Britain’s rail industry is a giant mess
ONE of the problems with Britain’s rail industry is its nightmarish, confusing structure. It is part private, part government owned; part financed by users and part by state subsidies; and few people understand the real costs of the railway services they use, or who is really in charge. When it comes to rail travel, politics has trumped economic rationality for many decades – and continues to do so today.
The industry was grossly mismanaged and under-invested during the 1970s and 1980s, when it was in full public ownership; its artificial break-up on functional rather than geographic lines in 1994 was flawed; the semi-privatisation of 1996 (massive subsidies remained) was doomed from the start, even though services improved and passenger numbers rocketed. The privatised firms inherited a dilapidated infrastructure which triggered human tragedy, financial catastrophe and partial renationalisation. The set-up today is one giant, corporatist mess which satisfies nobody. Subsidies are huge, fares are increasingly steep, resources are misallocated and services are not good enough.
Network Rail isn’t owned by anybody: it does not have shareholders, but 78 members, who can appoint and remove directors. The department for transport – which subsidises it to the tune of £4bn a year – is a special member. This weird structure emerged from one of the murkier affairs of the Labour years: the dubious way Railtrack – the previous private infrastructure operator – was forced into bankruptcy in 2001-02 by a government that wanted to renationalise it but didn’t have the guts to say so, and then shoved its successor into a structure designed purely to maintain its massive liabilities off the public sector’s books. Yet its £20bn debt capital markets programme is underwritten by the government, which would pocket any proceeds if the company were sold. The Strategic Rail Authority holds “reserve powers”. Network Rail is a creature of off balance sheet accounting, an incoherent hybrid in desperate need of reform.
Yesterday’s bonus climbdown confirms the government controls the organisation; its status must reflect this. Directors’ bonuses will be paid into a safety fund to signal contrition for accidents in 2005 and 2007, for which the company faces prosecution (though Sir David Higgins, the CEO, has only just joined the firm). Talk about PR being elevated over substance: either Network Rail is spending enough on safety; or it isn’t. If the latter, then this is a disgrace that needs to be remedied immediately; £1m won’t make much difference. If it is the former, then why bother? By implying pay is reducing spending on safety, the directors will now face claims that any money they are handed in future would jeopardise passengers’ safety.
That said, I don’t feel sorry for them. I was angered at Stephen Hester’s treatment: he was hired on the assumption that RBS would be treated like a private firm, with private levels of pay, to turn the bank around; he was sold a pup. The Network Rail situation is different; a radical shake-up of contracts and structures is required. But there are dangers: first, that nobody of talent or ambition will ever again want to join public sector firms; and second that the war on wealth will move from public to private sector, and that even successful, unsubsidised individuals who are creating profits and jobs are going to be demonised. I hope the coalition knows what it has unleashed.
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