Privatisation of British Rail - Privatisation Under The New Labour Government

Privatisation Under The New Labour Government

The New Labour government (elected in 1997 once almost all of the privatisation process had been completed) did not fulfil its earlier commitment to keep the railways in the public sector. Instead, it left the new structure in place, even completing the privatisation process with the last remaining sales. Its one innovation in the early years was the creation of the Strategic Rail Authority (SRA), initially in shadow form until the Transport Act 2000 was brought into force on 1 February 2001 and the SRA assumed its full legal powers.

The Labour government always had an unhappy and uncomfortable relationship with the privatised railway industry, never really accepting that the assets and businesses had been sold to the private sector, frequently complaining that as the public subsidy which went into the industry was so large and likely to continue in perpetuity, the government was its principal paymaster and should make or substantially influence all major decisions. The intensity of political intervention came to a head immediately after the Hatfield rail crash in 2000, when Railtrack imposed over 1200 emergency speed restrictions on its network because it did not know where else on the network the type of metal fatigue - called gauge corner cracking or rolling contact fatigue - which had caused the crash might occur. The politicians intervened, with the Secretary of State for Transport John Prescott saying that Sir Alastair Morton, chairman of the Strategic Rail Authority, would impose a solution. Morton had neither the knowledge nor the powers to do this, and eventually the passenger and freight train operators - who were losing very large sums of money as a result of the severe operational disruption which was taking place - applied to the Rail Regulator for enforcement action against Railtrack. That action was taken almost immediately and normal network performance was established a few months later.

The aftermath of the Hatfield crash led to severe financial difficulties for Railtrack and just under a year later - on 7 October 2001 - the company was put into railway administration (a special kind of insolvency for railway companies which ensures continuity of operation of railway services) by the British High Court on the application of the then Secretary of State for Transport Stephen Byers. The circumstances of that step were very controversial (and eventually led to the largest class legal action in English legal history). The administration of Railtrack led to an explosion of costs as the discipline of the company's equity had been lost, and very sharp falls in performance. It lasted for a year; on 2 October 2002 the administration order was discharged and a new organisation, Network Rail, bought Railtrack PLC from its parent Railtrack Group PLC. Network Rail has no shareholders and is a company limited by guarantee. This new corporate structure for the national railway infrastructure owner satisfied many in the Labour party who thought that a company cannot serve both its shareholders and its customers in a way which facilitates and promotes the public interest. The time had come, they said, to "take back the track". In Parliament on 24 October 2005, Stephen Byers said he " no apology for.. unwinding the Tory privatisation that was Railtrack" (House of Commons, Official Report (Hansard), 24 October 2005, column 66).

Further changes have followed, which have seen the government take back a greater degree of control, but the early demise of the SRA, which was its creation, suggests that the situation is still in flux and the right formula for the long-term health of the rail industry has not yet been found.

As an interesting postscript to the privatisation, in July 2006 the Conservative Party's shadow transport spokesman, Chris Grayling, admitted that the 1996 split of the rail industry into track and train components was a mistake which had increased costs: "We think, with hindsight, that the complete separation of track and train into separate businesses at the time of privatisation was not right for our railways. We think that the separation has helped push up the cost of running the railways - and hence fares - and is now slowing decisions about capacity improvements. Too many people and organisations are now involved in getting things done - so nothing happens. As a result, the industry lacks clarity about who is in charge and accountable for decisions.".