Forget the £300m which is being used to compensate Railtrack shareholders and which has caused such a political furore. The really big number in yesterday's announcement on the replacement of Railtrack with Network Rail is the £9bn that the new company is borrowing in order to take over the nation's rail infrastructure.
Sure, Stephen Byers, the Secretary of State for Transport, was a bit silly in playing to the gallery by saying there would be no government money for Railtrack shareholders. But coughing up £300m is worth it for several reasons. First, it gets the shareholders, who had a pretty strong legal case prepared, off his back. Second, there is some truth in the government line that getting Railtrack out of administration early will save the industry a lot of money and improve its performance, to the benefit of passengers.
Moving Railtrack out of administration was vital. It would have been disastrous for Railtrack to have meandered on in a state of limbo for another year with no real prospect of any serious bidders other than the Government's own favoured option, the company limited by guarantee now revealed as Network Rail. The whole paraphernalia of data rooms, due diligence and the bid process would have taken an extra year, during which time the railways would have been in a state of limbo. The £300m was the essential catalyst to transform Railtrack into Network Rail.
No, it is the £9bn that is more interesting. That is being raised as a bridging loan from the banks but in reality it is underpinned by the Government.
It was hilarious watching Network Rail's deputy chairman, Adrian Montague, trying to explain to the assembled City press why having a "support package" from the Strategic Rail Authority was not the same as having a government guarantee. It is a matter of silly semantics.
However, a Treasury source gave the game away: "The railways are back on the taxpayers' risk." In other words, they – or rather the part concerned with maintenance, operations and renewal of the infrastructure – have in effect been renationalised.
If it weren't for the political embarrassment of this move by a government bent on further privatisation, and the silly Treasury rules, ministers could simply get up at the dispatch box and boast about it. Most of the money will be used to repay Railtrack's debt, now estimated at £6.5bn, and once properly constituted, Network Rail will have to borrow even more in order to fund the investment which the railways so desperately need. The key point here is that Network Rail will raise the money on the basis of a promise of lots of money ("securitised") in future years from the Treasury.
In other words, this is great news for the railways which appear to have secure funding for years to come, though the fine print of the eventual deal will need watching.
Therefore, despite all the mistakes such as not properly preparing the exit strategy when the Government moved in on Railtrack in October last year and the unwise statements made by Mr Byers about shareholders, it is now heading in the right direction. The path has not been straight – especially in the case of Mr Byers – but the destination is the right one.
But there is a long way to go. Getting rid of the ridiculous idea of having a profit-maximising infrastructure company at the heart of a railway is a good start, but then the other problem – the fragmentation of the industry which separated the wheel-rail interface – needs to be addressed.
Christian Wolmar's book 'Broken Rails, how privatisation wrecked Britain's railways', was published late last year by Aurum Press.