Here is the full text of Sir George Young's speech in Parliament on 16th January 2002:
Sir George Young (North-West Hampshire): Whatever disagreement the hon. Member for Carlisle (Mr. Martlew) may have had with the last Conservative Government, we did at least have his support on one issue--the fact that there was a separate Department of Transport for the whole period from 1979 to 1997, whereas Labour put transport back into a much larger Department. I clutch at that straw from his speech as a sign of support of the Conservative party's transport policy.
When I saw the Liberal Democrat motion on the Order Paper, my first feeling was one of sympathy for my successor but one at the Department of Transport--it is a difficult portfolio and a subject on which every citizen has a view and the press can be pretty merciless--but when I saw the Government amendment that feeling of sympathy soon passed.
In the weeks since Railtrack's collapse, the Government have sought to defend what they did by saying that privatising the railways was wrong, that it was a privatisation too far, that the structure was too fragmented and unsustainable and that there was therefore something of the inevitability of a Greek tragedy about what has happened in recent months. As one of those who was directly involved, I should like to put the opposite case, not just to explain why we did what we did, but, more important, because we will get the wrong solution if the wrong analysis is made of the current crisis. Simply parroting the words "botched privatisation" or "fatally flawed" gets everyone nowhere.
There was one overpowering argument for privatising the railways: privatisation would unlock the capital needed to modernise the rolling stock, the permanent way, the signalling and the stations and to build new links such as Thameslink 2000. Decades of underinvestment had to be confronted. That investment was, in turn, the key to a balanced and sustainable transport policy, reducing dependence on the car and the lorry by developing attractive alternatives and seeking to contain the never-ending demand for more roads. But there were other reasons as well.
Geraint Davies: Will the right hon. Gentleman give way?
Sir George Young: This speech will not stop at many stations, but I shall give way to the hon. Gentleman in a moment.
British Rail was inefficient, monolithic and hidebound by tradition. The skeleton of the advanced passenger train at Crewe is a monument to the problems that the public sector had in introducing new technology. British Rail's culture stifled the good management potential that was locked inside.
Privatisation was going to transform an industry that looked inwards to the Department of Transport for support into one that looked outwards to its market for custom. It was going to bring into a rather introspective and protected industry successful operators of other transport modes. It was going to reduce the subsidy for running trains, by removing some of the cosy practices that had grown up unchallenged for decades and freeing up the money for other public services. So the policy was not some mad ideological transfer--John Major was a pragmatist with a deep suspicion of ideology. We both wanted a better railway, and privatisation of transport was part of an approach to improving public services that had worked successfully elsewhere.
That starting point was underlined by my experience of getting money for transport when the railways were in the public sector. I would appear before EDX, or whatever Cabinet Sub-Committee was adjudicating on public expenditure, usually chaired by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke). My colleagues would declare their pleasure at seeing me, saying how imaginative my view on the future of the railways was and how well presented was the associated bid for funds, but they would say, "But, George, you have to understand that our priorities are health, education and law and order. Colleagues in other spending departments have put forward equally interesting proposals, more central to our manifesto. We are sure you will understand if your bid is cut back, and your presentational skills will enable you to defend the settlement."
Although much has changed since 1997, that feature has not. In Labour's first term, only one section of the transport industry was starved of the capital that it needed--the only section still in the public sector: London Underground. Passengers faced fare rises higher than those on the railways, and the backlog of investment got worse.
As the Secretary of State said on Monday, passengers do not mind where the money comes from, and when the industry was moved from the public sector to the private sector, which is where I believe it should be, the dead hand of the Treasury was lifted. The constraint on expenditure was no longer how much I could get out of the Chancellor, but how fast the train operators, the train manufacturers and Railtrack could sensibly invest.
People might accept the strategic decision on privatisation, but have doubts about the structure--the so-called fragmentation. That is a highly complex issue on which I wish to make two brief points. The first point is simply that industry today is more disaggregated than it was 40 years ago. People make less themselves and buy more in from others. There is more specialisation, more subcontracting and greater flexibility in the market. Car manufacturing is a good example, with the manufacturers basically assembling bits made by other people. That specialisation and subcontracting is not just a feature of industry; it happens in medicine, education, the sciences and services. So the British Rail monolith was no longer the best model.
There is a second, more specific, point, however: the safest and most successful transport industry in this country is the most fragmented--civil aviation. That industry is subdivided into far more component parts than the railways. The stations--the airports--are in multiple ownership. Some of them are owned by the British Airports Authority, some by local authorities and others by bus companies. Signalling--air traffic control--is totally separate from the airports and the airlines. There are tens of different train operators--the airlines--and if a new airline puts on a new service from Luton to Glasgow, we do not say that it is an unwelcome fragmentation of the industry; we welcome the new service. The airlines do not own the aircraft; they lease them, and they are maintained and serviced by others. Someone else does the baggage handling and other companies do the catering. Civil aviation is a disaggregated, specialised industry, linked by contracts. Critics might call it fragmented, but it is safe, successful and popular.
Mr. Edward Davey (Kingston and Surbiton): Will the right hon. Gentleman give way?
Sir George Young: I will briefly stop at Surbiton--an important suburban station.
Mr. Davey: Does the right hon. Gentleman have no regrets about the structure of the railways that he chose? For example, Japan went for a privatised railway that was regionalised but vertically integrated, and its railway has been terribly successful--unlike the model that he chose.
Sir George Young: I do not agree with the hon. Gentleman. We looked quite hard at that model. It is very inflexible, and it is difficult to get in a succession of train operators if they also own the infrastructure. We set up a basic structure of unified network ownership: Railtrack; train operating companies, which run the services on franchises; and the so-called ROSCOs--the rolling stock companies--which own the rolling stock and lease it to the train operating companies.
Geraint Davies: Will the right hon. Gentleman give way?
Sir George Young: No. I must make progress.
There is also a transparent and independent system of regulation. As my hon. Friend the Member for Maidenhead (Mrs. May) said from the Front Bench, that core structure has rightly been virtually untouched by the Government.
However, another factor was at work before 1997, and it was every bit as important as the structure. We all know of some very odd structures that work well because people want to make them work. Before 1997, all the players were determined to work together to build a better and safer railway.
After privatisation, Ministers, Railtrack, the train operating companies, the franchising director, the regulator and all the new people who we attracted in from the other transport industries, such as shipping, aviation and buses, worked together with the excellent managers who joined from British Rail. We all believed that that was a new chapter in the history of the railways, in which we could access the funds we could never get from the Treasury, reverse decades of decline and play a key role in a more balanced transport policy. It may be an old-fashioned word, but there was trust between the key players.
Initially, things went well, and the number of passengers started to rise. Indeed, more people now travel on the trains than at any time since 1945. More train services were put on. Indeed, there are now 25 per cent. more trains. Freight was attracted back off the roads. Safety and punctuality continued to improve, and key fare increases were pegged to protect commuters. The subsidy paid to the franchise operators was less than the subsidy paid to British Rail to run the network, and the planned investment in new rolling stock and stations increased substantially. Railtrack began ambitious plans to build new links between the lines north of London and those to the south of it and, as we have just heard, to modernise the west coast main line. Those who were running the system genuinely believed that there had been a renaissance in our railways and that, after decades of underinvestment, a new future was opening up.
Then we lost the 1997 election. It would be naive to blame everything that has gone wrong on the change of Government in 1997. I am not politicising the problem, and nor would I wish to. One of the difficulties that I faced was the absence of a consensus on how the railways should be run. Had we been re-elected in 1997, I am sure that we would have wanted to make modifications in the light of experience--as we had done with other privatisations--but I am convinced that we would have avoided the debacle of last October.
The key factor that I have just mentioned--the determination to make the new system a success, with everyone working as a team--began to be eroded after June 1997. The new Government had opposed privatisation, but they had neither the funds to renationalise the railways nor the political will to make privatisation work. Ministers started to settle old scores, sniping at some of the new train operators and at Railtrack. The team spirit gave way to the blame culture. The regulator was sacked, and a new and at times aggressive rail regulator began to make it difficult for Railtrack to raise the capital it needed. A new Strategic Rail Authority was set up between the Government and the industry, making things more complicated rather than simpler. The letting of new franchises was suspended, with short term renewals instead of long-term contracts, and personality conflicts got in the way of the industry's needs.
Crucially, there were management failures at Railtrack and elsewhere. I was interested to read page 15 of the strategic plan, which states:
Whilst it is true that some structures can be more unwieldy than others, it remains fundamentally the case that neither contracts nor regulation manage companies: people do. It is the failure of the management process in the railway industry that is at the heart of what needs most to be corrected.
I agree. Management failures, principally at Railtrack, began the process of erosion of public confidence. After Hatfield, Railtrack lost its nerve. Then Gerald Corbett resigned and it lost the confidence of politicians and the City.
Without being party to the negotiations with Railtrack last summer, it is difficult for an outsider to comment on what went wrong. However, something clearly went wrong in the management of the dialogue between Railtrack and the Government. It may be that a key ingredient was missing--the will to find a way through the problem. The Secretary of State may never have wanted a deal, or the Treasury may have made it clear that it would not fund one at any price.
If that is the case, Railtrack should have spotted what was going on and not overplayed its hand. If Railtrack's dividend policy was a problem, it should have put that issue on the table for discussion with the Government. If its policy on executive pay was a problem, that should also have been put on the table for discussion. If the Government had doubts about the competence of management, those doubts should have been talked through.
What actually happened, however, was that the Secretary of State was leaning over the patient discussing a cure at the same time as he had his foot on the oxygen pipe. Not surprisingly, the patient expired. Eventually, we will find out what went wrong, but the breakdown of that dialogue was a disaster. I have no doubt that the National Audit Office and the Public Accounts Committee will want to inquire into the actions of the Department for Transport, Local Government and the Regions. They rightly did that for the privatisation process and I have no doubt that they will do it with equal vigour for the de-privatisation process. I hope that they ask whether the Government costed the alternative when they pulled the rug from under Railtrack.
If the Secretary of State thought that he had a new, inexpensive and popular solution, he was wrong. His action has raised more questions than it has answered. The railways now face a period of uncertainty, with a question mark over investment and a field day for the lawyers. There will be more disruption, more delay, more discontinuity, more short-term franchises and an exodus of talent. I have no doubt whatever that the taxpayer and the passenger will pay more than they would have done if a sensible deal with Railtrack had been arrived at and that improvements will take longer.
The private money that was going to be invested by Railtrack in modernising the railways--£34 billion pounds--is no longer available on the same terms, if at all. The Government will have to find more money themselves, and the history of the railways shows that Governments do not put up the money that is necessary. The action that the Government have taken to put Railtrack into receivership will have repercussions way beyond the railways. They will reverberate throughout the growing dialogue between the public and private sectors on joint ventures, and make the City and international investors ultra-cautious about investing in projects in partnership with the Government.
I note in passing that the Government's policy for the railways sits uneasily with their policy for London Underground. With the underground, the Government want to keep the operation of the trains in the public sector but use the private sector to modernise the infrastructure. However, with the Railways, the Government are leaving the running of the trains in the private sector while the public sector assumes responsibility for the infrastructure. It is difficult to see a coherent approach in their transport policy.
What happens next? Let us look to the areas of agreement across the Floor. I accept, as do the Government, that there should be unified ownership of the railway network--the bits that do not move--and that the company that owns it, the son of Railtrack, should look to the private sector for the capital that is needed to modernise it. That should be off the Government's balance sheet. I have no difficulty with special purpose vehicles, which are a new form of financial rolling stock.
We agree that the trains should be run by companies in the private sector on franchises that are competitively bid for. Those companies can be sacked if they under- perform. We could never sack British Rail, so we have created something that we never had before--a competitive train operating industry. We agree that the companies should lease their trains from others if they want to. We also agree that there should be transparent and independent regulation of the industry to ensure fair play. So there is a quite a lot of common ground.
What is fragmented is the Government's response, with the Secretary of State and his Department being second- guessed and shadowed by Lord Birt and others in a number of unaccountable bodies at No. 10. It must be up to the Transport Secretary, who is accountable to Cabinet and answerable to this House, to come up with the strategy.
We have to sort out Railtrack quickly because that lies at the heart of the system. Without Railtrack or its successor functioning properly--instead of being run by receivers--there is nothing on which to build. If there is a way through the litigation and the various bids, it must be pursued. New long-term franchises must be let before blight descends, and we must stem the exodus of skills from the industry.
Finally, it is vital to restore the confidence of the private investor, as the Treasury will never fill the funding gap. That can be done if the will is there and if trust can be rebuilt. However, I do not believe that the current Secretary of State--admirable qualities though he may have--is the right person for that task. Having drawn his line in the sand, he is on the wrong side of it. The Prime Minister should ask someone else to begin the processing of rebuilding.
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