Rail 545: The Tories are back in town with tough questions on rail

There’s a delicious irony about a Labour government defending a privatised rail system which the Tories admit they got wrong. CHRISTIAN WOLMAR explains how David Cameron’s resurgent Conservatives have outflanked embattled ministers.

In the run-up to the 1997 general election, this column regularly used to cover Labour’s policies on rail even though the party was in opposition.

For most of the past nine years since Blair’s election victory, however, there has been little to say on Tory policies, not only because of the total absence of any but also because it seemed the Conservatives did not have a cat in hell’s chance of gaining power. Now, with the arrival of Chris Grayling as shadow transport secretary and Dave ‘I’m not really a Tory toff’ Cameron as his boss, things are getting interesting. Not only could the Tories possibly form the next government (though Mystic Wolmar says it will be a hung Parliament with some type of Lib-Lab pact), but they are beginning to do some serious thinking across the policy spectrum.

On the railways, this has meant a recognition by the Tories that the form of rail privatisation they chose was a mistake. Grayling has now launched a review seeking alternatives, but while it’s relatively easy to recognise that the original form of privatisation was misconceived, opening up a debate without a clear ‘road map’ creates a clutch of hostages to fortune, as demonstrated by his interview in this issue (pages 22-25).

The core of his message is that the vertically fragmented railway is not working. The vast majority of railway managers know this and will agree, at least in private, that fragmentation has cost vast amounts of money and damaged performance. As Grayling says in his interview, most people – passengers and industry bosses alike – think that the fragmentation of the railway is a mistake as they want to know who is accountable for making decisions.

As just one example, the way that costs are added to the industry by paying compensation to operators for undertaking work on the line is the type of nonsense which any reorganisation of the railways should address. So is the example he highlights, whereby work in stations is divided according to whether it is ‘six foot six up’ or not.

Indeed, Grayling’s analysis is particularly interesting because it goes to the heart of why the structure is unsustainable, highlighting the ‘contractual web’ that separates the various players: “We think that the separation has helped push up the cost of running the railways – and hence fares – and has slowed decisions about capacity improvements. Too many people and organisations are now involved in getting things done – so nothing happens.”

The problem for Grayling is that he does not appear to realise just what a huge can of worms he is opening. The whole railway operates through a contractual matrix that is as different from the way British Rail ran things as, say, the Government of Burma contrasts with our own state structures. BR was able to operate in the way it did because it had a unified management which could make signifi cant decisions without reporting to anyone.

Take, for example, the recent fuss over three measly daily trains from Sunderland to London which has involved the Offi ce of Rail Regulation, the Department for Transport, GNER, Network Rail and the Association of Train Operating Companies to name just a few of the ‘stakeholders’. In the days of BR, creating a new destination for a high speed train service would have involved the management of InterCity and would probably not even have got to board level, let alone to ministers. There were not all these stakeholders (who always sound as if they are customers of Berni Inns).

Moving from the current structure back to one in which there is no ‘contractual web’ is therefore a far more radical idea than Grayling himself would probably want to entertain. His review, if it is an honest endeavour without preconceptions, could lead to an uncomfortable solution. If he really wants vertical integration – which interestingly Mark Lambirth, the civil servant in charge of rail strategy, admitted at the Commons Transport Select Committee was perfectly feasible under current EU rules – Grayling may fi nd the only realistic solution is to bring back the railways under one big roof, a British Rail Mk 2. This notion is given reinforcement by Grayling stressing that “we are not intending to push the network back out of the not-for-profi t public sector”. In other words, not only does he recognise that the private status of Network Rail is a sham, but he is also separating himself very fi rmly from past Tory policies which resulted in the very much ‘for profi t’ Railtrack.

But Grayling says he does not want to recreate BR. Therefore, he is not leaving himself much room for a solution that is more vertically integrated, still largely public sector, but not a return to the past. Grayling fl irts with various suggestions for the future, such as reviving the old idea of a regional structure for the railways put forward by John Major but snuffed out by the ideologies of the Treasury, or some form of stronger ‘virtual integration’. Certainly, so far, his thinking seems a bit vague and not thought out, but the principal purpose of opposition is not so much to work out precise policies to implement once in government, since that is a far-off prospect and all kinds of events may intervene. Rather, it is to wrong foot the present administration.

If nothing else, Grayling’s initiative has done this brilliantly. Poor old Derek Twigg, who is not the most sure-footed of ministers anyway, was at a loss to respond to the Grayling initiative. All he could do was to say rather disingenuously that the Tories did not have a clear policy and, when pushed at the Select Committee, he had to stress several times that the current structure was working well. That will be the structure which is extracting huge, unsustainable payments out of TOCs, leading to the First Capital Connect cheap travel debacle and the doubling of car park taxpayers £5.5bn in subsidy this year as well as building an unsustainable debt mountain at Network Rail. According to the Sunday Telegraph of July 23, the government’s own watchdog, Sir John Bourn, the head of the National Audit Offi ce, says this debt should really be on Gordon Brown’s books. And it’s the structure which is offering no solutions to the overcrowding that is quickly becoming the railways’ number one problem. Did I hear something about sand and ostriches there?

There is something delightfully ironic that we now have a Labour government defending the structure of the privatised rail industry created by the Conservatives who are now prepared to admit they got it wrong. Even John Le Carré would not make that scenario up! (remember that famous conference speech by Neil Kinnock railing about a ‘Labour council… a Labour council’ [Liverpool], sending out redundancy notices by taxi because it was going bankrupt as a result of refusing to set a rate capped by a Tory government…)

Don’t be fooled by Twigg suggesting the industry is now very different from the structure the Government inherited in 1997 – sure, there have been changes but essentially the same ‘contractual web’ and vertically fragmented structure remain.

Grayling may not have any clear solutions, but he is asking the right questions, as confirmed by the defensive reactions from the self-interested souls at ATOC and Network Rail. It is not good enough to say that the issue of vertical integration is dead or boring and we should move on. Until we get a railway that is affordable, these questions need to be discussed. We need a clear explanation of why the railway is costing so much and how that fi gure could be reduced in ways that are more constructive than merely squeezing the train operators – and thus the passengers – till their pips squeak.

The challenge, therefore, is: can Grayling fi nd an answer to the £5.5bn question? And, crucially, will it be one that his own party bosses fi nd acceptable? Many in the railways may not like it, but the Tory man’s readiness to raise diffi cult questions about the structure of the industry demonstrates not only that the Conservatives are once again a force in town but also that the issue of vertical integration will not simply fade away.

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