UK: Breaking BR's finance buffer - BRITISH RAIL.

UK: Breaking BR's finance buffer - BRITISH RAIL. - Eurotunnel's Morton may be the man to ask about the right way ahead.

by Roger Eglin, managing editor of The Sunday Times.
Last Updated: 31 Aug 2010

Eurotunnel's Morton may be the man to ask about the right way ahead.

In the run-up to the election, Conservative ministers are said to have been anxious that frustrated commuters would blame them rather than the management of British Rail for the poor quality of services. Every effort, it is said, was to be made to divert the blame from Westminster to the Euston boardroom of BR.

The most gullible of rail travellers would find this version implausible. The chairman of BR, Sir Bob Reid, is the Government's own recent appointment, chosen for his demonstrable skills as a top executive in the private sector. And after its lengthy tenure in office, the Government inevitably has to shoulder some of the blame, if not most of it. "The Government is not doing anything," says one insider. "BR is just trying to stay alive. When they try and push a project the Treasury knock it off something else they have. The investment is just providing for survival. There is no sense of the need to invest in infrastructure."

Now once again BR is fighting for investment funds. Reid has told John MacGregor, the transport minister, that unless he gets an extra £7 billion over the next five years, BR will have to declare a five-year moratorium on new rolling stock orders; Kent commuters will not get new Networker coaches and will be left fuming in clapped-out old carriages; and the west coast will have to make do without the new InterCity 250 trains. Though some track and signalling improvements would go ahead, the London-Manchester-Glasgow route would not be modernised to allow the new trains to run as fast as they could. The problem arises because the money has to come from public borrowing - which the Treasury is trying to keep down. After a successful deal leasing freight wagons for the Channel Tunnel, Reid has asked permission to lease new stock. But because there is no second-hand market which would eventually recoup some of the financing, the Treasury says leasing would still amount to borrowing.

The answer to railway financing problems, as the Government has recognised, is privatisation. In his short spell as transport minister, Malcolm Rifkind seemed set on a big bang approach to rail privatisation. Selling the whole unwieldy, loss-making colossus has never really been on. Instead Rifkind wanted to dispose of InterCity, the most promising element. This would have lifted part of the burden off the public sector borrowing requirement but would have achieved little else.

What might best be described as the nostalgia special, said to be favoured by John Major and others weaned on legendary railway names such as the Great Western and London and North Eastern, exhibited similar defects. The yearning to recapture the great traditions overlooks the fact that the regional railway companies were never very profitable before nationalisation. Nor would splitting up InterCity to create new regional companies help profitability: its routes and profitability would be fragmented without the regional companies getting a viable share of InterCity business. With the election over, a compromise based on the Department of Transport's own privatisation thinking has become the chosen route. BR is to be separated into two bodies: a BR track authority and another operating the services. BR is to work out a charging system for the use of tracks. Then the way would be open for the private sector. The freight and parcels businesses would be sold off separately. Subsidies would continue for loss-making but socially necessary services.

Before the new policy was in place, Stagecoach, the Perth-based coach operator founded by Ann Gloag, set the pace with its Aberdeen-London rail service. Richard Branson's Virgin Group is another interested company. Thirty more are said to be talking to Roger Freeman, the rail privatisation minister. BR still seems confident that it will be a long time before the private sector takes over the bulk of its role and few expect these plans to start a privatisation rush.

It is hard to see this gradual privatisation solving the financing problems of the railways. There is a vast gap to be bridged between a Stagecoach hitching a couple of carriages onto a BR Aberdeen-London service and Sir Bob Reid's £7-billion shopping list. Yet the money will have to be found. Forecasts of traffic growth suggest roads alone cannot cope and that railways will have an expanding role carrying freight and passengers.

Eurotunnel's Sir Alastair Morton believes the Government has to urge the Treasury to adopt more creative financing strategies that use public sector finance as the seed corn to attract private money. More radically he is proposing new taxes earmarked for infrastructure investment based on the principle that "polluters" - car users for example - pay. "I am sure it would cause apoplexy at the Treasury," he says. "But I am trying to create a public purse contribution to the infrastructure as opposed to the Treasury's reluctant diversion of funds from elsewhere. There is no sense of needing to invest in infrastructure for survival." No one in Britain can match Morton's experience of funding infrastructure construction with private cash. Perhaps it's time to draw on his knowledge?

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