Creating a not-for-profit network operator for Britain’s railways in place of Railtrack combines the best of the private and public sectors: a company run with commercial discipline, but for the public good and not compromised by the interests of shareholders.
Instead of shareholders, it will have members who, as passengers, trade unionists, taxpayers, train operators and others, have an interest in the railways but receive no payment. They will have a vital role in electing directors, holding them to account for the performance of the company and voting on their remuneration. In addition to government grants, the company will be able to raise its own money for investment. Any profits will be reinvested in the network.
There are parallels with Welsh Water, a regulated utility providing water and sewerage services, which was recently acquired by Glas Cymru, a not-for-profit company. Glas has about 50 members nominated by an independent panel, representing Welsh society. Directors’ pay is set at a high enough level to attract people of high calibre and bonuses are linked to service delivery and financial performance. Glas is financed by bonds, which are a cheaper way to raise money than shares. Customers’ bills will in future be up to ten percent lower as a result.
The tragic rail crash at Hatfield in October 2000 exposed fundamental flaws in Railtrack’s stewardship of the rail network. Its immediate cause was a shattered rail on a stretch of track that Railtrack knew was in need of repair. But Railtrack did not know whether the defect was replicated elsewhere, so imposed hundreds of speed restrictions across the network, with catastrophic consequences for passengers and the industry.
As a starting point, the new network operator must establish the condition of the network, including track and signals, as required by the rail regulator. Railtrack’s management of maintenance and renewal contracts has been abysmal. There should be fewer, longer-term contracts based on zones of operation, of which Railtrack currently has seven. Passenger and freight train operating companies should be represented on zone management boards, so that their concerns are heard.
Railtrack’s management of major projects has been equally bad, not least the upgrading of the West Coast main line, the costs of which have escalated from an initial estimate of £2.3 billion to more than £7 billion. In future, major projects will be separately financed as public-private partnerships and subject to competitive procurement. The second part of the Channel Tunnel Rail Link from Kent into London St. Pancras provides a model. It will be built by London and Continental Railways with Bechtel and operated as part of the national network on completion.
Regulation of Britain’s railways is divided between the Strategic Rail Authority as the regulator of passenger services, the Office of the Rail Regulator as regulator of Railtrack and the Health and Safety Executive as safety regulator. There are synergies between these functions, which should be combined into a single regulator for franchise, safety and network regulation. Part of the role of the ORR is to act as an independent economic regulator, setting track access charges at a level that enables the network operator to cover its costs but is also fair to the train operators. The new regulator will set both the track access charges and the level of subsidy to the train operators, which should therefore have the right to appeal to an independent body, for example the Competition Commission.
Plans to replace the current short-term passenger franchises with fewer, longer-term franchises, halted by Hatfield, should be reinstated. New franchises should include commitments to investment, higher standards of service and profit sharing. There will need to be a review of the ten-year spending plan, with higher and sustained levels of public investment required to achieve the ten-year plan targets of 50 percent passenger growth and 80 percent freight growth. In spite of the short-term difficulties, Britain’s railways have a bright future. Tony Grayling is a Senior Research Fellow at the Institute for Public Policy Research and author of Getting Back on Track