UK: PRIVATISATION GOES OFF THE RAILS - BR. - Roger Eglin reports on the progress of the unpopular policy of tearing BR apart.

Last Updated: 31 Aug 2010

Roger Eglin reports on the progress of the unpopular policy of tearing BR apart.

As consumers reap the benefits of privatisation from more efficient public utilities, it is easy to forget the battles that punctuated progress towards the early privatisations as unions, managers and left-wing politicians fought their various corners. BT and BAA both won the struggle to remain intact. Electricity lost and was split up while the sale of the nuclear power industry was pulled at the last moment. But however tough these confrontations were, none of them matches the slugging match rail privatisation has become.

The Government has taken a drubbing from the Lords over whether BR should be allowed to bid for franchises. The unions are hostile, which is predictable, but more worrying for ministers is the evident lack of enthusiasm among their own back-benchers. It is not for nothing that the Guardian has asked why the Government is pursuing a policy which is 'unpopular with the public, distrusted by MPs, unattractive to potential purchasers and which, on all the accumulated evidence, will make the service offered by the railways more expensive and less good than it is now?'

Any politician who valued his hide would get out now. Even a more commercially run railway will still have its shortcomings and the Govermment's privatisation policy, guilty or not, will inevitably get the blame. Faced with all this, only the most thick-skinned of ministers would plod on, hoping that somehow the storm would abate.

Yet here is an enterprise, subsidised by around £1 billion, with its customers falling in number. Even those who stay on board are becoming ever more critical. But if the Guardian is correct, rather than seeing salvation in privatisation, most of the public say hands off and let the train continue its rickety journey. No doubt the more confused dogmatists do believe this but the majority, one suspects, simply doubt whether this privatisation will do much to improve things.

Successful privatisations have two ingredients. First, the power of the politicians to meddle in the decision-making of management is ended in one clean cut. Second, there will have been some effort to fatten up the privatisation candidate with increased investment unless it is clear that it is a well run enterprise which can generate sufficient investment funds. The outstanding example of this is BT. It would have been impossible to sell without the massive investment in the telephone network that had taken place.

Rail privatisation meets neither of these criteria. At worst it threatens a bureaucratic nightmare. Franchise holders will find themselves caught up in a complex web spun by Railtrack, the regulator and the franchising director, with the Government remaining an active participant. Railtrack for the short term (and some feel this could prove to be a protracted short term ) will remain in the public sector earning a defined rate of return on capital and recovering most of its costs through users. The transport secretary will have the power to make capital grants to Railtrack.

But what assurance is there that Railtrack will be any more efficient at providing the infrastructure than BR is now? And what happens, ask LSE economists Stephen Glaister and Tony Travers, in their analytical study, New Directions for British Railways, if it turns out that in recent years investment has been insufficient to maintain the state of the track.

Yet the Government has stated that it will cut its contribution to railway financing. Uncertainty over government financing policies will continue to undermine the railway system as it has in the past. As long as Railtrack is publicly-owned this risk will remain.

Though John MacGregor, the transport secretary, told parliament that it was his intention that Railtrack should act as 'a truly independent, commercially driven body' the study's authors point out that if the Government is not happy with the activities of the franchising authority or Railtrack, there will be opportunities for intervention. They point out also that as long as the franchising director and Railtrack work within financing limits set by the Government, the discretionary funding of the whole railway will remain within a system controlled by the Treasury's year-to-year funding decisions.

In focusing on issues like the availability of rail cards and through-ticketing between franchises, some critics are overlooking this flaw in the Government's plan: how will this pseudo-privatisation produce the managerial and financial independence that has been so central to the success of the earlier privatisations?

There are some benefits to be gained from what is happening. More will become known about the costs and subsidies involved in running particular routes, making for a more informed debate about the size and future of the railways. But it is going to be difficult to convince the critics that there are not easier ways of achieving this than tearing the whole structure apart. And how many bidders will be brave enough to seek a ticket for this mystery tour?

Roger Eglin is associate business editor of the Sunday Times.

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