Rail 486: Bowker’s next stage on journey to a new BR?

A chastened Richard Bowker has undergone a change of heart as remarkable as the Prime Minister’s on the EU constitution referendum, contends CHRISTIAN WOLMAR. But in fact the SRA’s proposals for ‘Bowker Rail’ are interesting and workable.

Spring is clearly the time for U-turns. First we had Tony Blair’s seismic change of direction over a referendum on the European constitution. My political antenna suggests that this represents the end of Blair’s premiership but, unfortunately not, as predicted by Mystic Wolmar, this year.

The other U-turn was no less remarkable. Hot on the heels of that selective bit of leaking, we had another one in The Daily Telegraph which reported, on April 19 – the very same day as Blair’s bombshell dominated the headlines – that Richard Bowker, chairman of the Strategic Rail Authority, wanted to recreate BR.Well, OK, he was talking about Bowker Rail rather than British Rail or, to give it its official title, National Rail, the central idea behind the SRA’s submission to the Department for Transport’s review.

Bowker’s grand vision of the future of the rail network looks fairly simple on the surface. National Rail will be a supposedly private organisation that will operate through two principal subsidiaries: Network Rail and a second organisation created out of the SRA’s franchising functions.TOCs will be effectively downgraded to delivery units paid a fix fee by National Rail for a fixed-term contract – with bonuses or penalties depending on service quality. BR it might not be, but as with every change to the privatised network since 1997, the prospect of a new British Rail becomes ever closer, though the government and its agencies will never admit that.

And guess who would be heading this new organisation? As some industry wag put it, “this is the new ‘save Bowker’ plan.” Actually, that may be a tad unfair but when I wrote in my last column that I felt likeWinston in 1984 because the opinions of people in the industry seemed to shift with the prevailing political wind, I never realised the extent to which this was true. Bowker’s change of heart on the structure of the industry is quite a remarkable transformation from the man who allowed a press release to be put out in his name only six months ago which said that “this was the last piece in the privatised jigsaw.”

However, any new structure needs to address the little matter of the £14bn Network Rail debt. While Bowker can blithely suggest the new British Rail – sorry, National Rail – will be in the private sector, even if its debts are guaranteed by the government, the Office of National Statistics, which determines these matters, may be of a different mind and ultimately the whole thing is an expensive pretence. The answer is that this should be a non-issue. As one insider put it to me, “none of the plans for reorganisation of the railways should be ruled in or out on the basis of whether they are on the government’s books or not.” Indeed, but will Gordon of the Treasury see it like that?

The detail of the proposed structure – whether publicly – or privately-owned – echoes existing trends. Turning TOCs into delivery units is already a reality, with several franchises run under management contract arrangements after getting into financial difficulties or, in the case of the two Virgin operations, not receiving the upgraded infrastructure promised by Railtrack.

The difference is that whereas previously Bowker has described these arrangements as temporary and undesirable, arguing that the sooner real risk sharing franchises were created the better, he is now welcoming them. Indeed, Bowker seems to have just woken u to the fact that revenue risk is not a sensible factor to privatise because passenger numbers are largely a factor of the state of the economy, and little to do with the marketing efforts of the privatised operators.

Moreover, if train operators’ profits were used to cross-subsidise within the industry rather than to line shareholders’ pockets in return for zero investment, perhaps passengers would experience the visionary – and, so far, imaginary – improved railway he has been describing since he took up his chairmanship. The City has long been aware that the current structure leaks money out of the industry. As one analyst baldly put it to me, “at present the TOCs can be cash cows for their owners. If they get the bid right, they are laughing all the way to the bank.”

More broadly, Bowker’s proposal sets out a model where the risk is clearly back with the public sector, to such an extent that the fares are going to be collected centrally so they can be used to raise money for investment. That will be done through a process called securitisation, which involves borrowing money against a future fixed income stream in order to raise a capital sumfor investment.

The concept of securitising in order to pay for investment is fraught with difficulties. Network Rail also is seeking to securitise the income it receives for track access but its plans have so far been held up by the complexity of the proposed arrangement.Moreover, since it receives part of that through the farebox, there is a bit of double-counting going on here. Still, if Bowker is to be in charge of the lot, maybe he will be able to sort it out.

But with maintenance in-house at Network Rail and TOCs downgraded to delivery units, the question is: what role do we realistically want the private sector to play in this new structure railway?

There is very little scope for the private sector to add value. The franchises do not invest, as they have no assets, and while some have brought some private-sector flair to the industry, there has been a heavy price to pay in terms of substantial profits and considerable waste of resources in the bidding process.

If all the farebox revenue goes directly into National Rail’s coffers, the operators will have little incentive to collect it. Indeed, they will come up against the same problem as British Rail.When BR put on extra revenue inspectors, it suffered in two ways. First, they were a cost and an addition to staff numbers, one of the key indicators the government used to judge the organisation’s efficiency. And any extra money collected was simply included in the next year’s budget, which meant simply that subsidy was reduced by the same amount.

The SRA’s submission repeats the mantra that ‘independent economic regulation’ will be retained in order to attract private companies. But if the DfT were genuinely interested in private sector funding, how come it rejected the biggest private project, the Central Railway, on the grounds that it was uncertain whether the funding was guaranteed, which is the nature of private schemes? What the government seems to mean by private investment is private financing of things that normally the government would pay for, so that the expenditure is off the books.

Clearly, independent economic regulation suggested by the SRA will not mean that the ORR retains the right to dip infinitely into the Treasury’s pocket – something that has always been an anomaly in the regulatory structure. Indeed, the other parts of the SRA’s plan show that this will change. There is to be a new Railways Agency taking over the strategic functions of the SRA and the Office of Rail Regulation (that will please Bowker’s erstwhile pal Tom Winsor!) which will set the budget for the industry. And a new Office of Economic and Safety Regulation, a Civil Aviation Authority- type body, will take on the economic role of the ORR and the safety role of the HSE.

All this may be a bit self-serving – a desperate attempt to salvage something from a review which threatened to cast Bowker into the wilderness – but his scheme, set out in a lengthy paper that is not being published, is interesting and workable. Indeed, sources within the department suggest that the results of the review will be truly radical.

An early draft which sets out a plan for little more than minor tinkering with the role of the Health & Safety Executive has, apparently, been rejected by Darling. Integration and co-ordination are the watch words for the review and Darling is particularly interested in ensuring that there is a single point of control over the industry – something which Bowker’s plan would definitely create.

Indeed, Bowker would not have produced this statement without being given a steer that the department is thinking along these lines. But his intervention does put him at risk. He is debunking his own organisation, a tacit acceptance that the structure he has being trying to defend and implement for the past 2 1/2 years is inherently dysfunctional. He is moving with the tide ofWhitehall thinking, as witnessed by recent public appearances where he has come across as a rather chastened figure eager to play the game in an attempt to secure a role in the new structure. That will neither make him popular nor necessarily save his skin.

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