Rail 617: Can rail projects survive the recession?

Watching Alastair Darling sound the death knell for New Labour in his Budget speech, it struck me that never before has the Westminster Village, which I once inhabited, been so distant from the people it is supposed to serve. Darling, formerly of this parish, inhabits a world that is so distant from the one where the rest of us live that one can no longer trust anything that is being said by politicians about the economy.
In his world, which one could call Darling’s Domain, the economic situation is presented as business as usual with only a few small temporary difficulties that will be cured by optimistic assumptions about growth rates and a bit of pip squeaking on the rich. On the railways, in this world, Network Rail has £35bn to spend over the next five years, enough to carry out a series of major enhancements as well as keeping on improving the punctuality of the railway and even ensuring it operates for seven days a week. This is the world, too, in which Iain Coucher is completely oblivious to the impact that accepting big bonuses will have on the public. Darling’s Domain is a place full of ostriches and over-the-head duvet pullers who think that by making the right noises, all will come good.
In the other, which perhaps might be best called the Real World, the one where most of us live, things look rather different. The news in the budget shocked even hardened old hacks like me who understand a few basics about economics (which I studied at university). The size of the hole in the government’s finances for the current year, amounting to a staggering £175bn – let’s put that in bald numbers, £175,000,000,000 – is simply jaw-dropping. It is sobering that even with optimistic assumptions by the same people who got us into this damn fine mess, we will be paying the bills for the overconsumption of the noughties well into the twenties.
It is the lack of interface between these two worlds that is surprising and, I reckon, unsustainable. In Darling’s Domain, we are expected to believe that government projects, which of course include the railways, will not be affected by the dire economic situation in which we now find ourselves in. All the huge investment which are seemingly committed to the railways over the next few years are entirely immune from the effects of the recession and the economic collapse.
Even listing the projects takes up a paragraph: Crossrail, Thameslink, the East London Line, major station redevelopments at Birmingham New Street Reading and Kings Cross, new rolling stock and signalling systems for the Underground, the Intercity Express Programme and countless smaller schemes. It is all very exciting but almost, in the real sense of the word, incredible. How can all this – plus possibly electrification schemes and initial preparations on a high speed line – be paid for when there is clearly a gap the size of the Grand Canyon between what taxpayers are contributing and the government needs to fund its services.
As several commentators have pointed out, a more honest government might have suggested that perhaps, just perhaps, some of its pet schemes might not be fundable in the current climate. My three for the scrap heap would be Trident nuclear missile renewal, the ID card scheme and the crazy NHS computer programme, and it is noticeable that the über Blairite former transport secretary, Stephen Byers, a supporter of the nuclear deterrent and the Identity card programme, has listed those two as currently surplus to requirements.
Others, though, are likely to suggest that it is the railway projects that must go. In practice, Crossrail is still not entirely signed off, even though ministers suggest it is, because Boris Johnson, the London mayor, is still arguing about his contribution in the face of a possible huge shortfall on funding for London Underground. Moreover, the actions of Network Rail on the ground seem to contradict the confidence it showed in the press releases it issued when Control Period 4 began in April, with its five year programme of £35bn spending, including £8bn of enhancements. In the short term, its track renewal programme has been scaled back by a quarter and one of its contractors, Jarvis, which is dependent on the railway for two thirds of its revenue, has cut 450 jobs and warned of possible losses.
Network Rail argues that these cuts are in line with the requirements of Control Period 4 but they seem to betray an uncertainty about whether the £35bn, which largely comes from government coffers, will actually materialise. So far attention has focussed on the possible inability of the operators to meet the high levels of premium payments to which they are committed pay over the next few years. But the amounts of money in Network Rail’s programme dwarfs those sums and any shortfall would lead to the rapid rowing back of part of its enhancement programme.
Here Network Rail’s resistance to government pressure over bonuses for its top people could be a catastrophic mistake reminiscent of Railtrack’s payment of a dividend to its shareholders (approved, apparently, by the transport’s top civil servant of the day, Richard Mottram) just after it had announced a £534m loss. Image is all important in politics and already, as I have mentioned before, behind the scenes Lord Adonis is desperately trying to stop the company paying these bonuses because of the inevitable flak it will attract from the media.
This is not a good time for Network Rail to be at odds with the government. The recession puts at risk the greatest benefit of privatisation which is that it supposedly delivered guaranteed funding to the railways because contracts with private firms cannot be broken in the same way that spending commitments to nationalised industries can be quietly ditched by ministers in search of savings. Now it is really going to be put to the test. The funding arrangements sanctioned by the Office of Rail Regulation do allow for exceptional reviews and it is not beyond the bounds of possibility that, should the recession deepen, that the government will look to the railways for cuts.
When, on the last weekend of April, I spoke at the annual general meeting of the Friends of the Settle Carlisle Line, I was struck by the fragility of the situation of the railways, as they are ever at the mercy of government. The Friends, the largest rail support organisation in the country are an amazing group doing fantastic work. The organisation has over 3,000 members and has, through its various related groups, ensured that stations have been entirely upgraded, in fantastic original Midland liveries, and created new features, like the recently installed statue of Ruswarp, the famous dog that belonged to one of the original objectors to the closure of the line. The group is an excellent relationship with Northern, the train operator, which has proved mutually beneficial. For example, the group provides, free of charge, volunteer guides to the huge number of bus tours (there were 12 with around 50 people each in the week that I visited) which incorporate a ride on the railway as part of the attraction.
As I said in my talk, the battle in the 1980s over the Settle Carlisle line was a turning point in railway history because no significant closure proposal has been proposed since that victory. (There was an interesting suggestion from one questioner who said that he thought that Sir Bob Reid, the first head of British Rail of that name, deliberately put forward the line for closure knowing that there would be such an outcry that it would never happen – an intriguing but risky Machiavellian plan!) Yet, despite the huge success of the line, it was noticeable that there were fears among some well informed members that the notion of closing chunks of the railway can never be entirely ruled out.
After all, these are people who have seen the way that government can manipulate things to ensure it gets its way. They have been to the edge of the abyss and only through dogged resistance, together with campaigning skills, did they save themselves. Obviously, the line itself would not be contemplated for closure because it is now recognised – by none other than Richard Bowker, the former head of the SRA and boss of National Express who is an active member of the Friends of the line – as an essential part of the national railway infrastructure, but there are numerous less famous lines that a desperate Treasury and a weak transport minister might earmark for closure or deeply damaging cuts in service.
Suggestions that there could be a new Beeching axe, made recently in a downbeat article in The Guardian on April 13 are probably over pessimistic but the very fact that the idea is being mooted shows that it cannot be ruled out entirely. Certainly, supporters of such lines should be marshalling their arguments and starting pre-emptive campaigns, just in case.
Who pays for investment?

The point I made in Rail 613 about the investment by Chiltern Railways’ being essentially funded by subsidy has been picked up by Graham Cross, the business development director of Chiltern Railways who argues that this is not the case. In a detailed response Mr Cross points out that while some of the investment by Chiltern such as platform extensions at nine stations, improvements to the signalling and a turnback facility at Kidderminster have been supported by subsidy, others such as half the extra 3,000 car parking spaces, the new station at Warwick Parkway and new platforms at two other stations have not.
This is a difficult issue but I stick with my original point. When the franchise agreement was signed in 2002, Chiltern agreed to a number of investment schemes which were said to be worth £370m. These schemes were taken into account when the subsidy levels were set in 2002 and without them Chiltern would have been expected to receive less – or indeed pay more now that it has reached the point of premium payments.
However, Mr Cross points out that the company has done more than that as a result of having a 20 year franchise and has further plans in the pipeline such as speeding up trains to Birmingham and running services to Oxford. The company says that some of these schemes will be loss making in early years but provided it can consider the long term, then it is prepared to invest. However, that is contingent on the Department for Transport confirming that the franchise will, indeed, last until 2022. While I accept that this does not represent an extra subsidy it is a material benefit because the fact that rail growth has been much greater than expected over the past seven years means that, effectively, Chiltern is getting in extra revenue and can therefore afford to invest. As I said, it is a complex issue.
I do agree with Mr Cross that long term franchises such as Chiltern’s 20 year deal are a much better arrangement if the government is seeking to encourage operators to invest. Indeed, as he puts it, there are other advantages: ‘Operators who are granted long term stewardship of their routes will naturally build strong relationships in their localities, and develop a very clear understanding of their operations and markets [giving them] the temporal space to think freely about investment and improvement, without the threat of imminent franchise end/bidding competitions to distract the focus of management’. Certainly, Chiltern, as I said in my original piece, is able to have a much more strategic view on investment than other franchisees.

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