not only a PR disaster on an epic scale but also looks to have been just plain wrong. Ironically, Jarvis has done quite a lot of good things in the industry, such as ensuring most of its staff are in-house rather than contracting out and invested in lost of modern equipment, such as a helicopter that enables much quicker identification of rail faults. All the benefit of that has been lost in its stupid attempt to shore up its falling share price by very publicly raising the spectre of saboteurs a week after the accident.

But there is a wider point that needs stressing. Time and again, these accident reports highlight the fact that the series of accidents in the rail industry since privatisation – Watford (which happened before full privatisation but after fragmentation), Southall, Ladbroke Grove, Hatfield and Potters Bar – were caused by what I have termed the ‘interface risk’ created by the fragmented railway. In his new book, Beyond Hidden Dangers, Stan Hall, who probably knows more about the railways than the combined boards of Network Rail, the SRA and Jarvis, and does not offer opinions without very strong backing, says: ‘The fact remains that privatisation was an underlying factor in [these] five serious accidents.’ Damning stuff. Yet, the ministers who committed this outrage are not in the dock.

As this column keeps on stressing, these are bad days for the rail industry and they are going to get much worse. I know that there is a risk of boring the reader about the need to restructure the industry and that the government has, for the moment, set its face against such a move but it really is only a matter of time before the crazy finances and the added safety risks force a rethink of how the railways are run. It may take a year, or three – less if is yet another disaster where fragmentation can be identified as the cause – and every time the spotlight is thrown on the industry and its current failings, the likelihood of a rethink increases. I will, over the coming weeks, attempt to sketch out how the industry could be restructured with the minimum of pain but readers’ thoughts on this will be welcome.

Railway madness (5)

A penalty fare system has recently been introduced on the SouthCentral trains. A friend who commutes on the line reports that a woman got on at Gatwick and was taken aback when the inspector demanded not only the fare but an extra tenner for the penalty fare. ‘But’, protested the woman, ‘it says specifically at Gatwick station that tickets can be bought on the train’.

‘That’s for the Gatwick Express services, not the SouthCentral ones,’ replied the unsympathetic inspector who insisted on the payment. One wonders how many tourists’ first impression of Britain will have been coloured by a penalty fare welcome to our train system.

Shares