Rail 489: Winsorworld… we’re the fools and the contract is king

As Tom Winsor prepares to return to a highly-paid job in the City, CHRISTIAN WOLMAR wonders whether the last true believer in the existing rail structure will show a little humility in his forthcoming book, by recognising the world has changed.

The world according to Tom Winsor is a rather different one from that inhabited by the rest of us. As Winsor gives speeches and issues documents in a Stakhanovite effort to finish his work as Rail Regulator in time for his departure date on July 4, a graphic picture of the world he lives in is emerging.

It is interesting not only as it gives his unique perspective of the railway – cue the venting of five years of frustration to all and sundry in both the industry and the government – but also as a barometer of how perceptions and expectations of the industry have changed.

The Winsor world is mostly populated by fools or knaves. Most of us fall into the first category as there are few people on the planet deemed capable of matching Winsor’s intellectual capabilities. Indeed, he once very publicly decided to demonstrate the gulf in our respective IQs at a press conference a few years ago when I had the temerity to suggest that his settlement for Railtrack in the first review was rather generous.

“They call you an expert on TV,” he thundered, “well, let me make you an expert by explaining this…” and he set out in great detail his reasoning. It was hilarious – and of course Winsor did not realise I earned Brownie points among my journalistic colleagues for making him lose his rag. Despite this, he has a likeable side and a sense of humour – he recently bought me a Cassandra key ring in New York because he had once called me that.

There are, too, quite a few knaves, themost prominent of whom are Gerald Corbett, the ex-head of Railtrack who was sacked in a boardroom coup after Hatfield, and Steven Byers, the former Transport Secretary who warned Winsor that the Regulator faced effective abolition if he intervened over the placing of Railtrack into administration in October 2001. Indeed,Winsor is convinced that the latter will be castigated if the case against the government launched by the Railtrack shareholders ever reaches the courts.

Winsor says he regrets that his relationship with Railtrack was so bad and that the company refused to engage in positive dialogue with him. But that is the nature of the beast. The regulator, of necessity, has an adversarial role with the company, particularly as its legal duty is to maximise profits for its shareholders.Corbett had simply realised that playing the regulatory game – ensuring that he got the most out of the review of access charges – was the only way of significantly increasing the company’s income.

Winsor disagrees withCorbett’s notion that the contracts should have been kept in the bottomdrawer and left pretty much alone.On the contrary, he reckons that is a recipe for chaos.Winsor has such a positive view of the contract-based structure of the industry that he argues that they should be used regularly and frequently by the various parties to sort out rights and obligations.Winsor makes no pretence of hiding his contempt for the first regulator, John Swift QC, who, he reckons, gave Railtrack an easy ride but now, he says, thanks to his efforts there are much better contracts in place and all will be rosy in the new garden.

However, in no other industry are relationships governed by contracts which are taken out of the bottom drawer and examined in detail every day. Quite the opposite. Successful business relations only take place in the absence of lawyers and detailed contractual wrangles. Winsor’s emphasis on the contractual approach to the industry is perhaps the most obvious sign that he has become a dinosaur in what will be the brave new world of the post-review railway.

A new pamphlet published by the Centre for Regulated Industries makes this point cogently, arguing that the substantial reason for regulatory failure in the industry “was the adoption of the wrong regulatory philosophy” – one that emphasised the approval and arbitration of contracts over economic regulation of the monopoly infrastructure provider. The Rail Regulator was preoccupied with the contract regime that was not a significant part of the regulation of other utilities, which tended to be more successfully regulated. In other words, the railways had the wrong sort of regulator.

Despite Winsor’s clear contempt for politicians, he seems to be almost touchingly naïve about their integrity. He is convinced that the rail review announced in January will be very limited since ministers have said they will do nothing to affect the private companies which invest in the industry and that they will retain independent economic regulation.

Winsor is dismissive of two of the key issues being considered by the government in the review: the notion of having a ‘single directing mind’ to run the railways and the concept of vertical integration. He says that the idea of having such a ‘fat controller’ is ‘misconceived’. The last thing the private sector companies need, he argues, is a public official “telling them how tomake this work or controlling its day-to-day operations.” On vertical integration, he argues that most “mature private sector industries are not organised in this way.” Instead, “the interfaces between the links in the chain must be properly designed and efficiently and competently operated.”

Yes, but how come so many senior managers -many of whom supported privatisation but are now concerned about the way the railway is structured – believe that the industry desperately needs both? Moreover, the best railways in the world, such as those in Japan and Switzerland, are run in a vertically integrated way, and experienced railway managers like Ed Burkhardt, the former head of EWS, argue it is essential for efficient operation.Most railway managers, too, reckon that command and control is the best way to run a railway, something that is incompatible with the current structure. So the real question is, why should a corporate lawyer know better how to run the railways than these people?

Essentially, Winsor believes that the present structure is fundamentally OK, if not perfect, and that the review is an unnecessary distraction.He has missed a clear point about the timing of the review.Why does he think that its findings are going to be announced in July, when he has departed theHolborn office of the Office of the Rail Regulator and has started composing the book which he intends to be his valedictory? So, of course, ministers will not have lied in the statements they gave about ensuring independent regulation and the like, but they may well be shown to have been slightly economical with the truth.

Winsor is naïve to assume that the structure which he has spent all his time shoring up over the past five years is sacrosanct and will not be changed radically as a result of the review. But the mood of the industry and the government has changed – unfortunately Planet Winsor seems unable to accept that the rest of world has evolved.Much of this is not his fault – like a stick of rock, he has ‘corporate lawyer’ written all the way through him – but the industry needs people who run trains not contracts.

At the Stagecoach conference inWinchester on May 27, he made the point that Network Rail had recently refinanced £10bn of its medium-term debt on the basis of the guarantee from ministers that there would be continued independent economic regulation. But it is not the independence or otherwise of the regulation that is crucial in NR’s ability to raise money, but, on the contrary, its dependence on the government. The City lenders know that NR is effectively a government company and they advance money on that basis. They couldn’t care a fig about whether the government leans on Winsor’s successors or not.

So, as he rejoins the world of City lawyers whose salary range is £0.5-1.5m (Winsor is wont tomoan that he hadmade great financial sacrifices to take on the £180,000 a year role as Regulator when his contemporaries were getting several times that sum), he could possibly ask himself whether the industry is in a better shape now than when he joined and if not, why not. I’m sure his book will tell us all and it will be replete with humble mea culpas.

Winsor is the last defender of the existing structure. Darling and Bowker have changed their views, aware that the railway is not delivering a reasonable service at an affordable cost.There is of course a role for lawyers in the industry – but we all must now recognise that a lawyer cannot know better than the people who run the railways how tomake them work – and, let’s face it, this time it needs to work if we are going to actually have a rail industry worth anything in another five years’ time.

Winsor’s working title for his book is apparently The Last Regulator because he is being replaced by a board of nine directors headed by Chris Bolt. He makes the joke of saying he has being doing the work of nine people at every opportunity. Perhaps he should call it The Lost Regulator instead.

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