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I would just like to start by saying what an honour it is to be on the same platform as Gwyneth. When I took the job at Railtrack, leaving the comforts of the private sector I was told it was a goldfish bowl. It's a bowl - I'm not sure if it's full of goldfish, I think it's full of piranha - and the toughest piranha is definitely Gwyneth... I have got a copy of one of the particularly gruelling sessions that I endured at the select committee at the hands of Gwyneth and I play it to my teenage children when I want them to feel sorry for me... and I said that to Gwyneth when I arrived here this evening, thinking that she would feel sorry for me, and she said "you must feel guilty..." Anyway, I'm going to be slightly more specific than the previous two speakers obviously and say something about the railway and something about investment because I think there is a new dawn and we have the 27 billion pound prize within our grasp. It is going to be funded in a totally different way to how programmes of this magnitude have been funded before and I think it's very important. Privatisation has not been the disaster that has been advertised.
There have been many successes. The two big successes are growth we're now seeing on the railway. In the previous twenty years coming up to privatisation the railway actually declined and lost market share. Part of that was to due to the under-investment that has been referred to; part of that was due to the fact that British Rail, run effectively by the Treasury and I'm simplifying to make the point, whenever any demand did start to come through on the railway British Rail would raise the prices and added the effect of choking off demand Since privatisation prices have actually been kept down - we've seen a real price reduction of 1 per cent per annum in the last two years - and I think a combination of that and the entrepreneurial train operators has driven growth. We've seen a 25 per cent increase in the last four years in passenger train miles and that is phenomenal and something to be applauded.
Another of the successes of privatisation has been the increases in investment. Gwyneth will attack me and say it hasn't been enough and she's right - it hasn't been enough but it's been a lot more than went in before. We've doubled our programme. Last year we spent about 1.45 billion; this year we're spending about 1.7 billion. It's a big step in the right direction. The train operators have all committed to ordering new rolling stock. That also is a step in the right direction. But these two successes, investment and growth have brought with them two huge challenges that the industry now faces: the first of the those challenges is train performance which will be familiar to all of those of you that travel on the trains and the reason for the deterioration in train performance is of course the other side of the success.
Our congestion models show that for every 1 per cent increase in passenger train miles all else being equal, you get a 2.5 per cent increase in train delays in minutes delay. So there is a relationship between growth and performance, all else being equal. Another of the reasons for the performance is the increase in investment because as you increase the investment on the network you get more possessions on weekends and you get the problems around that. A third of the reasons and both speakers have, I think referred to this already, was the breakdown of the collaborative working which used to take place in old BR when it was and integrated railway split into a hundred different bits or ninety different bits with all the parties staring at each other across adversarial contracts. That broke down the old relationships on the ground and that has been a big problem. And one of the successes over the last six months has been - I wouldn't have believed it possible but the Deputy Prime Minister, summoning the industry to his offices in November and the Rail summit really has acted as a catalyst for getting us together and we're now working in a completely different way to how we were before. We have serious monthly meetings, we share commendator, there's a ten point plan of action to go ahead.... we're all for the high jump if we don't succeed. In March for the first time in two and a half years both Railtrack and the train operators improved their performance year on year and that's gone into April. One swallow doesn't make a summer. A step in the right direction.
The other big problem that the industry faces is the investment to provide for the further growth that's needed and in this case we have a problem at Railtrack in the way that it was privatised and the economic architecture and the particular incentives that we were given. Remember we were privatised in an era of no-growth and people were actually worried about trains coming off the network which is one reason why are access charges were fixed. The amount the train operators pay us is a fixed charge to discourage them from taking trains off the network because they have to pay for the network even if they don't run the trains. This has had the opposite effect of course, because it has encouraged them to put trains onto the network. But because we don't benefit at all from the growth we don't actually have an economic incentive to make the enhancement investment that is so necessary.
The regulator - and I'll be on my third in two years come June - the regulator decided on December 9th that if we behaved like utility and didn't take risk he would treat us like utility and he applied the traditional utility model and that means low returns and that also means low risk and that means low investment and that means, if it's followed right the way through that the investment actually won't get delivered. But I think he recognised the weaknesses of the utility model on what is a growth industry. Because rail is not like water and electricity - it's growing and it needs huge investment. And so he challenged us to come up with a better way, with an alternative, and we responded to the challenge in this massive, great document that came out - some of you may be familiar with it - it's out Network Management Statement that we published at the end of March: 348 pages long and you see that Russell Eaves sitting in the front row has obviously dropped it on his foot; he's got a broken foot there.... it's known as the "yellow pages" because I'm afraid some of the pages are yellow and in this document we have responded to the challenge. It's a 27 billion pound programme.
It's based on the assumption of 30 per cent growth in rail travel over the next 10 years and it's very exciting. It does however require some changes to the architecture and the particular point I'd like to end up with and I think it's fundamental whenever you address investment is that the people who are going to provide the money - it's not the government; it's not actually Railtrack; it's the financial markets; it's the providers of debt and it's the providers of equity - they are the ones that are going to fund the rebuilding of the railway, this massive programme and in order for that funding to happen you've got to allow the people who come up with the money to make a decent return on it otherwise it just won't happen. We have been, in the last two or three years stuck in a regulatory and political climate which has focused very much on what has happened in the last three years particularly to the Railtrack share price. We were floated at 3.90, as John Humphries said on the Today programme the share price went up the cliff of the Iger.
There all kinds of reasons why that happened and the regulatory and political climate has been very much an attempt to claw some of that back. And we can all understand it and that's why we are where we are. But going forward that attitude and that regulatory approach is not going to get us anywhere because we will not be able to fund the 27 billion, we won't be able to raise the money, the guys won't come to the party unless they're able to make a return on the investment. So that is what we will be arguing for in the coming months that in order to get this to happen the providers of the money have to make a return and then we can get on and get it all done. So I think that's all I have to say. Thank you.
This page was last updated on 6th May 1999