Rail 634: Discovering the limits of the private


Since this is the last column of the noughties, I thought it would be apposite to draw a few broad sweeping lines across the events of this momentous time on the railways. However, before I could start bashing out my thoughts my inbox was flooded with news about what is likely to be the demise of Tube Lines, the surviving infrastructure company in the London Underground Public Private Partnership

 I could not therefore ignore the death throes of the PPP, an event which actually neatly sums up the mistakes of this whole decade of debacle. Let’s just flash back to January 2000 when the relatively new Strategic Rail Authority was just feeling its way around the industry and Railtrack was a buoyant company hovering just outside the Footsie 100. Looking back at my columns that year, apart from the fact that my hair was brown which meant I would still get called ‘young man’ in the bun shop, it is noticeable that they demonstrate that the limitations of privatisation were beginning to be felt. The franchise operators were fearing the consequences of their subsidy payments being cut and while none had yet gone to the wall, names like MTL, Prism and Connex would soon disappear.

 Even Railtrack was beginning to realise its limitations. This is highlighted in one of my columns in April 2000 covering an interview by Gerald Corbett, the chief executive of Railtrack. Mr Corbett had arrived from the private sector bright eyed and bushy tailed about how Railtrack was in the business of making money for its shareholders and how, as he told a Commons Committee in 1998 soon after his appointment, ‘profits and investment are two sides of the same coin’.

 Two years later the tune had changed and he told The Observer‘s transport editor Joanna Walters: ‘We have moved completely off the profit agenda and the shareholder agenda….we have now gone over to the public service obligations agenda as agreed with Tom Winsor [the then regulator].’ Note, this was six months before the Hatfield train crash that would put paid to any notion that Railtrack could operate as a profit maximising shareholder controlled company.

 It was a time of loss of innocence for the supporters of privatisation. They had hoped for a genuinely private railway that could stand separate from government and gradually it was dawning on them that this was impossible. (the exorbitant fares on the Heathrow Express, Britain’s only truly entirely private railway, demonstrate that!)The intervening decade can be characterised by an almost continuous rerun of this debate while gradually both control and decision-making reverted to government.

 Indeed, the decade can be characterised as the period in which government reasserted itself over the railways. Today, we have an infrastructure company that is effectively renationalised since it has a debt exceeding £20bn backed by the government and it has taken the previously privatised maintenance back in house. We have train operating companies which are subject to much more rigid control directly from Whitehall since the intermediary body, the SRA, has been abolished precisely because it could not be allowed the freedom to make decisions independent of government. We even have Directly Operated Railways running the East Coast Main Line.

 The Underground PPP is a parallel story. Mistrust of the public sector and a desire to attract private capital resulted in the creation of a scheme of Byzantine complexity The Underground was divided into three groups of lines, and the privatised infrastructure separated out from the operations which remained in the public sector, and the price of the contract, after the initial 7.5 year period, was to be set by an independent arbiter. It was mirror image of what has happened on the railways where the infrastructure is effectively publicly owned and the operations privatised.

 So there is no logic underpinning these complex structures but, instead, ad hoc arrangements have been created in line with the prevailing ideology that private is best. And in the case of the PPP, not only did the contracts cost in excess of £500m to set up, but now the whole scheme is on the point of collapse and has proved unworkable as predicted in my now sadly out of print book, Down the Tube. The two contracts allocated to Metronet have already reverted to the public sector and by all accounts (I have spoken in depth to insiders at both TfL and the contractors recently) are operating in a far more cooperative and efficient manner than previously, and the remaining contract with Tube Lines, covering the Jubilee, Northern and Piccadilly lines, looks doomed following the arbiter’s decision to largely side with Transport for London’s assessment of the cost of the next 7.5 year period. Tube Lines has stated that ‘a settlement at this level is not conducive to private sector involvement in the Underground, nor does it reflect the reality of the Underground working environment.’ That is a pretty unveiled threat to walk away unless there is a step change in the arbiter’s estimate. The next sentence then absolutely guarantees that Transport for London will never want to work with Tube Lines (whose chief executive, Dean Finch incidentally announced his departure the day before the arbiter’s decision) as it calls London Underground ‘a difficult client’. Insiders suggest Tube Lines has been leaderless for the past few weeks while he has considered the job offer of replacing Richard Bowker at National Express.

 In a way Tube Lines’ departure would be the best outcome. TfL insiders are aghast at the prospect of working with a highly litigious company on a contract which they feel was vastly underpriced. Indeed, in the arbiter’s report, there is the stunning revelation that Tube Lines has made extra claims during the first 7.5 year period of £727m with more than £500m of that still outstanding. Doing business with Tube Lines (and especially Bechtel one of its two major shareholders) according to one insider is like ‘trying to shake hands with an octopus’.

 It is fitting that the noughties should be ending with the collapse of one of the government’s cherished contracts with the private sector. Time and again, the last ten years have seen how difficult it is to establish sound contracts which genuinely transfer risk to the private sector. While I am loath to predict events over the next decade – Mystic (see separate piece) confines himself to a one year horizon – I am convinced that even the Tories will realise that there is no point trying to shovel vast amounts of risk onto the private sector in the railway industry. The lesson from all this experience is that contracts should be simpler, flexible, encourage cooperative working and, above all, transparent.

 The one advantage of this whole desperate attempt to entrench a private sector role in the railways is that for the most part investment in the railways and the Underground is far better protected than under the days of direct Treasury control. Whereas back in the 1980s, budgets for both the railways and the Underground could be changed even after the start of the financial year, now for the most part the amount available for investment is set in advance. Ironically, it may be costing us far more than it used to and there may be a lot of wasted money, but at least it is being spent. There is no doubt, however, that the price paid for this level of stability has not been worth it.


Another big year ahead but Mystic plays safe


 It is, yet again, time for the traditional Mystic Wolmar predictions. It was another year in which dear old Mystic was somewhat off the radar. His five for 2009 were:


1. At least one train operator will threaten that it will throw in the towel unless it is allowed to renegotiate the franchise

2. Geoff Hoon will give the go-ahead for the third runway at Heathrow but the backlash will be so strong that any progress will be stalled by some type of review.

3. Boris Johnson is going to play hardball over Crossrail and the extra money needed for it, putting the scheme in jeopardy.

4. The Intercity Express Project will be ditched or completely amended because of changing policy over electrification, delaying it substantially

5. There will be no election in 2009 and no change in the Transport ministerial team (and, there will be a hung parliament when the election is finally held in March 2010).


Well, well – I think the score is about three and a half. Clearly the first one hit the nail on the head with National Express, and Geoff Who? did give the go ahead for the runway and there is a kind of review taking place. Crossrail, still, remains unresolved, despite the best efforts of the team to sign off as many contracts as possible. The IEP has not quite been scrapped, but it was amended as a result of the electrification plans announced by Lord Adonis, so both of these get a half, as does the final one – right about the election, but wrong about Geoff Who?.


 Mystic is rather sticking to the same hymn sheet as many of these issues are not quite resolved, and has made an extra prediction this year.


1. There will be a hung Parliament after the election of March 2010 which, surprisingly, will bring more angst than joy to the Libdems.

2. The economy will recover just enough to ensure that no other major train operator will threaten to leave the industry.

3. The PPP on the London Underground (see above) will collapse entirely and the contracts taken over by Transport for London.

4. The Intercity Express Project will be cancelled.

5. Lord Adonis, who will not longer be transport secretary after the election, will announce he is leaving the House of Lords to try to get a safe Parliamentary seat for the following election.

6. Crossrail funding will be stalled following the election and there will be a review of the project.

Oh, and just as an after thought, I suspect Iain Coucher will be seeking a new job after falling out with his chairman.

Scroll to Top