Whether the timing was deliberate or otherwise, Stephen Byers, the Secretary of State for Transport, has good reason to be grateful for the smoke and noise of the Afghan war, for it has provided him with the perfect smokescreen for a truly disgraceful piece of Old Labour, industrial theft.
His decision to put Railtrack into "Railway Administration" is not only shoddy, as Steve Marshall, the company's chief executive described it yesterday, it also appears born more out of spite than any real real sense of vision for our poor, downtrodden rail industry. It won't make a blind bit of difference to the future of the railways whether they continue to be run by Railtrack, or Mr Byers' "not for profit trust". The same muddle and confusion looks set to persist regardless. But by leaving Railtrack investors high and dry, the decision will seriously damage the Government's standing both in the capital markets and with the private sector more generally. For that there will be a price.
Fortunately for ministers, there's nothing of the family silver left for them to privatise, so they seem to take the view that it doesn't much matter if they alienate the City. But there are the Government's plans for public private partnership, including the London Tube. Any goodwill there was left for this attempt to get the private sector to put up the money for public sector capital projects has just been destroyed. How the Government can wind up Railtrack on the one hand while pushing ahead with its plans to place the infrastructure of the London Underground with two private sector consortia on the other is one of the deeper mysteries of this whole affair. Perhaps unsurprisingly, Mr Byers has so far failed to address the issue.
OK, OK. So Railtrack is a shambles and a mess and it is not really the Government's fault. Labour ministers have arguably made matters worse with their meddling since privatisation, but they are not the root cause of the breakdown.
For that you need to go back to 1996 and beyond. Privatisation of rail was the last gasp of the dying John Major administration, and somewhat typical of the former prime minister's resigned, hangdog approach to government more generally. His predecessor, Margaret Thatcher, would probably never have attempted to drive through such a deeply unpopular policy. It was Mr Major's mistake that he saw privatisation as a way of finally exorcising the cost of the railways from the public sector budget. Sadly, that has not turned out to be true, nor was it ever likely to.
Even today, the Railtrack prospectus makes for intensely depressing reading, referring as it does to the industry's lack of growth prospects and generally unexciting outlook. In a country which desperately needed a new approach to transport in general and the railways in particular, privatisation seemed more about managing decline than anything else.
The sponsors even felt obliged to include a four-page statement from Clare Short, then shadow transport secretary, spelling out the government-in-waiting's attitude to the sale. It was a deeply negative one, spelling out in terms the Labour Party's determination to re-establish public control and ownership of the railway. "Potential investors in Railtrack should be aware," Ms Short said, "that a future Labour government will pursue its public interest objectives for the railway by the use of existing mechanisms in the regulatory and contractual arrangements which presently apply to Railtrack".
And there on page 83 of the prospectus is the mechanism eventually chosen: "The Railways Act contains provisions enabling the Secretary of State ... to make a railway administration order ... where the court is satisfied that the company is or is likely to be unable to pay its debts as they fall due or where the Secretary of State has certified that it would be appropriate for him to petition for the winding-up of the company under section 124A of the Insolvency Act 1986 and the court is satisfied that it would be just and equitable for the company to be wound up".
Investors cannot claim they were not warned. The failure of rail privatisation is not something that needs to be qualified with the normal rider – benefit of hindsight. Even at the time, the structure seemed excessively complicated, it was shot through with regulatory and political risk, and it was a form of ownership and financing wholly inappropriate for the very rapid growth in rail traffic and passenger numbers which then ensued. The rail calamities of Paddington and Hatfield were the tragic culmination of this failure in public policy.
All this may help excuse what the Government is now doing. Certainly, it plays to the mob in a way that another dollop of cash to a privately owned Railtrack could never have hoped to. But in the end the Government's popularism makes a poor substitute for clearly thought out policy, and back-door renationalisation without compensation, which is essentially what this amounts to, is not the way to go. The final straw for Mr Byers was said to be Railtrack's decision to push ahead with payment of a £120m dividend earlier this year, while continuing to come cap in hand to the Government for state aid. The taxpayer was being made to fund City greed, we are invited to think.
What nonsense. Only governments could believe it possible to raise capital without having to pay for it, for they do it all the time through the tax system. In the private sector, capital carries a cost, and for the Government to turn round and renege on the shareholders who owned Railtrack is a deeply suspect breach of contract as well as a disgraceful turn of events for an advanced capitalist economy like our own.
The Labour Party was filled with dire warnings over what it might do to Railtrack ahead of the 1996 election, but after winning, it declared its intention to work with a reformed version of the present system and just recently it has repeatedly insisted that there would be no attempt to renationalise Railtrack or take it back into any form of public ownership. Technically, the structure proposed – a not-for-profit trust – is not public ownership but with Mr Byers now unambiguously in control of both the points and the purse strings, it might as well be.
The company was insolvent, protests Mr Byers. Without more Government money, Railtrack couldn't have continued operating. Again, the mob would agree, but the truth is that this is no more than an excuse for an arbitrary act of confiscation. All railways in Europe are subsidised, and Railtrack is no exception. Originally the subsidies were paid to the Train Operating Companies and then indirectly to Railtrack through access charges. Increasingly under Labour they have been paid directly, but either way the assumption of continued government support was one investors were entitled to make. Until this weekend the Government certainly gave them no reason to doubt it.
The treatment of Railtrack's shareholders is an outrage, but sadly it is by no means unprecedented. In the early 1970s Rolls Royce Aeroengines, then a profitable company, was nationalised without compensation after failing to raise the capital for the RB211 airliner engine. Shareholders took action, but it was eight years before they got a payback, and even then it was only a fraction of what their shares had once been worth. The capital markets are being forced to learn the hard way that it doesn't pay to trust the government.Reuse content