Rail 477: End this crazy game that makes rail so complex

The soon to depart rail regulator has performed an incisive dissection of Network Rail’s costs, but the whole access charge regime is a legacy of the discredited Mk 1 model of privatisation, contends Christian Wolmar, who also makes some bold predictions for the railway in 2004.

So Tom Winsor has pronounced. After almost a year’s endeavour on an access charge review which initially Network Rail said it would not need, he has come up with a figure of £22.2bn for five years, a 50 per cent increase on the previous (partly overlapping) period which, itself, was a similar increase on the first one.

Winsor has done a great job in identifying costs and trying, as much as possible, to bear down on Network Rail’s expenditure but there is no way of getting away from the fundamental issue raised by all of the regulator’s work – that this is just an insane way to run a railway.

Even without wearing my Mystic Wolmar hat (see below), I can definitely say that this is the last time this process will be gone through in this way. To some extent, my prediction is a cheat as the system will have to change when Winsor’s five year term ends in July when he will be replaced by a committee which, presumably, will have less force and, certainly, less coherent thinking. But more widely, this whole notion of a regulator determining how much investment the railway needs is a throwback to the original model of privatisation and sits unhappily in the current structure.

This is well demonstrated by a couple of the detailed aspects of Winsor’s findings such as, for example, the discussion over whether Network Rail should receive extra funding in the form of a grant direct from the SRA or whether it should be paid through the access charges borne by each TOC. Winsor rather tetchily points out that the Department for Transport and the Strategic Rail Authority belatedly asked for extra money to be paid directly rather than through access charges and is not going to decide on that until February 29th.

But why should anyone care given that all the money is coming from taxpayers? When first conceived of, access charges were supposed reflect genuine costs of running trains on the railway. Indeed, they were meant to be part of a new transparent financing of the railway which would identify precisely how much any particular train costs to operate. But such a notion has long gone out of the window as the railway’s finances have gone haywire following Hatfield and much of the work being carried out is an attempt to make up for years of underinvestment, something current users should not be expected to pay. Moreover, there is no attempt to identify specific costs attributed to particular services as the charges are grouped together in TOC sized lumps.

During the privatisation process a decade ago, I argued that to create a transport level playing field between modes, the charges ought to have been paid directly by the government to Railtrack, as it then was. This would have had the great advantage of making all the train operators were profitable, ensuring their focus was not on maximising revenue from the government but from the passenger.

At the time this idea was rejected on the grounds that the TOCs would not be able to make Railtrack accountable. Now, in the interests of expediency, the government wants to pay more of the money to the railways in this way. The reason, though, is very different. As mentioned in my previous column, paying for maintenance out of borrowing breaches Gordon Brown’s Golden Rule which is that the government can only borrow in order to pay for capital expenditure. And, unlike track charges, which are purely to pay for trains to run on the system, a grant to Network Rail can be considered to be capital expenditure! Magic, but yet another example of the silly smoke and mirrors game played endlessly by the Treasury.

So why not just scrap the whole access charge regime: because of the performance regime. Winsor says that he ‘believes that the nature of the relationship between Network Rail and its train operator customers should be that of a joint-endeavour focused on delivering a quality service to the end user’. Sure, but whether a TOC has to pay over, say, £30m, or £50m per year in access charges, with the rest being made up of a direct grant would not seem to make any difference.

And now the performance regime makes even less sense. Network Rail is, in all but name, a state company and therefore penalising it for poor performance is merely shuffling money from one government account to another. In his calculations, Winsor allows for a certain level of fines for poor performance by Network Rail in the five year period – a total of £373m although he admits that this figure has ‘a high degree of uncertainty’. But this is virtually a zero sum game played entirely with government money. Why should train operators, who have offset much of their risk on to the SRA, benefit financially from Network Rail’s poor performance?: Sure, some of that money may go out in compensation to passengers but only a small proportion. The rest goes towards TOCs’ profits which will then, under the new franchising regime, be partly clawed back by the SRA. Does any of this really incentivise improved performance? Is it all mad? Or just plain crazy?

In the first model of privatisation, before Network Rail, Winsor’s job was to ensure that Railtrack did not make super profits at the expense of the train operators and tax payers. Now he sees his role as protecting the rail industry against the Treasury, by ensuring that the money allocated to the railways’ upkeep is sufficient to keep them in a steady state, as well as trying to bear down on Network Rail’s inefficiency. Now we also have the regulator deciding on the phasing of a major enhancement project, the West Coast Main Line.

Yet, he is entirely unaccountable. In the old days, ministers used to determine the railways’ allocation of funds and then have to defend that in Parliament. There was, perhaps, a team of half a dozen officials who negotiated with British Rail. Now we have a panoply of regulators and consultants to draw up conclusions which may appear robust but, on past record, have been way out. But there is no accountability. Winsor will have long gone off to bask in the comforts of the private sector by the time the railways have to cope with the results of his deliberations. And ministers no longer get up on the despatch box to explain the workings of the railways.

The wider message – and there are people in the Labour government who are beginning to understand this – is that this crazy game adds complexity and costs of the railways, while simultaneously reducing accountability. That is why this will be the last access charge period in this format. God knows what will replace it in five years time, but watch this space.

Mystic Wolmar scores again

It is prediction time again, but Mystic has a bit of a confession to make. Last year, the predictions were a bit easy and indeed, several readers wrote in to complain, wanting Mystic to be more courageous. Therefore it is not surprising that three out of four proved correct:

  1. Richard Bowker, Tom Winsor and Alistair Darling will still be in their posts by the end of 2003.
  2. The opening of the Channel Tunnel Rail Link section one will (just) miss its target date of September 2003 and will be in 2004.
  3. The SRA will face a financial crisis over refranchising which will proceed more slowly than expected.
  4. At least one entirely new operator will be given a franchise.

Apart from the second one, which has been a welcome surprise and a testimony to the skills of the CTRL team,, the other three have all proved to be correct. Certainly the SRA is struggling to balance its books, and Merseyrail went to a combination of Serco and Ned Rail. As for our three heroes, they have all survived 2003.

But will they get through 2004. No chance, It is only, thanks to the delay in the publication of the Hutton enquiry that Alistair Darling is still in place. My bet is that he will propelled sideways in a major Cabinet reshuffle when Geoff Hoon, the defence secretary, is forced to chuck in the towel when the report is published. Or he may go when Tony Blair gives up the ghost. Tom Winsor is, of course, leaving on US Independence Day next year so it does not take a fortune teller to predict that one. As for Bowker, can anyone keeping on taking that level of pressure? If he does not get the extra money for the railways, and suddenly restructuring of the railways is on the political agenda, wouldn’t he opt for a quieter life?

So, Mystic is going to stick his neck out this year and predict that by the end of 2004:

  1. Two out of three of Tony Blair, Alistair Darling, and Richard Bowker will no longer be in their current posts.
  2. The structure of the rail industry will be back on the political agenda and will be openly discussed by ministers.
  3. Gordon Brown will provide no extra cash for the railways in his spending review but any immediate crisis will be averted by extra borrowing for Network Rail and fudge by the SRA.
  4. Thanks to TPWS and luck, it will be another year without a fatal crash on the railways.

Now no one can accuse Mystic of being timid this time.

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