Back on track

15 Jul 05
TONY GRAYLING | Stephen Byers deserves praise not censure.

Stephen Byers deserves praise not censure.

The then transport secretary did the right thing in 2001 when he put Railtrack into administration and subsequently granted the ownership of Britain’s railways to Network Rail, a new public interest company.

Byers found himself in the High Court this week giving evidence in the misfeasance case brought by Railtrack shareholders. They are seeking compensation of £157m.

Yet, back in 2001, Railtrack’s shareholders were offered a fair settlement. They did nothing while Railtrack mismanaged Britain’s rail network and took dividends even as it went into financial meltdown at taxpayers’ expense. The sensible ones have accepted the settlement.

Before the Hatfield train crash in October 2000, Railtrack was already in trouble with huge cost overruns on upgrading the West Coast mainline, but it was Hatfield that exposed the scale of its incompetence.

Hundreds of new speed restrictions were imposed across the network because the poor condition of the track was not known. A massive emergency programme of re-railing ensued, which increased the company’s financial woes, compounded by compensation payments to train operators for services disrupted.

In April 2001, the government bailed out Railtrack to the tune of an extra £1.5bn in public subsidy. The following month, the company paid out £134m in dividends to its shareholders. When Railtrack came asking for even more cash to prevent the company going bust, Byers quite rightly refused to throw good money after bad. Railtrack offered no serious resistance when it was put into administration in October 2001.

Under new management since October 2002, the railways are getting back on track. Network Rail has brought track maintenance back in-house, reduced costs and improved performance.

Train delays are down. Track faults are down. Broken rails are at their lowest ever level. Work volumes have also vastly increased, with more rails laid, more ballast renewed and more points replaced.

The ethos of public service has returned to Britain’s railways.

Network Rail made an operating profit of £455m in 2004/05, a turnaround from a loss of £710m in the previous year. The surplus will be recycled into improving the railways, not given to shareholders.

Value for shareholders was a major motivating factor for Railtrack. Value for money, service quality and safety motivate Network Rail, which has unpaid members in place of shareholders. They represent different interests in the railways, including passengers, workers and train operators. A majority are members of the public, appointed through an open process.

Sceptics suggested that members would not exert discipline over management without having a financial interest. That Railtrack’s shareholders failed to exert the right kind of discipline is a moot point.

The normal rules do not apply to monopoly public services. Network Rail is accountable to the Office of Rail Regulation, the government, its investors and its members.

There is still a long way to go. Train punctuality has not yet returned to pre-Hatfield standards and costs remain higher, although this is partly explained by the increased amount of work.

Progress has been slow with the West Coast upgrade, there have been problems with timetabling and Network Rail is at the early stages of developing longer-term plans.

Overall, however, ORR has commended ‘good progress… with reductions in delays and improvement in measures of asset stewardship exceeding regulatory targets’. It also praised the company for making ‘an encouraging start in its broader role following the rail review, for example in developing joint plans with individual train operators’.

The Railways Act 2005 abolishes the Strategic Rail Authority and strengthens the role of the government and of Network Rail.

In a report on the company published last week, the House of Commons’ Public Accounts Committee finds few grounds for criticism.

Four of its five key recommendations are directed at the government, in terms of its new strategic role and the way that Network Rail is funded and financed.

The only major recommendation for Network Rail itself is that it should develop long-term financial indicators to help judge whether it is meeting its performance objectives in a cost-effective way over time.

Just when the railways are beginning to come good, it is ironic that the architect of Network Rail should find himself in the dock. The only just outcome should be that Stephen Byers is exonerated.

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