Rail 583: Network Rail: New year, same old problems for the railway

What a terrible start to the year for the railways! It is difficult to know where to begin as the debacle of the Rugby engineering works, together with the unfortunate coincidence of above inflation price hikes, raises so many fundamental questions about the state of the railways that it is difficult to hone in on the key ones.

Perhaps one could say that none of this was a terrible disaster. No one died but merely a few thousand passengers were delayed and made to carry suitcases on and off the tatty buses that are used for replacement services. And passengers will have to pay more for travelling on the trains. Big deal, one could say: surely all the fuss could have been smoothed over with a bit of good PR and spin?

Well, certainly the industry could have done better in that respect. Poor old Robin Gisby, Network Rail’s operations director, was left to explain to the media that it was all the fault of the holidays as too many engineers had gone off to see their families having missed them over Xmas. None of his bosses seemed to be anywhere around, nor indeed was there any sign of ministers, let alone any pan industry response.

The only other person to stick his head above the parapet was George Muir, the soon to depart head of the Association of Train Operating Companies, who had the gall to suggest that rises of up to 15 per cent can be justified because ‘revenue from fares helps pay for investment that directly benefits passengers’. That is simply not true as I will explain below.

Not all the coverage was bad. The Mail on Sunday ran an extraordinary piece by Pete Waterman, the pop impresario and heritage train buff, that suggested we had never had it so good on the railways, arguing that the work at Rugby was intended to create a four track railway all the way up the West Coast for the first time ever. Well yes, Pete, but in a normal industry that sort of upgrading would be happening all the time with considerable less fuss. Moreover, the railways are fast becoming unaffordable to those with less dosh than you.

No, sorry Pete, but it is impossible simply to write off this debacle as a bit of over the top media fuss during the holiday silly season. Rather, these events highlight a whole host of problems that the industry must address.

First, there is the purely engineering question. There is no doubt that the failings at Rugby – and indeed before that at Portsmouth during the resignalling project – point to the fact the lack of engineering and technical expertise in the organisation, depleted by that arch villain of the piece, John Edmonds, Railtrack’s first managing director, who deliberately ran down those departments. The destruction of British Rail undoubtedly left the industry short of expertise from which it is still suffering.

According to inside sources at Network Rail, there is considerable anger about Bechtel, the American firm which is reputed to be the world’s number one at project management. In fact, while Bechtel may be good at sorting out projects when it is a single definable job like the Channel Tunnel Tail Link, but it is not so good at dealing with the complex task of fiddling about with the existing railway and, quite frankly, just couldn’t cope. Network Rail managers realise that they must take on more people themselves, rather than contracting out so far up the management line, not so much renationalisation, as taking in more of the project management role in house.

Secondly, it was clear several weeks ago that the task at Rugby was unachievable in the time span. I have had emails from various people inside NR who knew there would be chaos but their warnings went unheeded. Just as at Grayrigg, there seems to be a worrying lack of communication between middle managers and the HQ at Euston, an issue that the chief executive, Iain Coucher, who is still finding his feet, must sort out quickly.

Thirdly, the very public spat between Network Rail and Virgin did the industry no favours and highlights the failings of the existing structure. I will not go over the old arguments, but there is no doubt that the fragmentation of the industry contributed to this incident. All the old BR lags I talked to confirmed that no engineering director would ever have dared to turn up to work to face the operations director after shutting his railway for an extra four days!

Allied to this structural problem is the issue of compensation and fines. It is clear that since the replacement of a private company, Railtrack, with essentially a government organisation, Network Rail, there is no longer any regulatory sanction. I bet at the end of the year the directors even get most of their bonuses! Tom Winsor, the previous regulator, is dead right about the fact that Network Rail is now not sufficiently incentivised but sorting that out would require rather more than the regulatory tinkering about he favours. It is ridiculous, too, that Virgin will get lots of compensation from Network Rail – probably  £6m or so – but that figure bears no relation on the amount of compensation it will have to pay its passengers, likely to be a far smaller figure (and paid in vouchers which if redeemed on Virgin Trains cost them nothing).

Then there are the fares. Let’s debunk George Muir’s statement first. It is simply not true that the income from fares rises will go towards investment. The train operators and Network Rail are both tied in – through in the first instance, franchise agreements and in the second the five year track access control period – to any investments that will be made over the next few years. Therefore the extra money will either go towards train operator profits or towards reducing the government’s subsidy for the industry. It is, remember, a stated objective of the government that the ratio between subsidy and ticket income should be reduced from 50 – 50 to 25 – 75. Crucially, however much money the train operators receive as a result of rises, none will go towards any extra investment schemes. The crazy economics and money go round of the industry ensure that there is no such direct relationship. For George to suggest that is to mislead the public.

Secondly, on fares, it is becoming increasingly clear that the rises are a device to price people off the railways. I have previously suggested in this column (Rail 576) that there is a complete lack of any coherent fares policy. I am coming round to the idea that I was wrong and that fares rises are being deliberately imposed to restrict demand and therefore the need for major investment. That is why I have always term the industry’s economics as ‘pretend capitalism’ – they have nothing to do with a company investing in response to growth, as would happen in the real capitalist world.

Two other quick points. Where were the industry spokesmen? The Railway Forum appears to have been nowhere, with the BBC trotting out its former director, Adrian Lyons. Surely, this was a time for industry organisation to be geared up given it was predictable there would be an outcry over fares, even if there had been no overruns.

And where were the ministers? This is the most fundamentally dishonest aspect of this story. The government has its finger in every part of the railway pie, and yet ministers are not around to defend the industry when that is needed. It reinforces my view that privatisation was partly a way of ensuring that the government would no longer be seen as responsible for the railways. Sadly, it seems to have worked.

The Tories were no better and demonstrated their complete lack of understanding of the industry. They issued a press release in the midst of the fiasco pointing to the fact that £7m was being spent on management consultants for the Intercity Express Programme, the replacement for High Speed Trains. Well I am no fan of consultants, but frankly that is a small price to pay for a multi billion acquisition programme which, I have mentioned previously, has every chance of going wrong. The SRA under Richard Bowker used to spend those sort of sums monthly on consultants, most of it to no avail.

It was noticeable, too, that Theresa Villiers (she is, by the way, the Tory transport spokeswoman in case you had not noticed) refused to talk about the party’s plans for the railways on Radio 4’s PM programme. Her predecessor, Chris Grayling, had promised a serious document on the future of the railways which was going to be published in conjunction with the government’s White Paper issued in July but has yet to see the light of day. The reason is simple. Grayling spent considerable time and effort talking to people in the industry and came to the conclusion that the railways needed to be reintegrated. The problem was that he could never answer the conundrum which I set out in this column exactly a year ago (Rail 557):  ‘If they reintegrated the operators into Network Rail, then they are effectively renationalising the railway, not something that I can quite imagine the Tories would do; on the other hand, if they break up Network Rail and hand the infrastructure to the operators, effectively they are reprivatising it, which the collapse of Railtrack showed was not a viable idea’. Hence the silence.

At the risk of boring readers, the events of the holiday period raise all the fundamental questions about the structure and governance of the railways which I have been writing about for the past 15 years. The system is inherently dysfunctional and, above all, expensive – as Nigel Harris mentioned in the last issue, the railways now cost £10bn to carry 1.1 billion passengers whereas under BR it cost a third of that to carry 750 million, a statistic that we should never forget when debating the future of the industry.

The most interesting comment piece came from John Lichfield, The Independent’s Paris correspondent who had been talking to Guillaume Pepy, the boss of SNCF at the celebrations of the organisation’s 70th birthday. Pepy talked in strategic terms, about putting freight onto night trains on the TGV network to reduce the need for flights by courrier companies like FedEx and DHL. He talked of night trains through the Channel Tunnel and of new high speed lines. It was all visionary stuff and such a contrast to trouble on the track at Rugby.

I know that most insiders do not want a further restructuring of the industry as one only has to look at the NHS to see the damage that constant reorganisations can cause. However, it is clear this structure is not right and that future incidents like those at Rugby, Portsmouth or even Grayrigg are on the cards. Network Rail is unaccountable and within the current structure impossible to bring to account. Ministers are furiously trying to draw up a scheme to make it more so, but are stuck because they cannot be seen to exert direct control.

Oh, and one last thing – I just want to congratulate the newly knighted Network Rail chairman, Sir Ian McAllister, in accepting his gong at such an appropriate time and making sure that he did not go into the office during the holiday period arguing, in the Daily Mail, that  ‘it was better to stay at home because I would only get in the way’. Perhaps, in that case, making that arrangement permanent might be appropriate.

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