We become animated about the privatised structure of our rail industry only when the bodies are lying dead on the tracks. Then, everyone has passionate views on where to point the finger of blame and prescriptions for how to restructure the network and reorganise ownership.
The remarkable sequence of events following the derailment at Hatfield that killed four people has highlighted the crazy system under which the industry works. The problem is the incentives that link profits to performance, plus the lack of incentive linking profits to safety.
First, there was the crash itself. Then came the final decision of the rail regu-lator, Tom Winsor, on his review of Railtrack’s track access agreement – although events delayed his announcement by four days. The agreement sets out, for the five years from April 2001, the amount that Railtrack is allowed to charge each train operator for the use of its tracks, and therefore determines income and profits.
Finally, we learnt that Connex had lost the franchise for South Central, one of the largest on the network. This has now been allocated to Govia, which is promising £2bn investment over 20 years.
A medley of figures had most of the press commentators completely confused, with some welcoming huge new government investment in the railways. Sadly this is not the case, although it is true that Railtrack will receive higher government subsidy. It will also be able to raise charges for track access, on the basis that, if its capital assets are greater, its rate of return must also be higher.
Winsor was stuck between a bit of ballast and a broken rail. If he had been too tough on Railtrack, he would have been accused of not allowing the company to invest sufficiently, thereby compromising safety. But equally, he will be blamed if Railtrack profits attract more “fat cat” headlines.
Thus, one man determines the company’s income, which is based on his assessment of the value of the assets that were sold off cheaply by the previous government. It has nothing to do with the costs of trains running over track. Five years after privatisation, we have absolutely no idea of the cost of running the railway.
Ironically, the man who pointed a searchlight at the seriously flawed structure of the industry is the chief executive of Railtrack himself. And, even more ironically, it is he who dared to mention the N-word. Gerald Corbett knows that this shambles is no way to run a railroad.
Emboldened by the support he received from the public – including the Ladbroke Grove survivors – when he tried to resign from the Railtrack board, Corbett has spelt out that the privatised railway industry, as currently structured, cannot guarantee passenger safety. He believes that the sale was designed to maximise proceeds to the Treasury, rather than to promote safety.
Sir Bob Reid, BR’s chairman at the time of privatisation, has backed Corbett’s claims, as has the Tory transport spokesman Bernard Jenkin. He believes that “mistakes were made” in the Tory government’s privatisation.
The Hatfield crash has highlighted the perversity of the incentives built into the system. For example, earlier this year, Railtrack’s contractor, Balfour Beatty, discovered that the track where the crash later occurred was in a poor condition. Under the complex arrangements between Railtrack and train operators, scheduled “possessions” (track closures) were possible only in May and November. Someone – and we do not yet know if it was Balfour Beatty or Railtrack – made a decision to wait until November before renewing the track. The decision was also made not to impose a temporary speed restriction at the fatal bend.
But there was a clear disincentive for Balfour Beatty and Railtrack to do the work earlier. Extra possessions lead to compensation payments to operators. And a temporary speed restriction on such an important line would have led to a sharp increase in minutes lost. Railtrack is under constant pressure from the rail regulator to improve punctuality, and is under the threat of fines amounting to £10m for every 1 per cent increase in delay. Therefore, the whole commercial direction of the industry is skewed in favour of improving punctuality, rather than taking conservative decisions on safety.
But if engineers closed every slightly dodgy section of track, Britain’s railways would effectively turn into a bus service hopping between stations. Engineers have to assess reasonable risks. This time, someone got it wrong.
When the inquiry into the Hatfield crash gets under way, some poor junior engineer will be subjected to public pillorying for having made the decision. But he or she is not to blame. The system is designed to boost punctuality, not ensure safety.
The root of the problem is the separation of the track from the infrastructure, and that the government and the rail regu- lator set the targets but are not responsible for their delivery. Their demands for both improved safety and better reliability and punctuality are in conflict.
John Prescott, the Deputy Prime Minister and Transport Secretary, claimed that the problem had been solved by the creation of the Strategic Rail Authority. Not so. The SRA is intended to give overall direction to the industry and to use government spending to attract investment, but it has no direct control over the running of the railways. It cannot reduce the number of companies involved in the industry, nor does it have powers to bridge the gap between Railtrack and the operators or between Railtrack and its contractors, which the crash showed was another potential problem.
Prescott does not even want to engage in the debate. After the crash, in its report on the structure of the railways, Channel 4 News showed a prerecorded clip of me saying that, earlier this year, Corbett had offered ministers the opportunity to take a large stakeholding in Railtrack. In the ensuing live interview with the presenter, Krishnan Guru-Murthy, Prescott scored a silly point by saying that the government was already a Railtrack shareholder. But, as he well knows, the government holds only a token one-tenth of 1 per cent of the company. It was childish point-scoring at a time when what we desperately need is an open-minded examination of what Hatfield means for future strategy.
Ministers are terrified of the word nationalisation. After all, while the industry remains in private hands, someone else shoulders the blame for the inevitable mishaps, from major crashes to delays.
That is partly why they are about to replicate this rickety structure for the London Underground. Under a private-public partnership, the infrastructure is to be handed to private companies, while operations will remain in public hands. This is entirely the wrong way round (nationalised industries are not good at providing services, but they have shown themselves relatively efficient at maintaining assets). Worse, splitting the two parts of an undertaking that so clearly requires integration is a crazy political gamble. Woe betide any minister who has to defend it if, after 13 years of safe but overstretched running since the King’s Cross disaster, there is a major accident after the new system has been introduced.
By refusing to follow Corbett’s lead and “think the unthinkable”, the gov- ernment is digging itself into a hole. Ministers behaved decisively after Ladbroke Grove, with far-reaching changes such as splitting off Railtrack’s safety functions from the rest of the company and introducing regulations that pressure rail firms to improve safety performance, year on year.
Why not put the refranchising process on hold and allow the Commission for Integrated Transport, an advisory body set up by the government, to look at options for a new structure. These could include the government taking a stake in Railtrack; trying to merge Railtrack with operators in order to recreate an integrated railway; even reinventing Railtrack as a non-profit trust or mutual society.
It cannot be right that we are never to be allowed to examine the current inherited structure of ownership.
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