Railtrack was the name of the company which owned and managed the infrastructure of the British railway system between the years 1994 and 2002, although technically speaking there were two 'Railtracks'; being a holding company Railtrack Group plc, which in turn owned Railtrack plc which actually owned the infrastructure together with certain other assets such as an interest in the Channel Tunnel Rail Link.
1. The Privatisation of Britain's Railways
In accordance with the Transport Act 1947 Britain's railways were nationalised with effect from the 1st January 1948. Commonly known as British Railways, or as it later became British Rail, the nationalised railways became a byword for general inefficiency and late running, although it must be said that the reputation of its privately owned predecessors such as LNER, GWR was similarly poor, if not worse.
During the 1980s the Conservative government led by Margaret Thatcher began espousing the doctrine of privatisation and a succession of former state owned enterprises were returned to the private sector. It was therefore inevitable that at some point that consideration would be given to the privatisation of Britain's railways. As Cecil Parkinson put it when he addressed the Conservative Party conference on the 9th October 1990, "The question now is not about whether we should privatise it, but how and when."
The 'when' turned out to be 'not just at the moment' as events precluded the government from even considering the matter, but following the General Election victory of 1992, the newly re-elected Conservative government now led by John Major, began to give serious consideration to the question, particularly since the party's election manifesto had contained the specific commitment, "We will end British Rail's monopoly". The how had been the matter of debate for some time with several free market think tanks offering their views on the matter. The Centre for Policy Studies favoured a return to the days of regional railway companies whilst the Adam Smith Institute suggested a more radical solution based on the idea of allowing other companies to run trains on British Rail's tracks.
In July 1992 the Transport Secretary John MacGregor issued a White Paper setting out the government's thinking on the subject. Following the suggestion of the Adam Smith Institute, it proposed the establishment of an entity called 'Railtrack' to take charge of the railway infrastructure whilst train services would be operated by franchisees who would pay Railtrack for the use of said infrastructure. The resulting Railway Bill had a hard time getting through Parliament particularly in the House of Lords where the opposition was led by Lord Peyton of Yeovil, otherwise known as John Peyton, a former Conservative minister, but nevertheless the Railways Act 1993 duly received royal assent on the 5th November 1993.
In accordance with the Act, on the 1st April 1994, British Rail was split into two parts, an infrastructure business christened Railtrack and a service business which actually ran the trains. The service side was itself further divided up into twenty-five separate passanger train operators, the domestic and international freight businesses; and a track renewal and maintenance division.
The original plan was that Railtrack would remain in the public sector, since it was believed that it would be easier to find buyers for the various train service operators if they did not have responsibility for track renewal and maintenance, and in the period from December 1995 to April 1997 the Office of Passenger Rail Franchising (OPRAF) succeeded in finding buyers for each and every one of the available passenger franchises. However the chairman of Railtrack Bob Horton was keen to take that business private as well, whilst the Chancellor of the Exchequer Kenneth Clarke could see that floating the company would raise a useful billion or two for the public coffers. Plan B was therefore adopted and in May 1996 Railtrack Group plc made its debut on the London Stock Exchange raising the sum of £1.9 billion.
Originally the Labour party vowed to reverse these changes and renationalise the railways as soon as they were in power again. Such ideas however did not fit in with the New Labour project, and thus the election of a Labour government in 1997 did not change these arrangements in the slightest. (Indeed the Labour government's refusal to consider renationalising the railways eventually led the National Union of Rail, Maritime and Transport Workers to disaffiliate from the Labour Party, and Deputy Prime Minister John Prescott's resignation from the RMT.) The new Labour government did however pass the Transport Act 2000 which created the Strategic Rail Authority to take over the duties of OPRAF together with some of the responsibilities of the Office of the Rail Regulator (ORR), but other than that they left the deckchairs as they were.
2. The privatised Railtrack
Following its privitisation in 1996 Railtrack Group certainly appeared to be a successful company. Annual profits which had been £190 million in 1996 rose to £428 million for 1999 and the share price rose accordingly. From an initial stock market price of 360p, the shares at one point touched £17, and although by February 1999 the share price had drifted downwards, the company was still valued at £7.8 billion, or roughly four times its original valuation.
There was however a dark cloud on the horizon in the form of the West Coast Main Line (WCML) project which involved modernising and upgrading the main line from London Euston to Glasgow. At flotation the cost of this project was estimated at £2 billion, but soon soared to £10 billion, calling into question Railtrack's ability to finance the project. Whilst many might have initially failed to appreciate the problems that the company was facing with the WCML, the issue received greater prominence
on the 3rd June 1999 when the ORR formally challenged the company on its plans for the WCML, and even more so the 5th November 1999 when the regulator began enforcement action to ensure that the company met its commitment to increase the capacity of the WCML. Although this news succeeded in depressing Railtrack's share price it was not ultimately the cause the company's downfall; that particular accolade was reserved for the issue of safety.
On the 5th October 1999 two trains collided at Ladbroke Grove, just outside Paddington station, in London resulting in the death of thirty-one people. Although the Ladbroke Grove disaster drew criticism of Railtrack's safety record, its cause was put down to driver error, and thus the company soldiered on, however just over a year later on the 17th October 2000 a GNER London to Leeds express was derailed at Hatfield in Hertfordshire whilst travelling at over 100mph. Four people were killed and a further thirty-five were injured. This time round, the cause of the accident was identified as being a broken rail, which naturally gave rise to concerns that other parts of the railway network might be in a similar state of disrepair.
What soon became apparent in the aftermath of the Hatfield disaster was that Railtrack had no idea of the condition of its track and no method of assessing the risk as to whether or not other parts of the track were also at risk of immediate catastrophic failure. It therefore ordered a series of speed restrictions to be implemented across the whole network. Although it was later judged that these were completely unnecessary, the imposition of such restrictions inevitability reduced the capacity of the whole network and led to the widespread cancellation of services. If nothing else this led to a drastic reduction in Railtrack's revenue.
As a result Railtrack plunged from profit to a loss of £534m for 2000. This loss, coming on top of the pressure of funding the West Coast Main Line project, led the company to approach the government for additional funding. On the 2nd April 2001 Railtrack announced that it had "secured a £1.5 billion funding settlement" from the government. In the following month, acting no doubt in the belief that its future was now secure, it decided to pay a £137m dividend to its shareholders. This decision to pay a dividend excited some controversy and a certain amount of dismay at the Department of Transport who saw this as a blatant case of government money being being used to fund payments to shareholders.
Railtrack were apparently expecting to receive the sum of £700m on the 7th October 2001, however what the management in fact received was a summons to an urgent meeting at the Department of Transport where they were informed that no more money would be forthcoming. Later that same day, Stephen Byers, the Secretary of State for Transport made an application to the High Court to place Railtrack plc into 'railway administration'. (Being the legal procedure specified by the Railways Act 1993 in the event of Railtrack's insolvency which differed from the normal administration procedure in that it obliged the administrators to keep the railways running and therefore prevented the company's assets from being sold off piece by piece.) With this news, Railtrack Group shares were suspended on the London Stock Exchange after closing at 280p.
3. The end of Railtrack
With Railtrack Group plc now in administration and Ernst and Young appointed as administrators, Stephen Byers announced that "This is the end of Railtrack". The government rapidly set up Network Rail, a not-for-profit company, with the intention that it should now acquire Railtrack. Technically speaking it was open to other interested parties to come forward and make their own competing bids, and one consortium of banks did indeed set up Swiftrail with just that intention. However the scale of both the financial and political risks involved, soon persuaded Swiftrail to disband leaving Network Rail as the only buyer. Although as it happened it took some time to complete the deal due in part to the requirement to get the approval of the European Commission.
Initally the Transport Secretary Stephen Byers was most insistent that "no taxpayers' money" would be involved in any deal, however in March 2002 Byers announced a 'rescue package' for Railtrack, which boiled down to the provision of government money that enabled Network Rail to fund the £500m purchase of Railtrack, this amount being sufficient to persuade Railtrack Group shareholders to approve the deal in July 2002. As a result, on the 3rd October 2002 Network Rail acquired Railtrack plc and promptly renamed the company as Network Rail Infrastructure Ltd. Just over a fortnight later Railtrack Group plc, (since renamed as the RT Group plc) went into members’ voluntary liquidation on the 18th October 2002 with Deloitte and Touche acting as liquidators.
Many of the shareholders in Railtrack Group were unhappy with this
sequence of events and believed that the government had engineered the whole administration process in order to effectively renationalise Railtrack on the cheap. Two separate shareholder action groups were formed to campaign for compensation, being the Railtrack Action Group (RAG) and the Railtrack Private Shareholders Action Group (RPSAG). The former were however persuaded that the March 2002 rescue package was the best on offer, and so voted in favour of the deal. The latter, which as it name suggested, represented many of the smaller private investors, vowed to fight on for further compensation. The RPSAG decided to sue the government, alleging misfeance on the part of the Secretary of State for Transport. Although the resulting court case did reveal that Mr Byers might perhaps have been guilty of misleading parliament, it remained unconvinced that he had acted in bad faith at any time, and judgement against the shareholder group was given on the 14th October 2005.
Whilst Railtrack itself had been deemed insolvent back in October 2001
its parent company actually had some £370m in cash at the bank. This amount, together with the £500m received from the sale of Railtrack, and a further £295m received from
London and Continental Railways in respect of the sale of its interest in the
Channel Tunnel Rail Link, has enabled the liquidators to distrubute the sum of 260.5p to shareholders to date.
SOURCES
- The Nationalised Railway: 1948 - 1992
http://www.railwaysarchive.co.uk/history4.php
- Office of Rail Regulation at http://www.rail-reg.gov.uk
- The great train sell-off: Who dunnit? BBC News 20 October, 2000
news.bbc.co.uk/1/hi/uk_politics/982037.stm
- Alistair Osborne, Railtrack goes bust with debts of £3.5bn, 08/10/2001
www.telegraph.co.uk/news/main.jhtml?xml=/news/2001/10/08/nrail08.xml
- Railtrack reinvents itself BBC News 27 June, 2002
news.bbc.co.uk/1/hi/business/2068936.stm
- Christian Wolmar, Forget Byers: the scandal was in the original sell-off, July 16, 2005
http://www.guardian.co.uk/comment/story/0,3604,1529802,00.html