Forget Byers: the scandal was in the original sell-off

Stephen Byers may have told a few porkies to his parliamentary colleagues, but that does not mean that his policy of putting Railtrack to death was wrong. Indeed, a whole host of people are far more culpable in its tawdry history, which has resulted in the waste of billions of pounds, and a railway that is structurally dysfunctional.

Railtrack owed its existence to a flawed idea not followed in any other European country – that infrastructure could be separated from services and sold off as a private concern. This fundamental error was compounded by a series of errors by management that ensured the company would be short-lived.

When the structure of rail privatisation was set out in a thin white paper soon after the Tories’ surprise 1992 election victory, the plan was that Railtrack would stay in the public sector while the services would be contracted out to franchisees – one of the few sensible ideas in the plan. The profit-maximising ethos of a plc sat uneasily astride a company whose function was to invest to ensure that the permanent way was kept in good condition and was safe – especially as most of the money to pay for this came from taxpayers.

However, pressure from Bob Horton, its first chairman, and from within the government by the chancellor, Ken Clarke, who wanted a couple of extra billion for his coffers, ensured the policy of keeping Railtrack in the public sector was changed in great haste and the company was sold off to the public in the spring of 1996. While Railtrack prospered for a while on the stock exchange – its share price quadrupling within a couple of years – the rail network was taking a battering.

The obvious temptation for the management was to boost profits by restricting spending. That was supposed to be prevented by the regulatory regime, but this had deliberately been created as a weak instrument to ensure that the company could be privatised. Moreover, the increase in train numbers as the operators sought to sweat their assets put added pressure on the track, whose condition deteriorated – as demonstrated by the increase in broken rails.

The ability of the company to maintain the network was further weakened by the policy of dispensing with engineers, administered by its first chief executive, John Edmonds. Engineers were a burden since all they ever wanted to do was spend to improve the railway.

Two events precipitated the company’s demise. First, costs on the massive west coast main line project soared from an estimated £2bn to around five times that figure despite cuts to the scope of the scheme. And then, with far more publicity, came the Hatfield crash in October 2000 – caused by a broken rail as a result of faulty maintenance procedures – and the aftermath, when thousands of speed restrictions were imposed unnecessarily across the network because the company did not have the expertise to know whether other parts of the track were also at risk of immediate catastrophic failure.

The company promptly went from being profit-making to losing £534m; but its managers, ignoring the fact that the government was, ultimately, their paymaster, promptly paid out £137m in dividends in May 2001 to shareholders on the basis that the City had to be kept happy.

It was the last straw. The newly re-elected Labour government, with Stephen Byers as transport secretary, began to look at alternative structures for the rail industry, and this is where Byers has some explaining to do. The company had already been bailed out to the tune of £1.5bn by the regulator, who had allowed it to spend money earlier than originally intended, and there was no question of further funds being allocated.

Of course, the company was effectively doomed given the cost overruns caused by the west coast project and Hatfield. But Byers was in a bit too much of a hurry and wanted to please the Labour backbenchers who were pressing for the company to be renationalised. Instead of simply allowing Railtrack’s share price, which had already fallen below the original sales figure, to wither away to virtually nothing, he stepped in to force the company into administration.

To be fair to Byers, if he had just waited for Railtrack to go bust there may have been a hiatus during which the trains stopped. So he called in the administrators, prompting the trial currently taking place. Even at the death, Railtrack’s bosses made mistakes. The then chairman, John Robinson, could have sought extra financial help from the regulator, Tom Winsor, but instead went straight to Byers for a tête à tête which he hoped would result in another bail-out. Winsor’s telephone didn’t ring, except right on the Saturday night when the government had already decided to apply for the company’s administration, and even then only as a way of ensuring that the directors had fulfilled their duty to their shareholders.

Winsor, who had been threatened with having his powers removed by Byers, would have been all too ready to cause trouble for the government by intervening, but he was never asked to do so.

The shareholders, however, have little in their favour. Shares, as we are constantly told, can go up and down. Railtrack was always a strange construct because ultimately the money came from government through the mediation of the rail regulator, and it had already been bailed out just a few months earlier.

The Railtrack story is part of the wider scandal of rail privatisation. It was conceived as a way of saving the Treasury money and of getting the government out of the railways. In fact, taxpayers will contribute some £6.5bn to the railways this year, four times more than British Rail ever received in its worst years. Moreover, the Hatfield train crash led to a deterioration in performance which is only now, nearly five years later, being recovered.

It is ironic that in the other trial concerning Railtrack – the prosecution of five managers involved in the Hatfield train crash – the evidence reveals that all the placement-of-speed restrictions on the network were unnecessary, and therefore much of the repair work that has ensued has also been a waste.

There are few mourners for Railtrack. The shareholders got pretty much what they had paid for at its launch. Mr Byers may not have behaved well, which is why he was not found a ministerial seat after the recent election, but those in the dock should be the Tory politicians and the Railtrack managers who were far more culpable because they created the mess in the first place.

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