FORTRESS WHITEHALL COMES OFF THE RAILS

Our railways are suffering thanks to a lack of dialogue between Treasury, Ministiy and the Strategic Rail Authority, says Alastair Morton

SHOCK, horror! The Strategic Rail Authority (SRA) has been another vain attempt to open up fortress Whitehall. Ministers subside muttering and divided, lacking the will to persist short-medium term in the face of deep-seated, long-term domestic issues.

It's not as though I didn't know about Whitehall. I had been very close to it before: at the Industrial Reorganisation Corporation (IRC) in the late 1960s, at the British National Oil Corporation (BNOC) in the late 1970s and the Private Finance Panel (PFP) in the mid-1990s. In a third of a century on the frontiers between Britain's public and private sectors, I've seen things come and then go, whether directly as senior executive, managing director or chairman of those state entities, or indirectly as a government-appointed non-executive board member of a nuclear power station contractor (late 1960s), a hospital authority (early 1970s), the Royal Ordnance Factories (mid-1970s), the British Steel Corporation (1979-82); and then from very close by on the other side of the frontier fence, at the head of Eurotunnel (1987-96). Nevertheless, three years ago I told John Prescott that I would tackle it one last time — not as a career move in my sixties, but because I knew and cared about railways.

The term PPP (Public Private Partnership) has acquired a bad name in London, but I have said many times that the national railways need to be one of the biggest partnerships ever between private enterprise and public purse. Nothing less will meet the need as road congestion mounts: my mantra, as the press call it, remains 'It's all about investment, investment, investment'. If recession overtakes us, rail's slow-moving capital process will be countercyclically ideal. Projects that we begin now spend heavily in a few years, not now.

It proved to be Mission Necessary but Impossible. I realised too late that the SRA was not part of 'the Blair Project', as I've heard it called. Wilson backed George Brown's IRC and the Harold Lever/Edmund Dell BNOC; Major was positive about Ken Clarke's Private Finance Initiative. But the SRA was John Prescott's: I did not see the fence between it and Downing Street. The SRA's birth, announced in the 1998 Integrated Transport White Paper, was very well received; that raised and reinforced the fence. I was not invited through it, and, in my crusty sixties rather than supple early forties, I tried to stride over it rather than crawl under it. Wrong tactic.

But I recognised and understood the second blockage — part of the unchanging culture of British government in the second half of the 20th century. It goes like this: a senior and influential minister (George Brown, before the fall) or a combination of them (Lever and Dell) establishes a need for a specialised government agency to develop and implement in practical form a new policy. Civil servants bustle about to give it formal expression, if necessary, in enabling legislation. They like that; it gives them prominence among their peers. Ministerial colleagues stand back, mostly, since the House is not the place to embarrass one's own side.

The new agency is to take executive action in support of the influential minister's policy initiative. As long as its sponsors and the prime minister remain focused on it, the new agency flourishes, develops staff, competence and a track record. It is going to get on with the job, separate from the Ministry through which policy is co-ordinated. But sooner or later the powerful ministerial support for the new agency is removed by an election (1970 for IRC, 1979 for BNOC, 1997 for PFP) or dissipated by a bout of musical chairs in the Cabinet room (2001 for SRA). That clears the way for Whitehall officials to step up a clawback already under way as their unvarying reflex reaction to the innovation. As a senior official said to me this year, 'Whitehall never lets go.' The difference at the SRA has been that the clawback gathered momentum more than a year before the election. Tony Blair and his transport satrap Gus Macdonald were on a parallel course to the mandarins; and it was not good for the SRA.

It is a process in two parts — upper case and lower case, an editor might say. The lower case involves the sponsoring department (Department of Transport for SRA) relentlessly seeking to tighten ropes to every peg in the books of statutes, instructions and guidance, direction, custom and practice, financial framework et al., etc., and organising its action-averse team to 'mark' every proactive function in the agency, regardless of protestations against 'second guessing'. And also there is, so sorry, old boy, 'the Treasury requires..

The Treasury is the upper case, comfortably used to bullying any spending department into servile submission. It requires that the trembling department thus subdues the new agency's propensity to act and then bows its own neck before the imperious Treasury. Even for me, it has been something worthy of Gilbert and Sullivan to watch a very senior permanent secretary stuttering incoherently over a peremptory letter from an under-secretary in the Treasury — one of those untrained, uncaring, inexperienced, short-term 'money book' managers of an economy whose infrastructure and services they and their predecessors have caused to crumble over decades, for lack of long-term investment.

The SRA venture is not the first time I have been hugely depressed by the surreally poor quality of the dialogue between Treasury, Ministry and agency. That really matters when capital investment is the core of the initiative and the relationship between public purse and private capital has to be clear.

This is too serious to be seen as another episode of Yes, Prime Minister. Tony Blair said very clearly upon his recent return to Downing Street that he understood that the British people — voters and non-voters — want delivery of public services. His response is eerie and, I believe, doomed. Before being called away by the international terrorist crisis, he pulled the management of service delivery all the way back — out of the specialised government agency (SRA, NHS, etc.), out of the relevant department (Transport. Health, etc.), through the Office of the Prime Minister (aka Cabinet Office) into a unit between there and No. 10, with a still-gathering staff overseen by Gus Macdonald, reporting direct to Blair. In rail. Stephen Byers's role appears to be that of a Greek chorus; will his exhortations get better results than Prescott's earthier style?

This Delivery Project is structurally, managerially and methodologically questionable, worthy of a full examination elsewhere. It will hinder and knock off course efforts to cure the long-term, deep-seated problems of education, health, rail and crime, and any others put into this remedial ward. Improvements in quarterly statistics rather than in capitalintensive means of service are to be the measure of 'delivery' from here to 2005. Presentation takes over from process, not just from substance. The frown gets treated, not the headache; let alone the fever or the infection.

Eerie, and doomed, I believe, Eerie because it denies or disempowers specialised agencies run by competent managers with appropriate investment horizons (thus only very exceptionally civil servants) and Whitehall departments, which are at least well informed. Doomed for all those reasons and one more: the Cabinet Office is challenging the Treasury, and is likely to be outmanoeuvred.

The Treasury . 'Ay, there's the rub.' I have been known to attack it over the years — always for its incompetence in and antipathy towards capital investment. I applaud good housekeeping, fighting waste in revenue-expenditure programmes. I have seen loss of control: it happened that I was close to the Treasury's humiliation when the IMF arrived in 1976. My borrowing serious money in New York for capital investment in North Sea production, secured on oil flows not government guarantees, was one of the first recovery moves — and, may I say, brilliantly but lightly guided by Treasury and Bank of England. Yet when you talk of capital it is very important to note that the National Oil Account of the 1970s (hypothecation), privatisation (1980s) and then the Private Finance Initiative (1990s) have generated the only coherent long-term capital formation since 1976 within the perimeter of what was then the public sector. Treasuryplanned investment programmes have not featured. Crumbling public services are the legacy of their absence. That, above all, is the reason not to renationalise RaiItrack.

And so to rail. We all know that the Tories botched the privatisation, not least in thinking that Railtrack's light-middleweight balance sheet could support all the investment needed. Decades of underinvestment had already paved the road to the present hellish problems. We need to remind ourselves that private enterprise and prosperity have added over 35 per cent more passengers and more than 45 per cent more freight traffic since 1995. But the summer 2000 timetable proved a step too far: the aging pint pot that is Britain's railway system began to creak and leak under the steadily rising pressure of the litre of usage.

And then, and then, there have been Macmillan's 'events, dear boy, events' to derail plans. The devastating lessons drawn from the Hatfield crash and the underprepared upgrade of the West Coast Main Line have taught us even more clearly that the structural botch, the inadequate management and the underweight finances cannot be left as they are. We need a stable, ongoing, well-managed, substantial investment programme to repair and develop this public service.

Note that 'stable, ongoing . . . investment programme' — it is the sine qua non for the market to take on our public-service delivery problems. Delivery units in presidential suites be damned: they do not generate the skills to run design, development and training projects, nor the evolution of risk allocation and the funding methodology, nor the equipment supply pipeline, nor the private-sector capital flow. The marketplace does!

Rail needs the constituent elements of a major private-sector investment flow: regular, well-prepared projects, assessable risks, good management, reasonable returns on capital. Britain's railways are in aggregate loss-making (unlike water, gas, electricity, etc.), so rail also needs that well-structured partnership between public purse and private enterprise to provide the investment prioritisation and state financial support made necessary by that aggregate cash deficit, and by the strategic dwarfdom created when poor old imperfect BR was broken into 105 pieces. And rail needs a revised definition of the role of regulation because only in rail do we have regulation of a subsidised sector. I had been waiting all summer for Lord Cullen's recommendations to point the way to the necessary total rethink, but they stopped short.

The rail industry had been waiting since summer last year for me to produce the Strategic Plan that would guide it out of the wilderness. 1, in turn, am still waiting to hear of any plan designed before Hatfield — a year ago next week — that would have survived Railtrack's implosion and the Treasury's retreat from rail since Hatfield.

As I prepare to leave, I have a firm view of how Railtrack, the train operators and the public purse can be brought to fit together, subject to a sort-out of government policy, including regulatory influences rendered perverse or ineffective by events since privatisation. Tabling it, I shall leave wanting to believe that they will come together, in my model or any like it. But I am not optimistic. Niggling, fearful, untrained, short-term ministers and bureaucrats are, I repeat, an eerie response to the central political need of the day — longterm, accurately focused investment in service delivery. A short-termist approach cannot do the necessary.

I have responsibilities to bear for where we are, or rather are not. As I said in June when I announced my intention to depart, my successor needs to be, unlike me, 'young, fit, wily and ambitious enough to weld together the three streams' of presentation (politicians), process (Whitehall) and substance (railways) into which, I said, rail's public-private partnership has splintered. He also needs to be industrially and financially competent, and strong-willed. Applications for the post have closed.. . . Let us pray for Britain's railways. We need them.