The nation's trainset: several careless owners, in need of a good home

The Ladbroke Grove inquiry's conclusion was damning: our railways are in a mess. Then there are the strikes and financial black holes. The solution lies with the operating companies, says Christian Wolmar

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In two weeks' time, Virgin launches its revolutionary Pendolino tilting electric train which will eventually cut journey times dramatically on its routes between London and Scotland and the North West. There will be the usual Richard Branson pizzazz and celebrations, but the train, built by Alstom with a tilt mechanism by Fiat, will only come into service early next year.

There are other new trains and services, too, on the network. The innovations might suggest that privatisation, which overturned 170 years of railway tradition by separating the operation of services from the track and infrastructure to create Railtrack, has been a great success.

The public knows better. As far as many are concerned, the picture on the railways is one of gloom. The downsides of privatisation are all too familiar: accidents at Southall, Ladbroke Grove and Hatfield; speed restrictions after Hatfield, which almost brought the network to a halt last October and still cause delays; a spectacular cost over-run on the West Coast Main Line project from £2.4bn to over £7bn and rising; the virtual bankruptcy of Railtrack and its constant requests for more taxpayers' money; overcrowding on the major commuter routes; and the failure of the Strategic Rail Authority (SRA) to be strategic or authoritative, as it has dithered over refranchising, failing to get even one deal signed 18 months after the start of the process.

Last week's publication of the Cullen inquiry report into the Ladbroke Grove disaster, which killed 31 people, highlighted basic incompetence at both Railtrack and Thames Trains. Even the industrial relations problems that dogged British Rail seem to have returned. Tomorrow, at least five train companies expect to have their services disrupted by strikes over the role of train guards.

So what has gone wrong and can it be fixed? The railways will be the first big headache for Stephen Byers, the new transport secretary. He is faced with big decisions over whether to bail out Railtrack and muddle through with the existing structure. Almost his first act on taking office was to commission a report into the state of the railways and, in particular, the future of Railtrack.

A bit of history should be helpful to him. Conventional wisdom puts the blame for the state of the railways on years of underinvestment under BR, but BR got many things right in the years before it was dismantled. The InterCity network was profitable. The concept of total route modernisation used on the Chiltern line, which involved refurbishing the stations and track as well as providing new rolling stock, had succeeded in attracting new customers. Hundreds of new trains were on order, and major work was being carried out to allow Channel Tunnel trains to travel around the network. Certainly, there were years of underinvestment to redress. But BR was not the basket case portrayed by those seeking to privatise the railways. It was a viable nationalised industry which could have been more efficient but needed only a bit of gentle tinkering rather than the revolution that tore it to shreds.

The drive to privatise came from the Treasury, whose privatisation unit had run out of things to do. Determined not to repeat what they thought of as the main failure of previous privatisations ­ a lack of competition in the resulting structure ­ Treasury mandarins persuaded ministers to break BR into 100 constituent parts, including 25 trains operators, 13 engineering companies and three rolling-stock leasing firms. The `fanciful idea was that having so many operators would ensure that there would be competition. With a few exceptions, the concept was quickly shelved because it was unworkable. At the centre was the worst monopoly of all, Railtrack, which was fattened up with profitable contracts and then floated on the Stock Exchange.

There were two big flaws with this structure. First, Railtrack should never have been privatised as a conventional profit-maximising company. Even at the best of times, half its income came from taxpayers; over the next five years, the proportion will be around three-quarters. The second mistake was to separate the provision of track and infrastructure from the running of services. This structure, designed by people whose only experience of running trains was a Hornby Dublo trainset, is held together by legal contracts rather than by the ethos of co-ordination and integration that used to be the hallmark of the railway.

It does not work. The Cullen report into Ladbroke Grove showed that, though the problems with signal SN109 had been known about, trainee drivers were not warned about the dangers, nor were they given proper instructions about the particular risks of the Paddington area, where a staggering 67 signals had been passed at danger in the previous six years.

It was, however, the Hatfield crash last October, in which four died, that highlighted the faults in the system. There had been concern about that section of track for nearly two years but no repair work had been done. The work that would have prevented the accident was due to take place one month after it.

At privatisation, Railtrack had been forced to contract out all its maintenance and renewal work to contractors working on a fixed-price basis, which gave them no incentive to do anything but the bare minimum. Hatfield not only exposed the problems with this system but also Railtrack's lack of engineering expertise. The panic reaction in the company, which led to the imposition of 1,300 temporary speed restrictions, demonstrated that it did not have enough experienced engineers to assess the track's condition. But it also showed that Railtrack's senior executives, only one of whom has railway experience, lacked the necessary knowledge to make informed decisions on safety. In the event, no section of track as bad as the one at Hatfield has been found, and virtually everyone in the industry feels Railtrack over-reacted.

The episode has wrecked the industry's already shaky finances. The Government's plans for the private sector to invest £34bn in the next decade are in tatters and Sir Alastair Morton, the chairman of the SRA, has talked of a "black hole" in the middle of the network. Byers faces a stark choice over Railtrack. He could take the advice of some of his senior civil servants, including the permanent secretary, Sir Richard Mottram, who counsel that he should do nothing to the structure of the railways, but merely bail out Railtrack with extra cash. Or he could act. The big train operators ­ notably National Express, with nine of the 25 franchises, and Virgin ­ are pushing for control of the track so that they can operate as reintegrated railways. If the major operators all took on chunks of track, with some redrawing of boundaries, Railtrack's principal function, and the question of renationalisation, would go.

Railtrack will not take kindly to being reduced to a mere property company, and companies such as Thameslink and Gatwick Express, which have no obvious territory, will not like having to buy their access paths from other operators. However, compared with the present situation, such a restructuring makes sense. Whether Byers and the Government are brave enough to contemplate change is an open question. Another Ladbroke Grove or Hatfield, and their hand may be forced.