Tories are starting to clear their clutter of inheritance

Conservative proposals to atone for the great 1990s railway disaster will restore credibility, because they are right

The Guardian: July 19, 2006
Simon Jenkins

At last the Conservative party has admitted that its railway privatisation was a mistake. The sinner has repented, albeit 15 years too late. The cost in underperformance, delay, waste and subsidy has been incalculable and unaccountable. In Britain, when you commit a fraud costing thousands you go to prison. When you bring a great industry to its knees, costing billions through incompetence, you get a job in a City bank. That is where those responsible for rail privatisation were ensconced: Lord Lamont (Rothschild), Lord Macgregor (Hill Samuel) and the scheme's architect, the Treasury's Sir Steve Robson (Royal Bank of Scotland). All were warned that the 1993 Rail Act would be a disaster. Rubbish, they said, they knew better. I hope the banks are counting their spoons.

Within seven years the railway was costing the taxpayer three times what it had cost before de-nationalisation (up from £1.3bn to £3.7bn). The historians Terry Gourvish and Christian Wolmar have charted the subsequent shambles as probably the worst case of Whitehall mismanagement of a British industry since 1945 (a competitive contest). In the 1980s fares covered 76% of rail costs, last year 42%. The government has restructured the industry three times, so it is renationalised in all but name, operating a myriad complex Whitehall sub-contracts. Virgin's east coast route, profitable under British Rail, runs on a subsidy of £400m a year, half what the whole of BR cost in 1989. The operators recently demanded yet more subsidy on the grounds that they expected to carry 30% more passengers in 10 years' time. Surely that should mean less subsidy.

When old BR executives gather at reunions the talk is always the same. What sort of railway could they have given Britain with a third bigger market, rising rail fares, access to private capital markets and four times the old level of subsidy? These were not men opposed to privatisation. They merely regarded the 1993 Act as stupid. They knew that creating a separate track company would destroy management discipline, unleash infrastructure costs and proliferate litigation and regulation. Their railway had its shortcomings, but it was the most cost-effective in Europe. Their eyes mist over at the gold-plated service they could have run with the quantities of public money available today.

When the last chairman of British Rail, Sir Rob Reid, handed over to Railtrack and the operating companies in 1994, he told the then minister, Brian Mawhinney, that the minister may as well call himself BR chairman since that is what he would become. Mawhinney was puzzled, yet he was soon orchestrating a Railtrack strike, negotiating subsidy with the Treasury and dictating fares, now the highest in Europe.

When the railway was owned by the state, the state could stay relatively hands-off. When it was privatised, state regulation became neurotic. Leadership was supplanted with regulation, and management with buckpassing and litigation. Meanwhile up in the clouds one minister after another craved to play fat controller. John Prescott loved his macho "rail crisis summits", followed by Gus Macdonald, Stephen Byers and Alistair Darling. All were puppets on a Treasury string. Bureaucracy flowered in consequence. I once calculated there were 40 Whitehall regulators above the level of the BR board under nationalisation. Afterwards, as rail regulators, franchise directors, strategic rail authorities and rail directorates ran out of control, oversight burgeoned to 1,000 officials and as many so-called consultants. Such regulation has since gone berserk. The railway is like a restaurant in which the kitchen is run by a different company from the dining room, while a lawyer controls the swing doors.

By 2004 Darling was out of his depth. He did a John Reid by describing his predecessor's regime as "fragmented and dysfunctional". He renationalised "strategic rail" and then created "an elite of regional rail tsars to cut red tape and ensure trains run on time", supposedly a private-sector function. Darling claimed, to a startled industry, that "track and trains need to be closely aligned", apparently an insight not of engineering but of management. Like the Tories this week, he called for a "virtual reintergration" of train operators and Network Rail, but lacked the guts to progress it (beyond one Waterloo signal box). Network Rail is every bit as potent a lobbyist for centralism as was British Rail. This "not for dividend" corporation with its massive subsidy was a body of the sort that the Treasury swore it would never permit, and refused to let Ken Livingstone set up for the Tube.

The proposal now put forward by the Tory transport spokesman, Chris Grayling, is exactly the one advocated in 1990 by those who thought BR should be broken up into geographical units when privatised. The five regions were not just nostalgic throwbacks. Their lines of route reflected the radial markets that have always dominated British rail travel. They should have been the corporate trunks of a reprivatised railway, owning their assets and operating their own trains. Such distinctive regional companies would have brought commercial leadership and loyalty to their businesses, while being easier for regulators to measure, one against another. They made sense.

The Tories are now rightly reluctant to reverse public ownership of Network Rail's assets of track, signals and stations. These were not privatised under the 1993 Act but subsequently with the setting up of Railtrack. They were crudely renationalised by Byers under Network Rail, in a procedure that led him through the high court. They should stay that way. The proposal now is to split Network Rail's assets under lease between the five big regional franchises so they can manage "wheel and rail" as a coherent whole. For this to work, the operators must have franchises of at least 20 years, possibly 50. The Treasury's preference for five to seven years is commercially illiterate.

The Tories are starting to clear the ground of the clutter of inheritance. Nothing would more restore their credibility than atoning for the great 1990s railway disaster. The rail reform implies neither reprivatisation nor renationalisation, terms with scant meaning in Gordon Brown's para-statal, high-profit, interventionist economy. Many interests, notably freight and civil engineering, who have been milking public money from the railway for a decade, will oppose it, as will the government. So what? It is the right thing to do.

See also:

The Tories' railway disasters

The Guardian: July 20, 2006
Letters

Simon Jenkins (Tories are starting to clear their clutter of inheritance, July 19) often talks a lot of sense when it comes to the railways. But it is disappointing that he appears to have fallen for Conservative plans to further fragment and privatise our railways.

One of the more positive steps the government has taken to reverse the disastrous Tory privatisation was to allow the reintegration of railway maintenance back "in house" under Network Rail, which has reduced costs and improved punctuality.

The Conservative proposals would once again break up our rail infrastructure and hand it over to private train operating companies, which would simply sweat the assets to maximise their already obscene profits.

The most effective way to reintegrate our railways would be for Network Rail to take over the running of the train services as a first step towards a publicly owned and publicly accountable railway which independent reports have also estimated would save the tax- and fare-payer at least £500m a year.

Bob Crow
General secretary, RMT

Simon Jenkins quite rightly points out how the Tory privatisation of our railways effectively destroyed one of the most cost-effective networks in Europe.

However, he fails to mention that the break-up of British Rail was carried out according to the demands of EU directive 91/440/EEC.

Introduced on July 29 1991, this directive established a historically unprecedented liberalisation model, instituting a "vertical split" separating rail infrastructure from operation of rail services.

It stipulates operational autonomy for railway operators, separation of the infrastructure from service operations, open access for international undertakings and the introduction of track access charges. The Railways Regulation 1992, which began the privatisation process, was introduced under section 2(2) of the European Communities Act 1972 in order to comply with this directive.

Since that time a whole raft of rail directives have been brought in to impose market mechanisms into an industry which is widely accepted as being a natural monopoly. In December 2005, EU transport ministers ordered member states to prepare the ground for full "liberalisation" of rail networks by 2010. This would effectively remove state involvement from the industry and allow private monopolies to get their hands on the huge subsidies that all railways require.

Brian Denny
Trade Unionists Against the EU Constitution

Simon Jenkins's article on railways echoes the belief that rail privatisation was something to do with running railways. It was not - it was the biggest release of development land since the abolition of monasteries. Privatisations were geared to get at public property for development. The privatised Railtrack actually numbered all its railway bridges, like a child with its toys.

For symbolic proof look at the beautiful Brunel-designed Windsor station, which was built to celebrate the Jubilee of Queen Victoria. It was last called Windsor Royal Station. Now, through the shopping malls and cafes to trains tucked away in a corner it boasts Windsor Royal Shopping.

DJ Nicholson
London

Simon Jenkins says the Tories wish to atone for their great 1990s railway disaster, yet their proposals will just restore the railways to their 1939 structure. No modern railway system can operate as ours does today or as it did in 1939 with regional companies.

Moving freight to rail, increasing the number of passengers carried, bringing safety up to normal European standards, and building new track for additional businesses and for high-speed trains require an all-embracing national rail company. Surely it is plain to all today that road and air transport have a limited lifespan as mass transport, and rail is the only means of transport that can be depended upon in a world where oil is becoming increasingly expensive and will become increasingly scarce.

Alan Mathison
Modena, Italy

See also:

Getting the railways back on track

The Guardian: July 21, 2006
Letters

Judging by Simon Jenkins' comments (July 19) the heat is getting to him. He claims that myself and several other transport ministers "were puppets on a Treasury string" and that Network Rail, which I established, "was a body of the sort that the Treasury swore it would never permit". He cannot have it both ways. My decision to deny Railtrack further funding and to replace it by a not-for-profit company was supported by both the chancellor and the prime minister. I have no doubt that it was the right course of action. Not just on the merits of the decision itself but because it also demonstrated that reform of public services, with the objective of raising standards of service, will require the challenging of vested interests - whether directors and shareholders in the case of Railtrack or protectionist professionals in areas such as education, health and criminal justice.

Stephen Byers MP
Lab, North Tyneside

I agree that those responsible for the botched privatisation of our railways should be held to account. But the net should be widened to include Major, and Blair, Prescott Brown, who failed to take remedial action. My brother-in-law was killed in the Potters Bar train crash and my sister, Nina Bawden, badly injured. No one has yet been held to account for this crash and ministers have refused to set up a public inquiry. A judicial review of ministers' failure to hold an inquiry, which would at least enable the bereaved to see the whites of the eyes of those responsible, is currently taking place. Let us hope that where our politicians have failed, judges will deliver justice.

Robin Mabey
London

The EU directive does not require the splitting of railways between track and trains (Letters, July 20). It only requires separate accounting. Several European railways remain vertically integrated.

John Batts
Banbury, Oxon

See also:

'Re-unite the steel with the wheel'

Your correspondent John Batts (Letters, July 21) is mistaken when he repeats the myth that EU directives liberalising railways merely require separate accounts for infrastructure owners and train operators. They do not. Directive 91/440/EEC "requires member states: to grant the rail companies independence from government and commercial management techniques; and to separate the management of infrastructure from transport management". Far from an accountancy measure, the directive seeks to create a market in track access and rail services and is the essential prerequisite to full privatisation of railways across Europe.

Those European states' railways who are perceived to drag their feet on implementation of 91/440 or its 3 EU companion 'rail liberalisation packages' are fined punitively by the European Commission - French rail operator SNCF's tardiness in allowing open access to private sector freight carriers led to a fine of 1.5 billion Euros this year (800 million Euros from the French State and 700 million Euros from SNCF). Any government that intends to take back railways into public ownership will need to repeal EU liberalisation directives that split the steel from the wheel.

Alex Gordon
Secretary, South Wales & West of England Regional Council RMT