Labour and the Unions: Byers and Sellers

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Judith Orr explains why the state of Britain's railways is producing a political crisis for New Labour, while Gareth Jenkins blames years of underinvestment.

It was only 2,000 workers. Hardly enough to shake a majority government off course. Yet within days of the first South West Trains strikes the air of crisis around the government threatened Stephen Byers' position. ScotRail drivers refused to work rest days and stopped one in four trains running. Arriva train drivers returned a 17 to one vote for strike action, and even commuters are planning a passenger strike on 1 March . The media was suddenly full of talk about a return of the 1970s. So worried is New Labour that during the second strike they backed the Strategic Rail Authority's (SRA) decision to waive penalty fines for late running of trains.

But this was more than an industrial problem for the government. It was a political one which challenged the ideology behind the whole Blairite programme. The privatised rail system has been such a disaster that Railtrack has become a colloquialism for a chaotic and crazy way to run things. Up until the landslide victory of 1997 Labour had consistently promised to take the railways back under public control. Since that election it has equally consistently refused to do so.

Not only has the government refused to renationalise but by sticking to Tory spending plans in the first years of office, no extra investment went into the rail network. The government has also poured more money into road schemes. Roads are not regarded as areas of the economy which can only be built if they can show they'll make a profit. It is enough that planners can prove future need. In contrast rail schemes have to demonstrate a financial return against the cost of investment. Other benefits to the environment, the economy and to safety are not in the equation.

So for Blair the railways represent an ideological problem. To renationalise would go against every New Labour canon that wants to bring the private sector and the profit motive into every area of our lives. No sooner did Byers let slip that the Third Way was a bit 'flaky' than the government announced some NHS hospitals were to be run by private companies. This was instantly dubbed Railtrack for healthcare. For the railways, however, renationalisation and a massive investment programme are the only solutions.

The ten-year plan, announced with such fanfare by the SRA, doesn't begin to address the depth of the crisis. Within days the Financial Times (19-20 January) demonstrated that Byers had, in true spinning tradition, double counted the money that was going into rail. He included in the £ 33.5 billion public money promised, £7.5million that will be used to 'lever' in private investment and so will not ever be spent on a piece of track or train. It is essentially going to be used to bribe and cajole private investors many of whom seem less than enthusiastic about new investment in rail. Some fat cats feel the days of making easy profits on the railways are over. A Financial Times editorial (15 January) wrote that the SRA report 'should be read as a work of fiction' such was the scepticism about the ability of the rail industry to attract the proposed £34 billion of private money.

So this new strategy, this 'drawing a line in the sand' to make a railway system 'fit for the 21st century' is no more than a rehash of the privatised mess. There are a small number of schemes that will be undertaken but a long list of important projects that are to be shelved. The plans that will not be undertaken include those to relieve congestion around Greater Manchester and the West Midlands, the London CrossRail link, the 'superhub' for the Channel Tunnel express at King Cross-Britain is already years behind the French railways on the tunnel rail links. Also shelved are plans for a north-south high speed line along with upgrades of the London-Swansea and West Country line. The acknowledgement that the government isn't going to be able to raise enough money in the next decade for any of these long planned projects exposes just how weak their solution to the transport crisis is.

As for the fragmentation, the SRA plan amounts to an admission that running the system with 25 different train operators was a mistake. The solution? A fudge. The number of different train operators using London's mainline stations will be limited to one for each station. As it is, these 25 companies are controlled by only 12 franchises that make up the biggest bus and train companies in Britain. These are often the worst performers in terms of service-last year South West Trains (owned by Stagecoach) saw delays in total passenger time increase by 275 percent. So the service is going to stay with the very companies which have brought the system to its knees in the first place.

What privatisation has cost the public

The railways were, like other public assets, sold off cheap by the Tories. In 1994 the value of the assets, land, signals, stations and track of British Rail was recorded in the Annual Report and Accounts as £6,464 million. They were sold to Railtrack for a mere £1,900 million. Philip Bagwell and Peter Lyth wrote in Transport in Britain that 'the Major government sold off the entire rail network of 16,656 miles of track, 2,615 stations with adjacent land for less than the £2,100 million needed for the projected CrossRail link between Paddington and Liverpool Street in London'. It is ironic that the CrossRail project is one of those shelved under the SRA 10 year plan.

There has been a myth, largely shattered now, that privatisation was going to save taxpayers' money in favour of private investment. The reality has been that large amounts of taxpayers' money is still being spent on subsidising railways. In the four years before privatisation public investment stood at £5,926 million, for four years after it was £5,889 million.

Government funding comes in two forms, as a grant to make up the difference between operating costs and revenue, and as capital investment in infrastructure such as tracks, signals and trains. In 2001 the bulk of investment for major new projects came from the taxpayer. Government support for each of the last three years has been greater than for any year before 1991-92. But there is a crucial difference. Now much of this taxpayers' money goes straight into shareholders' pockets in dividends. Studies by Labour Research have revealed that some franchise holders paid out the equivalent in dividends to shareholders as they received in revenue grants. 'West Coast Trains, part of Virgin, made £52.5 million profit against a revenue grant of £59.5 million' and went on to pay out large dividends. Seven franchise holders 'paid out more to the shareholders than they made in after-tax profits in their latest financial year.'

The fact that investment sometimes goes straight from the exchequer to the fat cats' pockets goes some way to explain why in recent years more money is going to rail in subsidies, but the service gets increasingly worse. InterCity trains used to make around £100 million per year pre-privatisation, today those lines are subsidised by up to £200 million. Also investment itself is more expensive because of privatisation. Railtrack spent £2.5 billion in 2000-01 compared with £740 million five years previously. Why does this not seem to make any difference? Firstly money is salted away for profits, second Railtrack pays compensation out to operators when lines are taken out for maintenance. Legal and insurance bills are new expenditure that has been created by privatisation. Roger Ford from the industry journal Modern Railways calculates that it would take £2.5 billion now to provide the same level of investment that would have cost £1 billion under BR.

The government's 'private is good, public is bad' dogma means it cannot address the underlying problems that have caused the rail crisis. This means that public spending and transport are going to dominate the political agenda for some time to come. Stephen Byers has said that the Labour government will be judged at the general election by what it does to improve the railways. Indeed it will.

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What was the record of Britain's railway system under nationalisation? British Railways (BR) did not come into existence in 1948 in favourable circumstances. War had left the system starved of funds. The private companies that ran the railways were determined to get as much compensation as possible and the Labour government gave in to their demands.

By the mid 1950s, the railways were making an annual loss of £22 million. The Tories put forward a modernisation plan designed to restore profitability. Yet the plan was flawed. There was little attempt to improve the main trunk system by introducing high speed trains. Electrification of the West Coast line was included in the plan but not prioritised. It was only completed in the late 1960s.

At the same time the government poured £212 million into schemes to modernise the road network. By 1960, the the Tories brought in Dr Beeching, a man with no experience of the railways (he had been technical director at ICI), to restore profitability. But instead of investment there would be wholesale butchery.

Labour returned to office in 1964. Harold Wilson, who had denounced Beeching during the election campaign, speeded up the closure programme. In 1965, 1071 miles of railway were closed.

The accumulated losses between 1963-1973 were higher than during the previous 14 years. As Christian Wolmar points out in his book, Broken Rails, the only way to have ensured 'profitability' would have been to shut the railways completely. When, therefore, Labour began once more to modernise BR in the 1970s by introducing high speed trains between major city centres--it was in the context of a crippled system. When the Tories returned in 1979, hostility to a nationalised system reappeared. There were new plans to chop the industry to bits. Investment was cut back and rolling stock was intensively used. More significantly, fares were raised above inflation virtually every year during the Thatcher administration. The consequences of worn-out track, defective signalling, and inadequate rolling stock, would only become apparent much later.