‘buy-in’ from the Treasury was undermined by the disinterest of the new
‘Blairite’ Secretary of State.
Indecision: the railways
Railways policy under Blair has proved to be indecisive, ineffective and
very expensive. The costly debacle on the London Underground (see
below) came about because of a vague policy delegated to Prescott and
11 Ibid., p. 416.
12 Ibid., pp. 416, 633.
hijacked by the Treasury. The failure on the national railways came about
because of a disputed decision by Blair to do nothing. In opposition
the party had a clear policy: ‘a Labour government will make good its
commitment to a publicly owned and publicly accountable railway’.13
But Blair decided not to change the ownership or governance of the
railway. This was consistent with the 1997 manifesto to keep it ‘as we find
it, not as we wish it to be’. So nothing much happened, although there
was a propensity to draw attention to failings and for John Prescott to
promise ‘action’, including (unrealistically) ‘renegotiation’ of the train
operating contracts. The rapid growth in patronage which had started in
1994 continued.
Perceived failings in the structure of the railways did lead the government to announce an intention to create a new Strategic Rail Authority
(SRA) in the 1998 White Paper.14 Reform of the railways may have been
close to John Prescott’s heart, but it manifestly did not catch the Prime
Minister’s attention: the legislation proved to have great difficulty in
finding parliamentary time. It took two and a half years to reach the
statute book in the Transport Act 2000.
Of all the traumas experienced by the UK rail privatisation, the failure
of Railtrack in autumn 2001 attracted by far the greatest public attention,
although the privatised railway would have run into difficulty in any
case because of the severe financial problems experienced by the trainoperating companies (TOCs), unrealistic aspirations and inadequate
funding to meet them.15
There were two major rail accidents, one in 1997 at Southall in which
seven people were killed, and one in 1999 at Ladbroke Grove in which
thirty-one people were killed. The extent to which privatisation may have
been a factor remains controversial, but the general public laid the blame
at the door of ‘Tory privatisation’. In this they were encouraged by John
Prescott who started the criticisms on a visit to the Southall accident site
and initiated public inquiries rather than the normal ones by the Railway
Inspectorate. Members of the government promised that they would
discipline Railtrack, to force it to become absolutely safe whatever the
cost (even though the relevant powers were vested in the independent
13 Clare Short for the Opposition in SBC Warburg, Railtrack Share Offer, Prospectus, 1996.
14 Christopher Foster, British Government in Crisis (Oxford: Hart Publishing, 2005), gives an
important account of the deficiencies in policy and legislation concerning the Railways
Act 1993 and privatisation in 1996.
15 See Stephen Glaister, British Rail Privatisation – Competition Destroyed by Politics,
Occasional Paper 23 (Bath: Centre for Regulated Industries, 2005).
Rail Regulator and the independent safety regulators). Railtrack was
particularly heavily criticised in the press after the Ladbroke Grove
accident.
That was a crucial turning point: with sufficient leadership government could wisely have taken the line that this was now a private industry
and it was a matter for the independent safety and economic regulators
to sort out. This kind of approach was illustrated by Transport Secretary
Douglas Alexander in his simple factual reporting to the House of
Commons on the fatal Grayrigg (Cumbria) derailment in February
2007.16 There was no commentary and the matter was quickly forgotten.
The very public intervention by ministers after Ladbroke Grove greatly
heightened the general public’s perception – contradicted by the evidence – that privatisation had made the railways less safe.17
These factors became critical after another accident, at Hatfield in
October 2000, caused by the failure of a decaying rail. Four people were
killed. The rail in question had exhibited symptomatic cracks before
failure. Because of their Ladbroke Grove experience Railtrack feared the
response from the press and from government. Consequently, after
Hatfield, Railtrack all but closed the system. This destroyed the train
service and with it their own business and the businesses of the train
operators.
At about the same time it emerged that Railtrack had mismanaged the
major procurement for the refurbishment and upgrading of the West
Coast Main Line – a failure by a private company that has not often been
remarked on by New Labour, so keen to allege that the private sector is
more efficient than the public sector. Railtrack appealed direct to the
Treasury for several billion pounds to rescue it. The Treasury started to
make new grants – thus protecting Railtrack shareholders and lenders
from the consequences of their board’s errors.
Then, in October 2001, Stephen Byers invoked the provisions of the
Railways Act 1993 to put Railtrack into Railway Administration. He
appeared determined to take an opportunity to destroy the privatised
shareholder-ownership structure. Although there are allegations that this
move had been planned for some months, neither Byers, Brown nor Blair
had thought through what new arrangements for ownership and control
might look like. It was an option to encourage a conventional corporate
16 House of Commons, 26 February 2007.
17 See Andrew A. Evans, ‘Rail Safety and Rail Privatisation’, Significance, 4(1), March 2007:
15–18.
takeover of Railtrack and there were companies that showed an interest.
That would have kept the structure intact and avoided the damaging
hiatus that occurred.
If the Labour Party had seen this as a move to renationalise the railways, it was to be quickly disappointed. The Treasury was unwilling to
find the funds necessary to buy out surviving private interests. In addition Railtrack had considerable and rapidly increasing debt – approaching £20 billion at the time of Blair’s resignation – which had been
classified by the Office of National Statistics as private debt, in spite of a
formal financial indemnity provided by government, on the grounds that
the company was under private, not public, control. The Chancellor was
absolutely unwilling to countenance any move that would bring that debt
onto the public balance sheet.
Railtrack lingered in administration for about a year, at considerable
cost. Then government replaced it by Network Rail, a company limited
by guarantee. This is run by an executive accountable to about 120
‘members’, many chosen to represent public or private interests including train operators, railway employees and passengers. It was described as
/> ‘not for profit’, thus appearing to deal with the objection to the earning of
profit in a public utility – although ‘not for dividend’ would have been
less misleading. The company would be entirely financed by debt, supposed to be serviced out of profits.
There is considerable confusion about the governance of Network
Rail: ‘who is it accountable to and for what?’ Indeed, in order to satisfy the
crucial test that allows the debt to continue to be classified as private, off
the public balance sheet, it is necessary that the public sector not be in
control of the company – and yet government is guaranteeing the debt.
Arguably, the restructuring of Railtrack into Network Rail changed little
beyond obfuscating lines of accountability. The Parliamentary Transport
Select Committee described it as a ‘fudge’.18
The government was evidently dissatisfied with the new structure it
had created – not least because the Treasury was surprised by the size of
the liability they were faced with after the independent Rail Regulator’s
Extraordinary Review published in December 2003. Alistair Darling,
appointed Sectary of State in May 2002 on the resignation of Byers, instigated another policy review. He explicitly and publicly recognised that,
so long as anything like the current structure of the railway survives, his
18 House of Commons Transport Select Committee, The Future of the Railway, HC145
(London: TSO, 2004), para. 13.
predecessor’s attempts to weaken the position of the independent Rail
Regulator had been unwise.
In July 2004 the outcome was published as a White Paper, The Future of
Rail. The one major change proposed was that the Strategic Rail
Authority would be abolished and its functions transferred to the
Department for Transport. It is deeply ironic that this reversed the only
change that Labour made during the whole of its seven years in power.
The Railways Act 2005 divides the functions of the SRA between Network
Rail and the Department for Transport. Crucially, the Conservatives had
deliberately put the rail industry beyond the direct control of government, on the grounds that experience had shown that government interference had been damaging to the successful running of rail businesses.
Now, for the first time in history, high-level policy is the direct responsibility of a Whitehall spending department. By 2007 civil servants were
specifying and procuring new trains.
As Blair left office new procedures were being implemented under
the 2005 Act, beginning the attempt to address the new problems
presented by this slide from a system driven by commercial incentives
to one that amounts to a mammoth task of government administration. By July 2007 the Secretary of State for Transport and Scottish
ministers were required to publish a High-Level Output Statement
(HLOS) and a Statement of Funds Available (SoFA). In principle this
should remedy a problem that has bedevilled railways policy since the
1920s – that governments have been unwilling to discuss explicitly
what they want and how much they are prepared to spend. Although it
is not the place of the Office of Rail Regulation (ORR) to comment
on the HLOS and SoFA, it will adjudicate on whether the money on
offer is adequate to fulfil the expectations and, if necessary, negotiate a
reconciliation.
This process had to mesh in some Byzantine way with two other
related exercises. The ORR had started the normal process of consultation for the October 2008 Periodic Review of Network Rail’s charges for
the Control Period from 2009. And government as a whole was deeply
emerged in the overall Spending Review 2007.
At the highest level of national policy Blair left the railways in a
strangely ambiguous position. There was almost no money in current
budgets for capacity enhancements – as distinct from maintenance and
renewals. The government was in the throes of a particularly ‘difficult’
spending review, with pressures on overall spending opposing politically
powerful demands from the health, education and defence sectors, so it
seemed unlikely that the HLOS and SoFA process would produce new
state funds for the railway.
In an interesting new development in governance, on 10 May 2006 the
Prime Minister wrote a public letter to the incoming Secretary of State for
Transport19 setting out what was required of him. Once the platitudes
have been discarded the letter is quite short and pithy. It contains a good
diagnosis of the reasons for the anticipated growth in demand for roads
and railways. But crucially this short letter has two separate mentions of
the current constraints on public expenditure. There was an important
steer here that the Secretary of State should not expect to be able to solve
his problems with large quantities of new Treasury resources.
In any case, the railway was already costing the taxpayer over £4.5
billion per annum, relatively few people outside London use the railways,
and it is hard to point to objective, quantitative evidence in justification.
It is hard to relate railway subsidy to delivery against stated or implicit
government policy objectives – such as assistance to the disadvantaged or
reduction of greenhouse gas emissions where rail loadings are low.
Blair v. Brown; devolution v. centralisation.
The PPP for the London Underground
The story of the Underground Public Private Partnership (PPP) illustrates several aspects of Blair’s administrations: the consequences of delegating without a coherent overall policy; the consequence of blind
reliance on advice from management consultants, lawyers and business
people if they are imperfectly briefed on the subtleties of public policy;
the consequences of allowing policy to develop which is not supported by
the evidence; the dominance of Blair, and particularly Brown, over
Prescott; and a philosophical disagreement between Blair and Brown
over the wisdom and feasibility of the devolution of powers to local
authorities.
The PPP for the London Underground deserves attention in its own
right because of its size. It is far bigger than any other PFI or PPP deal.
At the time it was conceived it was bigger than all those others put
together. Announced in 1998 and completed five years later, the Blair
administrations forced it through in the face of several sceptical assessments by the House of Commons Transport Select Committee, one from
the Treasury Select Committee, one from the National Audit Office (plus
19 www.pm.gov.uk/output/Page9455.asp.
two post-completion), scepticism at the Standing Committee on the Bill
and a steady stream of critical assessments from the serious press and
independent commentators.
Back in 1997 there was a wide measure of agreement about the
problem to be solved.20 The London Underground was crowded and
unreliable. Between £1,000 million and £2,000 million was needed to
make good past failures and to adequately maintain and renew the
physical assets. New rail capacity was needed.
It was taken for granted that sorting out the Underground would be
delegated to John Prescott. But when he proposed an immediate straightforward capital grant the Treasury flatly refused. Apart from the limitations due to the policy of sticking to the previous administration’s
spending plans for two years, the Treasury was determined to secure the
same kind of managerial efficiency improvements they perceived as
having been achieved under the Conservative administrations by the privatisation of the railways and the other utilities. This left Prescott in an
impossible position and, arguably, he never retrieved control of policy on
the Underground from the Treasury.
At this point Whitehall as a whole was at a loss to know what to do. The
Treasury has steadfastly denied in public that the Chancellor and his ministers ever did anything other than give advice and support to the responsible department. But Geoffrey Robinson, who had been the Treasury’s
Paymaster General, helpfully revealed in a Commons debate the
Treasury’s lead in what happened next:
We could skin a cat in so many ways, and when it came to public–private
partnerships – which were quite innovative – there were many different
options available. No. 10 had its view; the advisers to No. 10 had their view;
the then Department of Transport, Local Government and the Regions
had its view; I had a view; the Treasury had a view; and the Deputy Prime
Minister had very strong views. We had to find a way that we could all see
would carry this forward . . . I convened a group of four business men with
experience of both the public and private sectors to make a recommendation to us. Essentially, that recommendation is what we have today.21
The Evening Standard revealed that Robinson had said later that the businessmen were chosen because they had experience of major privatisations: ‘they were, therefore, the very best people to advise the Government
20 See Stephen Glaister and Tony Travers, Governing the Underground: Funding, Management
and Democracy for London’s Tube (Bath: Centre for Regulated Industries, 1997).
21 House of Commons debate, 27 June 2002.
on what would work’.22 They were chaired by Sir Malcolm Bates who had
been the author of two reports to the Treasury about how best to develop
BLAIR’S BRITAIN, 1997–2007 Page 41