Rail 467: Son of privatisation seems fated to be a problem child

Privatisation was designed to cut the cost of the railway to the government. So it’s an acute irony that it has resulted in the loss of the financial discipline of a nationalised industry, contends Christian Wolmar.

During the past three weeks, a succession of announcements and publications have given us an insight into how the privatised railway Mark 2 is supposed to function. And it ain’t a pretty sight.

The news that the South West Trains franchise would involve a staggering rise in the amount of subsidy going to Stagecoach was quicly followed by the publication of the Strategic Rail Authority’s annual report which shows that franchise payments have jumped from £900m to £1.4m in the past year. Then there was the Network Rail stakeholders meeting and lastly, and most significantly, the publication of the preliminary findings by the Rail Regulator, Tom Winsor, on what Network Rail should be allowed to spend.

It is Winsor’s announcement that exposes the crisis within the railways and demonstrates the tensions between the various organisations trying to cope with the dysfunctional structure of the system. As widely predicted, Winsor has tried to stem the flow of taxpayers money pouring into railways by arguing that Network Rail should be spending around £4bn per year, compared with £6bn set out in its business plan.

On the face of it, Winsor is right. There is little justification for the fact that what cost BR around £2bn a decade ago should cost three times that amount today. The argument that it is all down to underinvestment does not hold water. BR never had quite enough money, but it still managed to undertake major projects, such as the East Coast electrification, signalling schemes and fleet replacement without spending going out of control.

Winsor, rightly, says that the pace of cutting costs could be speeded up. For example, there are still agreements under the old form of contracts which allow the contractors to determine what work should be done and what it should cost. It is contractor heaven. There are, too, genuine abuses, such as the case of the contractor who gave his workers motorbikes to reach the site quickly as the pay clock started ticking once the staff reached the site. The fact that all they could until the tools arrived by lorry was to brew up was irrelevant.

But what is strange is that it should take a lawyer, with a small team of advisers, to second guess what the engineers at Network Rail should spend, which has been broadly sanctioned by the Strategic Rail Authority headed by an accountant. When Railtrack was effectively renationalised, and the not for profit Network Rail emerged out of the ashes, there was a lot of talk of doing away with the Rail Regulator.

However, Labour eschewed legislating him out of existence or limiting his role, on the basis that without an independent regulator, no private companies would be prepared to invest in the railways. That argument no longer has much force because no private investors seem to be interested in the railways anyway, apart from the rolling stock companies who do not come under his aegis anyway.

Winsor’s role is now very different from the days of Railtrack where he was trying to ensure that the privately-owned company did not make massive profits out of its monopoly situation and was made to invest enough to keep the network in a steady state. Now, his task is in a way rather simpler: he has to make sure that Network Rail spends its money in an economic and efficient way. Now that the private sector is no longer involved – except through the money markets – this means he is the arbiter of how much state money NR should be given to operate, maintain and renew the railway. But he is also responsible for determining the size and condition of the rail network, a quite awesome power.

That is, to put it mildly, a strange arrangement. The Government created the Strategic Rail Authority to, euh, take a strategic view of the industry. After lengthy consultation, the SRA produced a plan for the West Coast Main Line, published a month before Winsor’s pronouncement and now this has, apparently, been thrown out of the window by the regulator’s suggestion that work north of Crewe should be postponed for a year because his consultants, Booz Allen Hamilton reckon that would save a £1bn. It is Winsor, much to the public fury of Virgin and the more private anger of the SRA who is calling the shots, deciding basically the extent and the timetable of projected investment.

To a great extent, Winsor is correct both on the general issue of Network Rail’s costs and in trying to rein back on the West Coast project which has been out of control for so long (although really it is a judgement call on whether Winsor’s consultants are cleverer than those of the SRA) However, the fact that Winsor may be right is irrelevant. It is no way to run a railroad.

First, A regulator, even a jolly clever one, should not be running the railway and making decisions about investment plans or, indeed, the size of the network.

Secoindly, the system is incomprehensible to the public and rail passengers, which means that people are kept in the dark over what is going on. Trying to explain the impllications of Winsor’s decision on the radio, as I did on several programmes, generally led to incredulity on the part of the presenters.

Thirdly, , leading on from this, the fact that no one can understand what is going on means there is no proper accountability. No single organisation or person is responsible. Whichbrings us to the real culprits, the government and, in particular, transport ministers, who are hiding behind this crazy process. They can argue that none of it is anything to do with them when, in fact, they are responsible for perpetuating this system which has created higher costs, more public subsidy, slower trains and a complete lack of accountability.

We all know that the frinancial regime which British Rail had to endure was not perfect and led to much waste in stop-go government policies but at least it was comprehensible and ministers had to answer for it. Basically, BR drew up plans for investment and put them to the Department of Transport which tried to rein them back but then would argue forcefully for the money with the Treasury. That was a simple and accountable chain of command.

Instead, we now have this battle over money and investment involving a host of competing organisations with no one to arbitrate between them. In a way, of course, Winsor’s pronouncements are meaningless because ultimately the government can override them. What has been lost is the financial discipline of the nationalised industry. That is a great irony for the architects of privatisation, like Sir Steve Robson, the Treasury mandarin who pushed for the break up of BR precisely to bring about a reduction in cost to the government.

Clearly, the structure of Mark 2 of privatisation has yet to stabilise and will undoubtedly evolve over the coming couple of years. Already, for example, Winsor;s office is effectively being abolished and replaced with a regulatory committee that is unlikely to have the same force. One aspect that links all the various announcements mentioned at the beginning of this column is accountability. Clearly, Network Rail’s stakeholders are floundering about their role and the fact that only nine of them voted against the directors’ bonuses suggest they are going to be a craven bunch. The SRA, too, seems to be a law unto itself, disbursing fantastic increases in subsidy without, apparently, attracting the ire of the Department for Transport. It has been left to Winsor to try to birng about some accountability in the rail industry and that is hardly a satisfactory state of affairs.

Railway madness (8)

Remember that little bit of nonsense over enthusiasts on a Deltic tour being banned from taking photographs at King’s Cross because of the ‘enhanced security situation’. Well, at the time Rail was told this was a result of a request by GNER. Now a reader, John Bourn, wrote to check this with Jonathan Metcalf, the MD of GNER, who responded by saying that his company was acting on instructions from NR.

So Network Rail blame GNER and GNER blame Network Rail. What a classic vignette of today’s railway.