Rail 594: Who’s to say whether Network Rail is getting a bad deal?

There was an awful predictability about the response from Network Rail to the Office of Rail Regulation’s determination on the 2008 Periodic Review. Even before the press briefing by ORR Network Rail had already issued a press release saying there was not enough money to do what it wanted.

Well, Ian Coucher, Network Rail’s boss, was hardly ever going to say that there was too much money available. Certainly, in the 372 page document (available on its website) the ORR there are some strong arguments on why Network Rail should get £26.5bn rather than the £29.1bn it sought for the fourth Control Period (which runs for five years from April 2009). International comparisons with 13 other countries do for example, suggest Network Rail is particularly spendthrift and Network Rail’s base costs still do appear to be remarkably high. In response, Network Rail’s press release was a mere half a dozen paragraphs saying there wasn’t enough money.

This is a weird way to run a railway with a contradiction running right through the thinking behind this process. On the one hand, in letting the franchises, the government has made clear that it expects high levels of growth and expansion for the period under review. Indeed, the whole economics of the railway are dependent on that because a downturn will result in the collapse of the whole franchise programme. On the other, this settlement is about Network Rail keeping a tight rein on costs and ditching considerable parts of its capacity expansion programme – there’s a list of 20 projects on page 368 for which there is no money which includes the Swindon-Kemble redoubling, about which I have written in this column. Of course not everything can be done at once but these schemes, amounting to a mere £365m do seem to be precisely the small scale enhancements that offer the most value in making improvements for passengers. Not, however, in the view of ORR.

A senior source in the industry – not one who is ever wont to hark back to the days of British Rail nostalgically – highlighted the contradiction well by considering what such an approach would have meant in those days: ‘You’d have the chairman telling the person who ran Network SouthEast that he must prepare for massive growth and increase in passenger numbers, while at the same time informing the maintenance guy that is far less money available and that he would have to make cuts in order to meet his targets.’

So, is this a fair package or is ORR squeezing the railway? Frankly, who knows? It is possible to argue it from either side and indeed that is precisely what consultants working for both organisations have done. Both ORR and Network Rail employ outside advisers and, invariably, they come up with the answer that the paying customer is seeking! In reality, the ORR document is one view of what the railway should spend. Just as NR was never going to say there isn’t enough money, the ORR was hardly propose that NR’s budget was too modest.

Given this, one gets suspicious when ORR starts using clichés like ‘the package is good news for passengers, freight customers and the taxpayer’. It was redolent of the early days of privatisation in 1996/7 when, with the announcement of each franchise contract, the Transport Secretary, Sir George Young would say:’ Today is a good day …’ and so on. The truth of the matter is that it can’t be. In the railways, passengers are set against taxpayers because the less one pays the more the other has to. Indeed, the rail minister Tom Harris has made clear that in future passengers are going to face higher fares in order to reduce the taxpayer’s burden.

If anything highlights the nonsense of this process, which one could call ‘pretend regulation’, it is the notion that Network Rail will be paying £880m for the government guarantee it currently gets on its near £20bn debt (which will make the railways look even more subsidised) and will be borrowing another £10bn without government backing which of course will be far more expensive,. The government has said that it will not support this new lending, and therefore theoretically if Network Rail defaulted, the banks would not be paid. But you only have to look as far as Northern Rock to know that this is not worth the promise it is written on. There is no way that Network Rail will ever default as it would be far too embarrassing for the government and the railways have to keep running.

Above all, though, what is striking about this process is its complexity and the number of uncertainties. Yes, sure, having an annual figure determined by the Treasury was a pretty arbitrary and inefficient way of running a railway, but can anyone really put their hand on their heart and say this one is infinitely better and, for both taxpayers and passengers, cheaper? There was a wonderful simplicity when the railway had to work to a single figure annually and tailor its cloth accordingly. At times that meant unwelcome cuts and there were times BR went much too far, but at least there was financial discipline. This present structure does not seem conducive to such constraints as witnessed by the sickening level of bonuses paid to senior Network Rail staff for doing little else than performing their jobs vaguely competently and padding the timetable so much that delays were bound to go down (I was on a local train the day before writing this column that arrived five minutes early at Paddington). Paying these bonuses in a year when Network Rail was twice given heavy fines seems almost deliberately perverse, two fingers up to the rest of us.

I have often said that this structure will only last until either the economic boom or ministers’ patience with Network Rail run out. I suspect that by 2013 both will have done so and there will be a more rational and simpler system to govern the railways expenditure.

Harris tells it like it is

You have to admire Tom Harris for the frankness of the interview he gave to me for a TV programme I made (see pp XX) for BBC TV Wales. It really is very revealing that Labour thinking has now changed so dramatically that a minister can say that the party would have privatised the railways had it come to power with British Rail still in existence. It puts into perspective the huge amount of noise – not backed by commensurate action – which Labour made when opposing privatisation. At least, though, he is being honest. The suggestion that the only that Labour did not renationalise the railways was because of cost, as Alistair Darling implied at Labour Party conference a few years ago, was always a lie. Labour is as ideologically opposed to public ownership as the Tories. Oddly, it is the Tories who seem to have more doubts about the system, though since the departure of Chris Grayling it is clear that the party has absolutely no policy on rail whatsoever. How I long, though, for the days when there was clear choice between the parties, rather than, as Harris clearly shows, there are now two right wing parties competing for a very small space.

The other interesting but frankly deeply depressing aspect of the Harris interview is his use of the expression ‘modally agnostic’ I first came across this at a conference in City Hall in February when a senior civil servant – amazingly, the woman in charge of sustainable transport initiatives at the department – used the term. It is now clearly departmental policy

I suppose this has been the case for quite a while. I remember asking Alistair Darling in the early part of his tenure at transport (2002 – 2006), I asked him whether he should be encouraging rail use as opposed to travel by air for domestic journeys. He said that it was not up to him to make such decisions and the government had no role in trying to influence modal split. That is clearly the new reality. Modal agnosticism rules OK..

This is quite extraordinary and explains how government policy has surreptitiously changed without any clear debate about this. I feel, too, rather led down by this. For years I have written that it was contradictory of the government not to do more for railways and cycling and walking, given that its policy was to shift people out of their cars and onto these more sustainable forms of transport. What a fool I have been! It has not been government policy at all – clearly Labour is not in any way trying to reduce the environmental damage caused by car use, or making any attempt to create a more rational transport mix. Silly me.