Leading Article: Beware of foolish pledges, Mr Blair

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Labour is having a tough time over the railways. Having consistently opposed the privatisation of Railtrack, Labour leaders have repeatedly prevaricated over whether a future government would buy it back. But as the sale of the nation's tracks and signals looms ever closer, the pressure is on for Labour to make its intentions clear.

By failing to promise to renationalise the railway lines, Labour appears to be having it both ways. But in fact Labour is right not make a definite commitment to buy back Railtrack, even though the privatisation is a grave mistake. The fact is that the sell-off will go ahead this spring, and once the dastardly deed is done it may not be worth a future Labour government reversing it.

Selling off the odd goblet from the family silver in countless other cases has proved a very sensible thing to do. This paper has supported privatisation wherever industries can benefit from the disciplines of competition, the rigours of private sector management, access to private capital and the pressures from shareholders. But Railtrack, long tucked away at the back of the cupboard, is a silver salver too far.

The usual arguments in favour of private ownership do not apply this time. For a start, the rail network is a national monopoly with no prospect of direct competition. So there will be no efficiency gains through competing for the custom of train operators. Second, many of the advantages of private sector management can easily be achieved under public ownership. Railtrack already contracts out much of the engineering and maintenance work to private firms.

The pursuit of profit could provide the incentive for additional managerial improvements - but at a cost. Running a public transport network in the interests of shareholders may lead to commercial gains, but at the expense of other important objectives, including sustaining local communities and limiting the use of cars. Shareholders cannot guarantee to make the best investment decisions either. New rail projects could be ditched because they do not generate a short-term profit despite the long-term returns and social benefits.

For all these reasons, Labour has been right to oppose a Railtrack privatisation motivated by the Government's dash for cash for tax cuts before an election. But once the sell-off has happened, renationalisation would face serious obstacles.

The first, inevitably, is cash. Buying back just 51 per cent of the shares in Railtrack would cost at least pounds 1bn, probably much more. A new Labour government would be under heavy pressure to spend the money elsewhere. In theory it may be a very sensible decision to borrow today for an asset that will bring you a return for a long time in the future. But as far as the Treasury, the City and the general public are concerned, Labour will just be spending money that would be more usefully directed elsewhere. Borrowing for capital investment is treated in the same way in the government accounts as borrowing for current expenditure on unemployment benefits, cutting class sizes, or paying for more intensive care beds.

Even if the money was available to buy Railtrack back, the new government would need to be sure that it had found a way round the equally crippling short- termism in the public sector. Everyone knows that British Rail was starved of investment long before privatisation ever appeared on the agenda. Until Labour develops a mechanism to protect cost-effective, long- term investment from short-term, political pressures to divert money elsewhere it should not even dream of renationalising Railtrack. Given all these difficulties, a new Labour government would be wise to look at how it would regulate Railtrack in the public interest rather than attempting to renationalise it.

Labour might scupper the sale by promising to renationalise. But that commitment would open it up to ferocious negative campaigning from the Conservatives over a large spending commitment. Most likely Labour will be left in the intellectually uncomfortable position of rightly arguing against privatisation but refusing to renationalise. That may seem like expediency but it makes good sense for the party to examine its other priorities, and regulatory options for exerting public control. Privatisation does not make much sense, but public ownership has hardly been an unalloyed success. What matters for the the success of the rail network is creating the right mixture of regulatory controls and incentives to encourage modernisation and investment, regardless of whether it is in the public or private sector.