Privatisation, we were promised, would lever in record levels of private investment to the railway industry, – but the suspension of the East Coast Main Line refranchising process suggests the privatised railway is facing deeprooted structural problems. And, as CHRISTIAN WOLMAR will claim in his new book, even the muchmaligned BR came up investment plans in its final years that were comparable to those of the early period of privatisation.
The Big Promise of rail privatisation was that it would stimulate unprecedented levels of investment. All the hassle of breaking up the railways into 100 parts, we were assured, would be worthwhile because we would get a railway fit for the 21st century. Five years on, it is becoming clear that the railway as currently structured and financed simply cannot deliver.
I got a whiff of this last year when I asked George Muir, the Director-General of the Association of Train Operating Companies, about what aspect of the railways concerned him most. Now Big George is an Optimist with a capital O. He will dismiss suggestions of structural problems in the railway with a big sigh that is followed by a welter of statistics and lengthy reassurances, all delivered in his measured upper-class tones. But when pressed on the subject of enhancements and major projects, George admitted to me that the new (is it still new, five years after that first privatised train left Twickenham?) railway was not good at delivering major projects.
Leaving aside the Channel Tunnel Rail Link, which is a new stand-alone railway backed by Government bonds and a political imperative, the record on major projects since the railways were privatised has been appalling, and the circumstances leading to the postponement of the East Coast Main Line franchise suggest the problem is structural. The rise in the cost of the West Coast Main Line project had already suggested that major projects were a big problem in the privatised railways. Amazingly, the cost has soared from £2.3bn to £5.4bn in a way that dwarfs the increase of £1bn or so in the Tube’s £3bn Jubilee Line Extension scheme. (Yet, oddly, ministers point to the JLE scheme as a reason for why control of the Tube’s investment programme must be privatised through the much-criticised Public Private Partnership, while not mentioning the increase on the WCML, most of which will be paid by the taxpayer.)
Now we discover that costs on the East Coast Main Line project have escalated in a similar proportion to those on the West Coast. This led to an unseemly spat between Railtrack and the Strategic Rail Authority with much briefing and counter-briefing over the costings. It emerged that nobody quite knows what schemes the proposed East Coast upgrade includes, nor how the overall project is to be progressed. Railtrack complained that it could not price up schemes because the nature of the work depended on who won the franchise, while the SRA said that it was suddenly presented with a doubling of the cost of the improvements which had originally been estimated at £1.9bn.
Eventually a rather uneasy peace broke out between Sir Alastair Morton, head of the SRA, and Steven Marshall, Chief Executive of Railtrack, but the issue will not go away. There are simply too many players in the fragmented railway and everyone seems to be waiting for someone else to fire the starting pistol. Any project has to have the agreement of the Regulator, the various passenger and freight operators, the SRA, Railtrack and, of course, the Government including the Treasury. The row over train paths for freight on the West Coast necessitated the intervention of Tom Winsor, the Rail Regulator, and the issue still hasn’t been resolved.
The SRA’s role in this is difficult to fathom. Was it not set up to make strategic decisions? Not so, it seems, as under Sir Alastair the SRA has steadfastly refused to take on this role. Sir Alastair, as he put it at the recently rescheduled Institute of Public Policy Research ‘Rail Renaissance’ conference, wants to “be in business rather than in planning”. He wants the private sector to take the lead on major investment schemes and, if Railtrack won’t do the job, then he wants other companies – Special Purpose Vehicles – to carry out the work.
However, I don’t want to dwell on the SRA’s failings since we are promised that the long-awaited ‘strategic agenda’ – note, not a strategic plan – will be published in the next week or so and will be the subject of my next column. Suffice to say that the lack of leadership in the industry is not exactly helping to ensure the money available is actually spent.
The rail industry’s permanent dependence on subsidy ensures that Gordon Brown or his successor will always have his eye on the tracks. And nowhere is that more true than for major projects. If anyone thinks that something like the East Coast franchise can be let without serious consideration from the Treasury, then they have been reading too many Thomas the Tank Engine books.
But didn’t the ten-year plan with its £60bn of spending on rail solve the problem? On paper there looks as if there is lots of it but much of that disappears like a mirage when you take a closer look. Remember, half the money is supposed to come from the private sector, and will that be so forthcoming post-Hatfield and given the obstacles outlined above? Another £15bn is simply the subsidy for train operators and so that leaves £15bn available for publicly-funded investment. The West Coast and CTRL will eat up £4bn or £5bn and therefore it is hardly surprising that the Treasury is making a fuss over the £150m for Chiltern line upgrades.
Moreover, look how costs in the private sector have soared. Remember that the whole East Coast Main Line upgrade, trains and all, was done a decade ago for little more than £1bn. Sure, there has been inflation since then which has added some two-thirds to the cost and the upgrade was done on the cheap, as the catenary tends to collapse when there is a bit of wind, but isn’t it amazing that even a partial upgrade may cost two or three times that much today?
Railtrack, we are told, needs an 8% rate of return on its capital, 50% more than government would require. Moreover, the costs of projects are much higher these days as every player has to make a turn. The very plethora of players adds to costs, too, as do safety requirements. This all puts in perspective the big bucks mentioned in the ten-year plan.
While on the subject, another bit of conventional wisdom which needs debunking is the old “we would never have had all this money under BR”. For the book I am writing on rail privatisation (Broken Rails), I was researching some BR investment figures and came across the 1989 BR Plan. BR had an active investment programme which, though always insufficient – twas ever thus – was quite comparable with the early years of privatisation and, indeed, would have exceeded it had the money spent on the sell-off been diverted into railway hardware.
For example, the BR Rail Plan for 1989 which covered the following five years listed 33 infrastructure projects for Network SouthEast, InterCity and Regional Railways which had already been authorised, worth nearly £1.1bn. Approval for another 60, costing £650m had been sought. These covered only infrastructure, and the plans for rolling stock were even more impressive. Over those five years, BR planned to buy 2,267 coaches but, of course, these plans were disrupted by the preparations for privatisation which resulted in a near three-year hiatus for rolling stock orders in 1994 to 1996.
What do we have now? When the SRA was finally launched officially and dropped its shadow status, it announced that three schemes were being approved and two Project Development Groups were being set up with Railtrack. The three projects were £4.1m for reopening the Vale of Glamorgan line, £1.3m for a station at Corsham near Bath and – I kid you not – £90,000 for improving interchange at Haverfordwest. We were also told design work was being started on the East London Line of the London Underground, a project that should have been completed by now.
You can bet your bottom dollar that Sir Alastair had wanted better than that. He would have liked the SRA to be launched with a real fireworks display, a project involving a few hundred million rather than a collection of schemes that would have barely merited a BR press release to local newspapers. But the opaqueness and complexity of the development of major projects across the network defeated him.
This complexity was highlighted by Mr Marshall when he used a telling phrase at the IPPR conference last month. He wants the railways to be run by a ‘benign dictatorship’. In other words, he wants to be told what Railtrack should do. This is a 180-degree shift away from the approach of his predecessor, Gerald Corbett, whose line was “give me the money, and I will spend it wisely”. Instead, Mr Marshall wants to be told what projects to prioritise and it is clear who should do the leading – the Strategic Rail Authority, even though under Sir Alastair has shown no intention of taking on this role.
Mr Marshall, in other words, does not want Railtrack to run the railway. He wants a Rail Tsar to make the decisions. But, surely, the first thing such a Tsar would do would be to start reintegrating various bits of the railway which might involve the end of Railtrack in its present form.
No free lunches!
The rescue of the two MTL franchises, Merseyrail and Northern Spirit, by Arriva last year was initially a temporary measure but has now been formalised for another couple of years.
But at a price. The SRA press release did not mention money but, after pestering their press office for several days, I was told that for the next year, Arriva would get an extra £9m for Merseyrail (now £55m) and an impressive extra £55m (now £208m) for Northern Spirit. Rescuing bust franchises is clearly a profitable business.
When announcing franchise allocations, Sir George Young, the Tories’ last Transport Secretary, was in the habit of saying that it was a “good deal for passengers and a good deal for taxpayers”. Do you still think so, Sir George?