Off the rails

There has been much speculation about the decision by UK transport secretary Stephen Byers to declare Railtrack bankrupt and to effectively wind it up. Was he doing a Jo Moore (his adviser whose infamous email suggested ‘burying’ bad news in the wake of 11 September) by announcing the end of Railtrack while all eyes were on the West’s military attacks on Afghanistan?

Was it a loose cannon decision, taken while more experienced MPs were otherwise engaged? And was it the most popular decision the government has ever made? After all, Railtrack did not have a big fanclub.

Such speculation stems from the fact that nobody seemed to have known that the decision was going to be taken. Alastair Morton of the Strategic Rail Authority appeared to have no inkling of it in an article he wrote for the UK Spectator, published the day after the decision was taken – instead writing, ‘I have a firm view of how Railtrack, the train operators and the public purse can be brought to fit together’ (1). He has since resigned.

The government’s own rail regulator, Tom Windsor, was only informed of the decision by phone the following day. Even Railtrack bosses had no idea what was going on until the announcement was made at a meeting they attended to – as they thought – discuss government funding.

Whatever the reasons for the timing, Byers’ decision was carried out in a remarkably cavalier fashion. The Strategic Rail Authority (SRA), set up as part of the government’s transport white paper after months of consultation with interest groups and the general public, was not consulted. And Byers invoked Section 60 of the Railways Act 1993 – the act that gave regulatory authority and powers of appeal to the rail regulator – to put Railtrack into administration, on the grounds that ‘the company is or is likely to be unable to pay its debts’ (2).

The Economist referred to ‘the contempt with which Mr Byers treated the men the government had appointed to run Britain’s railways’, but excused it on the basis that it was ‘born of frustration’ (3). Byers certainly displayed contempt – but not just towards the few government apparatchiks, shareholders and the many rail employees who have seen their share investments disappear.

Foremost, the suspension of Railtrack was an example of how the government rides roughshod over normal business practice and democratic debate.

True, Railtrack was a badly administered privatisation, bureaucratically run and in dire need of sufficient cash injections to overcome the chronic lack of investment suffered by the rail infrastructure since nationalisation. So what’s new? Railtrack’s claim that it didn’t know the full extent of the awful state of the railways when it took them on is true – but tough. That, as they say, is business.

And Railtrack’s insistence that ‘in the absence of the minister’s actions on 5 October, Railtrack would not have collapsed into receivership but would have gone on to review a number of alternative options for financing’ (4) seems dubious to say the least. (Its main source of alternative funding would be to ‘reduce all non-safety critical investment’, which might be justified, but also plays into the hands of ministers who have branded Railtrack irresponsible, insisting that ‘safety…retain its priority’ (5).)

But the government can’t have it all the other way – criticising Railtrack for being a company of fat cats that paid itself £138million in dividends earlier this year while admitting to £500million losses. At another time, this would have been seen as the bullishness of the market.

The government is in danger, as Frank Kane wrote in the UK Observer, of breaking ‘the first and most sacred rule of advanced capitalism – that shares are worth what the market says they are’ (6). You may not like the market valuing a company highly even though its stocks are in decline – but to intervene and destroy market confidence is a dangerous precedent.

Byers’ intervention effectively wiped out the shares in a private company, and will have serious repercussions for public/private initiatives for the foreseeable future – and relying on the fact that Railtrack was hated as a symbol of all that was wrong with private involvement in public utilities will not be enough to halt the repercussions.

According to Byers, it is business as usual under administration, but there are very real short-term implications of his actions. Already there is uncertainty over whether some capital projects will go ahead, as the receiver tries to find the best deal available – although capital spend projects are never certain until the contract has been signed anyway.

And it has been reported that London Underground has altered its public private partnership (PPP) contracts to ensure that it ‘will be absolved of all responsibility or repercussions should the tube become less safe or suffer a Railtrack-style catastrophic collapse’, and that it will be insulated ‘”from any real obligation” to provide investment finance after the first seven-and-a-half years of the 30-year contracts’ (7).

Contrary to popular perception, the government’s intervention has nothing to do with nationalisation. In fact, the hastily conceived ‘Newtrack’ looks like a recipe for increased fragmentation of the networks. Byers insisted there would be a not-for-profit company running the railway infrastructure, but he has been in consultation with private companies about taking over the lines that they run.

All pretence of a unified national rail network is disappearing fast – and without a clear investment plan and strategic overview (which Railtrack tended to provide), the rail service could descend into haphazard tiers of provision.

The funding crisis still exists. The £34billion private money needed to comply with the government’s 10-year plan always looked dubious, and it will still need a share of the money that Railtrack came ‘begging’ for on the weekend of 5 October. The rail infrastructure will not be allowed to grind to a halt, but, as BBC economics editor Evan Davies pointed out: ‘If there are no profits in Newtrack, it is hard to see why the private sector will take the risks.’ Whatever the hype, ‘the government is still going to have to spend a lot, probably more than they would have, although they may prioritise the big projects’ (8).

It is now rumoured that many companies involved in PPPs (even those that have nothing to do with the transport sector), feeling uncertain about their exemption from government intervention in their affairs, are seeking to reduce their warranty obligations, demanding that more risk be underwritten by government. In the wake of what happened to Railtrack, this is shrewd business management – rather than being, as London mayor Ken Livingstone argued, a vindication of his campaign against PPP finance for the London Underground.

According to transport specialist Christian Wolmar, recent events ‘open the way for a more informed and practical debate on Third Way models for the future’ (9). But that is hard to envisage when private companies are consumed by doubt about the security of investment, long-term stability, and their own independence.

Alistair Morton told BBC Radio 4’s Today programme that ‘the government has…done a lot to sow doubt into every lender’s mind’ (10). Much of this worry is overstated, often as a lever to prise contractual concessions. But it does reflect a real defensiveness within business – a mood reinforced by the fears after the terrorist attack of 11 September and compounded by the sniper attack from Byers.

Austin Williams is director of the Transport Research Group, technical editor of the Architects’ Journal, and motoring correspondent at the Daily Telegraph. He is a contributor to Sustaining Architecture in the Anti-Machine Age, Wiley-Academy, 2002 (buy this book from Amazon (UK) or Amazon (USA)); and Carchitecture: When the Car and the City Collide, August/Birkhauser, 2001 (buy this book from Amazon (UK) or Amazon (USA)).

Read on:

spiked-proposals: Transport, by Austin Williams

(1) ‘Fortress Whitehall Comes off the Rails’, Alastair Morton, Spectator, 6 October 2001

(2) See the Railways Act 1993

(3) ‘Blood on the Tracks’, The Economist, 13-19 October 2001, p29

(4) Railtrack news release, ‘Railtrack expresses concern over Byers’ statement in House of Commons’, 15 October 2001

(5) Alan Bloom, Joint Special Railway Administrator, Ernst & Young LLP, ‘Railtrack plc (in railway administration) Statement to Employees’, 7 October 2001

(6) Stop this theft and spare the Sids, Observer, 14 October 2001

(7) Dick Murray, ‘Byers will decide on PPP plans for Tube by January’, Evening Standard, 18 October, p2

(8) In conversation

(9) The life and death of Railtrack, Christian Wolmar, openDemocracy, 18 October 2001

(10) Rail chief warns over revamp cash, BBC News Online, 16 October 2001