Rail Investment for the West Midlands
March 2002 Click here to view my letter to Richard Bowker, Chairman of the Strategic Rail Authority regarding my concerns about inadequate investment for the West Midlands.
Topical Issue, week ending 18 January 2002:
The State of Our Railways
In my view, the state of our beleaguered rail network is due to a long-term failure to invest public money culminating in disastrous privatisation (at a fraction of the commercial value of the assets). I was, therefore, pleased when the Government took some decisive action and announced that Railtrack would be replaced by a not-for-profit company as a result of the company’s insolvency. I would have preferred it if the Government had taken action to renationalise the rail network when Labour first came into power in 1997 and I have had lengthy correspondence with Ministers on this issue. As I will explain later, I still feel that renationalisation as an arms-length public company is the only practical way forward.
Since privatisation, the rail industry has been heavily subsidised. A large proportion of Railtrack’s revenues came indirectly from the Government which has provided the train operating companies with the subsidies that allow them to pay track access charges to Railtrack. In my view, it could have been foreseen that an unaccountable, fragmented industry that would continue to need large public subsidies would run into problems. In the end, the Government could not justify additional public money for Railtrack, on top of the substantial package of financial assistance agreed in April 2001. Action had to be taken in the interests of the travelling public and the taxpayer.
As to the current position, this is far from satisfactory due to the unwillingness of the Government to recognise that only a massive increase in public investment can deliver a high quality rail network. On 14 January, the Strategic Rail Authority announced its plan for the rail network. Over the next 10 years, the Plan includes overall investment in the network, totalling £56.5bn. The Plan states that £23bn of this is expected to come from private financiers. Whilst I have no objection, in principle, to the use of capital raised on the open market, I do have concerns about the ability of the proposed non-profit making company to raise this amount without Government guarantees. Even if the money can be raised, without Government backing, the cost of servicing commercial debt will be prohibitive. This is because the financial institutions will charge a premium for the alleged transfer of risk, even though, in reality, for an essential public service the Government must ultimately step in. To go ahead on this basis would be self-defeating as the extra cost of servicing the debt could only be met in two ways - by raising fares or additional Government subsidy. The former is not the way to get people out of their cars onto the trains and rather than take the latter route, it would make more sense to use cheaper Government borrowing in the first place rather than pay through the nose to private financiers for taking on a risk that they do not, in reality, carry.
I am aware of the argument recently put forward by Steve Marshall, Chief Executive of Railtrack that the Government should give compensation to its shareholders in order to encourage private investors to put money into the rail network. I am not at all convinced by this position. The Government is not responsible for bailing out failed companies and it is ridiculous to suggest that the Government should forego this principle in order to encourage other private shareholders to invest in the network, at a higher cost to the public purse than straightforward public investment.
My other major concern about the SRA Plan is that it does not include adequate proposals for major cities other than London. I am writing to the local passenger transport executive, Centro on the local implications of the 10 year Plan. Once I have further information, I will take up any concerns with ministers or through parliamentary action.
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