City: Rail sell-off could still be on track

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Privatisations have their periods of crisis and doubt, times at which political and public resistance reaches such a pitch that it begins to look as if the Government will have to abandon the programme altogether. With the necessary legislation yet to receive Royal Assent, rail privatisation has arrived at just such a point. I cannot recall a privatisation plan (unless it be coal) so universally criticised and ridiculed; although rail, as much as any of the nationalised industries inherited by the Tories at the end of the 1970s, seems to cry out for a heavy injection of private sector management.

To listen to the present kerfuffle, anyone would think that BR was a model of business efficiency and customer- friendly service. Never mind the constant delays and cancellations, excessive fares, overmanning, cold smelly carriages and cold smelly waiting rooms; the general view seems to be that compared with what the Government has in store for the railways this is a veritable paradise.

Even in the City, with its army of angry rail commuters and generally pro-privatisation views, there is widespread scepticism. This is a privatisation too far, many are saying. Nicholas Ridley, one of the more gung-ho exponents of the 'privatise anything that moves' philosophy, came out strongly against it shortly before his death, and even Margaret Thatcher - who hasn't been near a train in more than 10 years - was deeply suspicious of the idea.

British Rail is today no less deeply hated an organisation than ever. For most people, however, the blame for this sorry state of affairs is seen to lie largely with the Government, which is condemned for persistent under-investment in the railways and for allowing poor management to flourish.

No doubt there's a large element of truth in this analysis, but whether that justifies the present outpouring of rage over privatisation is another matter. The civil servant who presides over it is Patrick Brown, Permanent Secretary at the Department of Transport. He is one of a new breed of public servants who made their names out of privatisation, having personally dealt with three of the most difficult ones - buses, ports and water. In each case, a debate took place very similar to the present one on rail. What's the point of it all, people said. Where's the benefit? It won't work, and the whole thing will end in chaos, tears and an even worse deal for the consumer.

But in each case the perceived problems were addressed and the programme kept on course - though, as with rail, policy seemed often to be made up as they went along. With water, even Schroders, the Government's City adviser, confidentially warned ministers at one stage that the problems were intractable; there was a real danger, Schroders said, that investors would boycott the flotations. That was not the sort of advice Mr Brown takes kindly to, especially when it comes from such highly paid mercenaries. He's from the 'find a solution and make it work' school of privatisation practitioner. Schroders was told to find a way of overcoming the difficulties, and eventually it did. If anyone can make rail privatisation stay on track, Mr Brown can; if rail follows the pattern of other state sell-offs, the atmosphere of deep hostility that tends to characterise the process up to the stage of Royal Assent will soon begin to abate. Trench warfare will give way to resigned acceptance.

Even Mr Brown would probably admit privately, however, that rail is possibly the most difficult and radical privatisation yet attempted. The differences are fundamental. To describe this as a privatisation at all is a little misleading. British Rail as a whole doesn't make any money nor is it likely to; some parts of the service have to be heavily subsidised. Unlike most previous privatisation candidates, rail is a drag on the public purse, not a contributor to it. The result is that, in most cases, the private sector is going to have to be paid by the Government to run the lines. There's no immediate benefit in it for the taxpayer; no money is raised; and, if anything, the overall level of public subsidy to BR will have to rise in the short term to guarantee private operators a profit.

No, this is not a privatisation in the conventional sense of the word. It's much more akin to the Government's reform of the National Health Service than a traditional sell-off - a way of introducing private sector management skills and disciplines. But while it looks complex, the idea is actually remarkably simple. BR will in effect be demerged into a series of different businesses, which will be franchised to private sector operators. That will create transparency within the railways for the first time.

The railway system will be transformed from the present nationalised monolith with its outmoded working practices and cross-subsidies into one where ordinary business decisions become possible. As private sector cost cuts and efficiencies begin to bite, the Government should also be able progressively to cut the size of the public subsidy to each franchisee.

This may well not be the best way to pursue an integrated transport policy, where the Government weighs the public interest in the balance in deciding spending priorities between road, rail and air. But as far as running BR as it presently stands is concerned, it can hardly be any worse than the present system; more than likely it will be a good sight better, eventually delivering a higher quality service at a lower overall cost. Nor is the present lack of interest from the private sector in becoming franchisees much to worry about. Once the ground rules are established, the present trickle of inquiries will turn into a flood; the Government will make sure of it by making the terms as attractive as necessary. I could be wrong, but I've a sneaking suspicion the Government is about to turn the corner on rail privatisation, as it has done on all its privatisations to date.