What track is the Labour Party travelling on?

Rail privatisation may be a disaster, but Tony Blair needs to come clean about his own plans for the future of the network
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The Independent Online
With one of the first privatised train services beginning business life as a bus, and another not beginning at all, due to an investigation for ticketing fraud, the newly privatised railways did not deliver the glorious opening day that the Tories must have hoped for.

But no matter. The handing over of services on three lines to private operators is of scant importance compared with the big issue of rail privatisation: the flotation of Railtrack. And this still threatens the Labour Party with one of its biggest political dilemmas.

Labour is already showing cracks over other issues which it considers home ground, such as education and welfare benefits, but the privatisation of Railtrack poses a challenge for the party that goes all the way up to Tony Blair, for it will be he who has to determine exactly what the party means by the banalities its leading spokespeople have been espousing over the past few months.

The line has been that Labour wants a "publicly owned, publicly accountable" railway, but there has been a shortage of details and a failure to explain exactly how this could be achieved should Railtrack be sold off by the time Mr Blair enters Number 10. There have been suggestions of waverings, too, as demonstrated by last week's spat between Clare Short, Labour's transport spokeswoman, and John Edmonds, Railtrack's chief executive, over allegations that she told him that Labour would not renationalise the organisation.

Ms Short denied this was the case, but the incident did nothing to clear the air over the precise nature of Labour's plans. The Walworth Road mantra is that there is no need to say anything yet since the flotation is not due to take place until May and the prospectus, in which Labour's stated intentions must be set out for the benefit of investors, is not due to be published until the end of March.

This misses the point. Here is a real political issue on which Labour must make a decision. This is not the usual stuff where a bit of windbaggery from opposition politicians is sufficient. Unlike most of what Labour says and does at the moment while it is in opposition, Mr Blair's pronouncements on this issue, unusually, will play a real part in determining the future of the rail network.

This is a genuine test for Mr Blair. While he has outshone Mr Major for nearly all of the past 18 months since he took over as leader (excepting the past couple of weeks), little he has done has had an impact on the world outside politics. Even Clause IV was an internal matter. If he commits Labour to reversing the sale of Railtrack, he would probably stop the sale dead in its tracks and ensure that Labour did not face the problem of how to regain control of the network when it came to power.

A senior player in the rail industry, with wide experience of the City and by no means a Labour man, put it to me: "We're all waiting for Labour to do something about this. Privatisation has been a disaster. We want Labour to say clearly what it intends to do." He felt that if Labour committed itself to ensuring that Railtrack would remain in public ownership, "the underwriters will simply walk away and it will leave the shares unsold".

Last Friday, Brian Wilson, Labour's number two on transport, went some way to restoring Labour's credibility on the issue by stating: "Without public ownership of the infrastructure, a Labour government would be hamstrung in its determination to expand and develop the role of the railways in our economy and society. These practical considerations must dictate our view on Railtrack."

Mr Wilson went on to make some points which would have been axiomatic under old Labour but clearly now need re-emphasising. He asked, rhetorically, how it could be possible for a Labour government to justify massive subsidy payments which end up in the pockets of private shareholders.

"What conceivable case is there for the proceeds from the property assets of Railtrack in future being converted into shareholders' dividends and boardroom salaries, rather than being ploughed back, 100 per cent, into railway investment?" Indeed.

The point Labour has so far not made forcibly and which would ensure public support for a firm commitment to renationalise - a word banned from new Labour-speak - is that it would make economic sense. The railways are being subsidised by an extra pounds 700m - a total of pounds 1.8bn - in order to pay for the profits of Railtrack and the rolling stock companies. By bringing the rolling stock companies under the aegis of the regulator, and by renationalising Railtrack, which is expected to fetch barely pounds 1.5bn when it is sold, the subsidy can be drastically reduced.

Bob Horton, chairman of Railtrack, will counter that renationalisation would bring back rail investment within the confines of the Public Sector Borrowing Requirement. However, that argument can be quickly discounted by referring to the Public Finance Initiative (PFI) whose very raison d'etre is finding ways for the private sector to invest in the public sector.

Already, London Underground is buying new trains through a PFI initiative and similar schemes could be devised for much of Railtrack's investment plans.

Moreover, Labour sees rail as a way of devising environmentally friendly transport policies. The type of social benefits this will bring about will not show up on the purely financial balance sheet that will characterise Railtrack in the private sector.

Labour is considering two options for regaining control over Railtrack if it is sold. The first is to replace the subsidy to Railtrack with investment in return for shares, but this seems a bit woolly since the inevitable dilution of the holdings of existing shareholders would send the share price plummeting.

The second idea is to state that Labour will replace all shares bought in Railtrack with the equivalent value in bonds. Labour could even say what interest rate it intends to pay on them. Of course, Mr Blair and Gordon Brown are worried about anything that will reflect badly on Labour's position in the City. But such a commitment, firmly and clearly stated, would hardly frighten the gnomes of London, especially if they emphasise that this is not a prelude to renationalising everything from BT to Yorkshire Water.

It cannot be stated often enough that rail privatisation is unique in that it is predicated on substantial levels of public subsidy paid directly to the private operators.

Armed with such a strong case, Mr Blair should grasp the nettle. Rail privatisation is probably the clearest litmus test of whether new Labour represents anything more than new rhetoric. Mr Blair's pronouncements on rail over the next few weeks will reveal a lot more than Labour's transport policies: it will inform a sceptical electorate about whether he has the courage to make policy, as well as the wit to coin soundbites.