Leading Article: John MacGregor's bran tub

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THE Government's proposals for the future of British Rail are neither intellectually elegant nor administratively coherent. They reflect the difficulties the Department of Transport would face if it attempted the comprehensive privatisation of a very large, loss-making enterprise demanding heavy capital investment, without authorising price increases and/or the slashing of services, both of which would be politically unacceptable. Post-Thatcher, the Government has also come to recognise that much of the network will, in the real world, need subsidy far into the future, but that carefully targeted subventions can as logically be paid to commercial providers as to nationalised industries.

To render unprofitable services marketable, the Government will set, in advance, the level of subsidy (if any) that it intends to pay for a particular franchise, leaving the bidders to compete on the quality and frequency of service. This is a far better solution than the alternative: asking potential franchisees to bid down the subsidy. What is still lacking, however, is any recognition that the railways have to fund their own infrastructure, while roads are provided to users free of charge at the point of use.

Central to the Government's proposals is the division of BR into two. Railtrack will operate all track and infrastructure for the foreseeable future. The other part will be a residual operating company, running passenger services until they are all, eventually, franchised to the private sector by an independent Franchising Authority. John MacGregor, the Secretary of State for Transport, is making a virtue out of the fact that the Franchising Authority will be market driven. Its priorities, the geographical scope of franchises, the functions to be carried out, and the number of years for which particular franchises will run, are to be decided, case by case, in response to the interest shown by the private sector.

Mr MacGregor envisages that the success of this operation will be heavily dependent on the quality of the Franchising Authority and of the Regulator, whose task it will be not merely to promote competition and prevent the abuse of monopoly power, but to act as consumer ombudsman and as technical referee on matters of track access and charging. These are monumental tasks. Merely to define and then contract out 30 or 40 packages comprising routes, minimum services and quality standards will be a fiendishly complicated exercise. It will certainly be far harder than the parcelling out of commercial television franchises - and that was widely held to have been a mess.

The fact that yesterday's White Paper, New Opportunities for the Railways, is something of a bran tub may prove no bad thing. The most elegant and ideologically pure solution is often the most disruptive and least effective. The pragmatic approach to privatisation adopted by Mr MacGregor could provide the flexibility necessary to muddle through to success. It is, without doubt, sensible to sell off the whole of the freight and parcels services in order for the residual BR and its franchisees to concentrate on passengers. As far as passengers (many of whom are Conservative-voting commuters) are concerned, the crucial question is not whether the proposals will raise cheers in right-of-centre circles, but whether they will deliver a better service.