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Outlook: Railtrack

JOHN PRESCOTT, the deputy prime minister, would much prefer it if the railways were back in state ownership, but given that this is unlikely to happen for the foreseeable future, he's opting for the next best thing. If the Government were to transfer the subsidies it pays to train operating companies (TOCs) for running uncommercial routes to Railtrack, then this would make Railtrack more beholden to the Government, and ministers might have more leverage in dictating to Railtrack where it invests its money.

Since Sir Alastair Morton, head of the still phantom Strategic Rail Authority, has long shared the view that the more appropriate use of subsidy is to pay it directly to the rail infrastructure company, then the switch stands some chance of happening.

The outgoing Rail Regulator, Chris Bolt, is expected to tell Mr Prescott formally this week that there is nothing to stop him making the change, even though he will have to wait until the expiry of existing operating franchises before doing so.

The attractions to Mr Prescott are obvious. In other respects, however, this would be a quite retrograde step, taking the railways back to the bad old days of British Rail, when they were run by the Government. The present system, whereby the subsidy is paid to the TOCs, who then pay a correspondingly high access charge to Railtrack, may have its drawbacks, but at least it is transparent and accountable. In the days of British Rail, no-one seemed to have any idea where the public subsidy was being spent - least of all ministers and managers.

Railtrack is openly hostile to the idea - again for the obvious reason that it will lead to increased Government meddling. Railtrack also believes it will deter City investors at a time when it needs all the support it can get to fund its pounds 27bn ten year investment programme.

This may be a trifle alarmist. The level of public subsidy in the railways is declining rapidly. By 2003/4, it will have fallen from the present level of pounds 1.5bn annually to little more than pounds 600m a year. It is open to question what degree of leverage such a small amount will give the Government, or indeed whether switching it from the TOCs to Railtrack, is really going to matter very much.

On one level, however, Railtrack is right to be concerned. The key issue for the railways right now is investment. Since the public sector is unprepared to provide it, Railtrack and the Government have to find some way of persuading the private sector to do the business instead. While so many regulatory issues remain up in the air, of which the debate over who should receive the subsidy is just one, there seems little chance of doing so. Indeed, shareholders might do well to instruct their board to cease all investment until they know precisely what it is they are dealing with.