The wrong kind of privatisation: The Government's troubles over the railways are just beginning, warns Christian Wolmar

THE MOST important factor affecting the future of Britain's railways is not the expected rebellion of a few disenchanted Tories in this week's debate on privatisation. It is, instead, the machinations of Michael Portillo in his attempts to reduce the Government's pounds 50bn spending gap. Rail passengers had better watch out.

The Chief Secretary of the Treasury's influence on rail privatisation will be much greater than that of the rebels, whose agenda is limited and whose chances of winning, on past performance, are low. In other words, the Government's troubles over rail privatisation, rather than ending with a victory in tomorrow's remaining stages in the Commons, will start in earnest when the plans become a reality next year and the Treasury will expect to begin accruing its share of the spoils.

The importance of Mr Portillo is that at the root of the Government's rail privatisation scheme has been the desire to save money. One of the principal architects of rail privatisation has been Sir Christopher Foster, a senior partner with Coopers & Lybrand and a long-time adviser to the Department of Transport. He has always argued that all privatisations can result in a reduced cost base, and rail should be no exception.

Alastair Dick, a transport consultant and observer of the privatisation process, notes: 'With the eventual privatisation in mind, the Treasury has long sought to minimise what money has been given to British Rail. And in order to keep the balance sheet as reasonable as possible, BR has not been allowed to accumulate debts. Therefore, on paper it looks very good.'

Indeed, BR does have high productivity compared with its foreign counterparts, but the long-suffering passengers pay for it both through high fares and poor services. Moreover, this financial strategy arguably makes BR an unappealing prospect for privatisation. The long period of underinvestment has left it with a reputation for shoddy service. Where there have been improvements, fares have risen more than the BR average in order to pay for them, rather than being kept down to attract more passengers. Mr Dick suggests this was a deliberate plan: 'If they had tried to attract volume, then it would have placed more pressure on BR to invest to unblock bottlenecks and provide new lines.'

BR, therefore, has not been able to take advantage of potential growth. High fares and poor service, combined with the recession, have led instead to the loss of passengers.

The Treasury's policy has been short- sighted. In other countries that are beginning rail privatisation, such as Sweden and Germany, increased sums of money are being invested in the railways becausethese governments recognise that the private sector is only interested in running profitable businesses. In contrast, most of the BR franchises will be reliant on subsidies and therefore much less attractive; there will always be the worry that a Mr Portillo will be waiting to wield the axe, making the difference between profit and loss.

It looks as though we are about to see a repeat of the mistakes made on the poll tax. If the Government had ensured, back in 1990, that average poll tax bills had been around pounds 200 rather than nearly pounds 400, then the tax might not have been Margaret Thatcher's nemesis. Similarly, the Government is cutting funding for BR just when it desperately needs money. For the current financial year the Treasury - backed by the Secretary of State for Transport, John MacGregor, who preferred to protect road schemes - has reduced the money being given to BR to subsidise train services by almost a quarter, to pounds 850m. Moreover, investment, excluding money for work related to the Channel tunnel, is being slashed, from pounds 1bn last year to pounds 550m next year.

When transport ministers are asked why they are privatising BR - a question they must ask themselves quite often in their private moments - they inevitably mention competition. It is the fact that the search for competition seems to have gone beyond the bounds of what can be sensibly achieved which is most in danger of derailing the whole project.

Richard Hope, of the Railway Gazette, says this has drained all logic out of the scheme: 'They have separated the infrastructure from the services in order to encourage competition. Ever since railways were invented, the two have been integrated. They want competition in every aspect, from supplying rolling stock, providing station services and in operating the trains. It is malicious incompetence that will wreck the railways.'

He points out that railways already face competition from all other modes of transport. And it is impractical to make two operators compete over the same lines. He likens the process to Ford sharing the same assembly line with Renault and Chrysler: 'If one makes a mistake and stops the line, then the others will just have to stand idly by until the first one sorts it out.'

It is this obsessive search to create competition that has led the Government to its chosen method of privatisation - and the second main source of its problems. When privatisation was being considered in the late Eighties, a number of suggestions were put forward, such as splitting it up into the existing businesses - InterCity, Network SouthEast, etc - or into the old pre-nationalisation regions - the Great Western, etc - an idea favoured by John Major. The resulting compromise, splitting the track from the services and creating 30 to 35 franchises, allows for competition and gives a regional flavour. It means, though, that integration, the main advantage of a railway, will be lost, threatening the ability to buy tickets from any station to any other and discount railcard schemes.

The political drive for privatisation has mystified most commentators. Why is a government that has its fair share of troubles pressing on with a scheme which has attracted virtually no support? Mrs Thatcher shied away from it and so did her transport secretary, the late Lord Ridley, because they were aware of the problems and had no need to demonstrate their iconoclastic credentials. Not so Mr Major. He needs to show that he can be just as revolutionary as his predecessor and seems to have alighted on rail privatisation as the way to show it.

The handful of Tory rebels, reduced in stature by the death of Robert Adley, are trying to ensure that railcards for pensioners, families and students are retained and that BR is allowed to bid for franchises. The apathy of the minor parties means they are unlikely to win. The Government has managed to push through the Bill with no significant changes and is resisting any amendment to allow BR to bid. As a senior source admitted last week, were BR allowed to bid, the level of their success would effectively sabotage the Bill.

In the next two years, when train services begin to be cut because of the costs of privatisation, the loss of cross-subsidy, and the desire for the private sector to make a profit, the political flak may make the Government wish it had caved in to the rebels.

(Photograph omitted)