Rail 502: Review comes in with a bang but out with a whimper

The Railways Bill fails to tackle the real questions at the core of the privatised industry. CHRISTIAN WOLMAR believes the only certainty is that there will be another Bill to unravel the current bodge.

And finally we have a Railways Bill – published on November 25 – the legislative result of the review announced by Alistair Darling as the “chance of a lifetime to radically restructure the industry.” What a let-down.

If the review itself was a damp squib, the legislation is downright depressing. The Railways Bill seems to be about who runs the railways – rather than how to run them better, more efficiently, or even economically. The press coverage concentrated on how many civil servants would lose their jobs. Redundant civil servants is a bit of an oxymoron because they do not actually have to pick up their P45s but, instead, get redeployed. The fact that the SRA pays better wages than the Department for Transport is a bit of an obstacle, but hardly of much concern to the future of the railways.

Of much more interest is what the changes actually mean in practice. In introducing the Bill, the Transport Secretary offered very little overall strategy. Indeed, he rather bizarrely skated over the abolition of the SRA and the extension of the powers of the department with a very curious sentence. He told the Commons: “For those who are anoraks, my Department is announcing a new structure to carry out its rail functions, taking account of the changes brought about by the abolition of the Strategic Rail Authority.”

May I humbly suggest that this matter of who runs the railways is of interest to rather more people than just those who stand on Crewe station wearing winter clothing? We knew most of the details already – the execution of the SRA, the transfer of HMRI to the Office of Rail Regulation, the transfer of responsibilities to the department and so on. There was an ominous reference to sorting out the rolling stock companies. But explanation there was none, just a promise that there would be more detail when the Bill came back to the House for the Second Reading.

Here are just a few things the Bill does not address – what are the railways for; what is the vision for the railways; how do you finance enhancements (remember them)? Indeed, are there going to be any enhancements? Darling said the previous system was ‘dysfunctional’. Now, the big question in the short term is: will this one be any less so? And, how and why? My favourite unaddressed issue has, for a long time, been the Wolmar question – “what is franchising for?” No-one has ever provided a satisfactory answer and the Railways Bill certainly takes us no further – indeed, it highlights the lack of purpose behind the fundamental rail policy. Now I know I shouldn’t be shocked that there is rail legislation which fails to tackle the real issues. But seriously, is it a good use of parliamentary time to move responsibility from an organisation which was never empowered to actually be strategic or authoritative, to a government department to do…. nope can’t quite put my figure on it.

Let’s look at this in a ‘micro’ way. A particular route starts to become very popular, say because of new housing or gridlock on the local roads. The train operator wants to run extra trains, but inevitably that will cost money because very few routes, apart from some inter-city services, are profitable. Under the current regime, that is not too difficult. The company has the basic right to put on extra services under its track agreement, provided the line is not too overcrowded already. Network Rail is supposed to accommodate such extra services where practicable and there is always the rail regulator to whom appeals can be addressed. The SRA had railway expertise and was likely to attempt to be accommodating, though admittedly that has not always been the case.

Do we really want civil servants sitting in Marsham Street making those decisions? Moreover, in future it will get even more complicated. NR will have responsibility for the network and will try to operate in such a way that it does not exceed its budget. NR is very likely to take a more conservative view of any additional services than hitherto. As for the department, it is very unlikely to want to get involved in such micro matters as extra trains on a particular line. The franchisee will be receiving a set amount, negotiated for a period of seven years, and it will be more difficult than before for the train operator to obtain any extra money, however powerful its case. Therefore, any remaining flexibility for the private sector to exercise in running franchises will be lost.

No wonder James Sherwood, the bluff boss of Sea Containers, which owns GNER, raised again the issue of vertical integration, a subject which I promised readers in the summer I would not mention in this column for several months but my purdah is over. Sherwood said: “The cost of operating separate infrastructure and train companies is much higher than if we had an integrated railway. The government has decided it does not want an integrated railway, against the advice of all leading train operators.” Other operators such as the chief executive of First, Moir Lockhead, and Graham Eccles of Stagecoach have expressed similar views.

Darling rebuffed suggestions of vertical integration with the usual stuff about how it would be difficult on lines where there are several TOCs. Well, that is nonsense – if that were the real reason, then why not allow it on lines, such as South West Trains or the new Integrated Kent franchise, where there are few trains run by other than the dominant TOC.

No, the real reason is that Darling did not have the courage to take on the issue and radically transform the railways as he had intimated he would at the outset of the review. It was all too difficult and a fudge was easier. But the whole rocky edifice of this part-renationalised railway may come unstuck even just as the Railways Bill is starting its path through Parliament.

NR’s figures for the half year came out the day after the publication of the Bill and revealed, as expected, that its borrowing was soaring in order to pay for its ‘investment’ in the railway. The debt has now risen to £13.9 billion and is expected to go up to a staggering £20bn in a couple of years’ time. There are two problems about this. First, the Office of National Statistics is worried about the definition. A report in The Daily Telegraph on November 29 suggested that Len Cook, the head of the ONS, had told MPs on the Commons Treasury Committee that the classification of the debt as private rather than public was only temporary and could be changed in the light of the Railways Bill. The convoluted logic that ministers are trying to apply – which involves arguing that NR’s debt is private even though it is underwritten by the government and therefore gets a ‘triple A’ credit rating – makes Tony Blair’s explanation of the infamous 45-minute warning sound sensible, so a reclassification is on the cards, blowing a huge hole in Gordon Brown’s ‘golden rule’.

That rule says the government will only borrow money to pay for investment and not for current spending during the length of an economic cycle. In any case, that is a dubious proposition on the railways because what is investment and what is current expenditure is a moot question. Frankly, since most of the work being carried out is replacement of existing assets, it is doubtful whether it can be included as investment, but that is the basis on which NR’s debt is being allowed to build up. If the money has to go on to Brown’s balance sheet, there will be much pressure to cut its size down as quickly as possible, with potentially quite disastrous implications for the railway.

The second issue is that the debt is unsustainable in the long term. Interest payments will be in the region of £800m a year even at the cheap money rates available because of government backing and could easily top £1bn if rates, which are at the bottom of the cycle, rise. That is a lot of money annually and since there is no feasible way that the railway will ever generate the cash to pay that money back, at some point the debt will have to be written off or eventually go on to the government’s books.

The issues of both integration and costs will, therefore, not go away. And even though NR is cutting costs – largely because of its own internal integration through bringing maintenance back in-house – and performance is improving gradually, the question of the structure of the railway will not be solved by the current bodge.

As ever, one Railways Bill will foreshadow the next one. At the press conference on the Bill, I asked Darling whether he thought that it would provide the railways with the structure for the foreseeable future, as he had promised in launching the review. ‘Yes,’ he replied, he was confident that this would be the case. Funny, but I think that even the platform-enders on Crewe station could foresee the problems this legislation creates.

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