Month: January 2008

Yesterday we held a half day debate on the state of Britains railways.

During the course of it Ruth Kelly, Transport Secretary, did tell us Network Rail has apologised for the delays to engineering works at Liverpool Street and Rugby on the West Coast mainline over the Christmas and New Year break. The apology stopped there. There was no apology from Ministers for the performance of their creature company, Network Rail. They told us there would be an enquiry into what went wrong, and they promised Network Rail would learn the lessons from the mistakes. I was far from convinced.

The delays at the start of 2008 were not the first time that Network Rail had misjudged and mismanaged engineering works, leading to substantial cancellations of services. Clearly the company did not learn the lessons on previous occasions. It is also difficult to understand what more they need to learn about the errors. Senior management misjudged how long it would take to carry out the works, and misjudged the availability of skilled labour to perform the tasks they needed done. The cause of the cancellations is crystal clear ?? management mistakes at Network Rail.

Some Labour MPs tried to argue that the cancellations were the result of the ??fragmentation?? of the railway. It is difficult to see how things would have been better and different if the Network Rail management also owned and ran the trains. The same people would still have made the same mistakes over track provision.

Conservatives asked for an assurance that the senior management of the company would not be paid large bonuses for performance, following such a pathetic performance over the holiday period. We were greeted with slippery replies. Ministers seem to think Network Rail is a proper independent private sector company. They want to leave the issue of the bonuses to the Remuneration Committee of the Board.

Any cursory look at the accounts for Network Rail for 2006- 7 and the interim statement for the first half of 2007-8 will show you this company is a creature of the government and a pensioner of the taxpayer. Last year more than 90% of its operating costs were paid for by taxpayer revenue subsidy. Its borrowings attract a government guarantee, which is needed when you discover that the company has net assets of a mere ?6 billion, with ?18 billion of net debt. This is a company where the government on behalf of taxpayers owns all the shares, pays most of the revenue bills, provides borrowing through a guarantee, and appoints the people who run the company.

I proposed that Ministers stop trying to pretend this company is nothing to do with them, and start trying to manage its performance to get value for taxpayers and a better deal for travellers. If the Remuneration Committee of the Board has set up the bonuses in such a way that full ones have to be paid this year to top management despite the performance, then we need different Directors. Ministers do have a responsibility to ensure the railway is run by people who make better judgements on how to control the costs and time taken to implement major capital schemes, as well as wanting people who know how to get a better balance between fare revenue and subsidy, and how to deliver better efficiency to allow cheaper fares.

Labour took great pride in setting up Network Rail as a better kind of Railtrack. On the evidence so far it is not working well. The latest debacle should be a warning to Ministers. It is time Ministers got involved in this, their very own public sector monopoly, with a view to delivering better value for taxpayers and fare payers.

<strong>Click <a href="http://www.johnredwoodsdiary.com/2008/01/09/john-redwood-on-network-rail/">here </a>to read John Redwood’s speech in the half-day debate in the House of Commons on this issue.</strong>

The Chancellor today sounded like a old cracked record that no-one wants to hear any more. Listening to him on the Today programme, I was left wondering does he really believe what he is saying or does he think we are stupid?

He told us the UK had enjoyed economic stability for ten years, including a better record on inflation than many other countries. Has he checked the figures? If you look at the UKs record on the RPI it is worse than the EU or the USA, which is why his predecessor had to switch indices to make it look less bad. Does he think the credit boom followed by the credit bust and a run on Northern Rock is proof of stability?
Is he aware that UK interest rates have been higher than US and EU rates for most of the last decade?

Worse still was his incantation that all this stability had been created and guaranteed by an independent Bank of England. Is that the same Bank of England that Mr Brown reduced in stature so badly by amputating its control over government debt and clearing bank supervision? Is that the same Bank that has to work with the FSA under the chairmanship of the Chancellor when banking problems emerge in the markets? Is that the same Bank that gets briefed against when the Chancellors tripartite system makes a mistake? Is that the same Bank that had to keep interest rates lower than it would have liked and money looser, because the former Chancellor changed the target for inflation at a crucial time when rates would otherwise have gone up? Is that the Monetary Policy Committee whose members are appointed directly by the Chancellor, or by bank officials themselves appointed by the Chancellor? Is that the same Monetary Policy Committee where we are not allowed to know why some members were renewed by the government, and some were not?

The Chancellor should learn that he cannot spin himself out of the current economic difficulty. Some figures will pop up to reveal spin. Many clever and well informed people are watching his every action, and every movement of the economy. The Chancellor would do himself a favour if he dropped the tired old fashioned wrong headed highly spun rhetoric of the Brown years, and started to understand the true nature of the problems he faces. These include:

1. An overspending state which is not getting value for all the money it is tipping into the public sector. He should immediately impose a staff freeze on all public sector posts other than front line in essential services. He should take Conservative proposals to get people back to work seriously, and do something similar himself instead of just talking about them.
2. He should try to stop the flood of public money into Northern Rock, and impose some discipline to ensure repayments.
3. A broken regulatory regime where the Bank has been undermined. He should return government debt management and day to day banking supervision to the Bank.

I am all in favour of celebrity chefs and TV programmes crusading for a better life for chickens. Buy organic and free range, turn down animal suffering.
Unfortunately this government at the moment can neither deliver a better life for chickens nor for people.

The Chancellor is now ransacking the files of the 1970s as he seeks to curb an inflation his predecessor and the monetary authorities allowed to get a good hold through their easy money policies of a year or so ago.

He seems to believe that lectures to groups of people will work. This week he is applying his time to lecturing the energy companies to keep the price of electricity and gas down. Has he noticed the international price of oil has just surged to a new high? Will he, like King Canute, signal to the oil market that it must recede? If he managed to hit it just as the tide was turning, he could look quite clever to the uninitiated.

Meanwhile, his mentor next door is busy lecturing MPs to vote down the independent pay award recommendation (whatever that may be), so that MPs can show solidarity with the police, whose independent pay award has been docked by the government. The Prime Minister may at last have found a popular cause with the public, but it is difficult to believe the odd percent off MPs pay will transform the inflationary problem the government faces.

You might have thought Mr Darling would be fed up with lecturing people, after his disastrous lecture on the need for bank to become more prudent without government or Bank of England intervention and assistance, just before he offered the most comprehensive assistance to banks and markets during the Northern Rock crisis.
This latest round of arguing against the energy price and pay inflation is like arguing against the weather. This inflation was made some time ago. It is not going to persist in a year or sos time, given the dreadful credit crunch we are now living through in money markets. Timing is everything.

In the 1970s a previous Labour government used to lecture everyone on how much they could earn and what they could charge for things they sold. The pay and prices policies they developed of course failed to contain inflation, and became extremely unpopular. They overspent, overborrowed and wasted money as a government, and failed to keep proper control of the money supply.

There are some worrying similarities in outlook between Labour Chancellors then and Mr Darling now. The good news is the international background is much less inflationary today, and the credit crunch means inflation is not the true enemy looking beyond the next few months. The bad news is Mr Darling does think his lectures will make a difference, at a time when he should be concentrating on getting the credit and banking markets functioning properly again. His two tasks for this week should be

1. Find a solution for Northern Rock which stops the taxpayer funding increases
2. Start controlling public spending ?? he could place strong controls to prevent recruiting extra people to the public sector other than front line people like nurses and teachers, and back that up with a moratorium on management consultancies and IT projects without very thorough examination of why they were needed

Unfortunately we have a Chancellor who sees his role as being part of the media commentary on the situation, instead of the key player trying to lift a losing team.

Gordon Brown has claimed to issue his vision of Britain, in his Observer interview today. There are slightly warmer words for those of us who believe in defending and strengthening our civil liberties, with a promise that ID cards will not be compulsory. Why not just drop them altogether, as an unwanted expense and a temptation to government to intrude too far? Why not introduce proper border controls, and use the passport and visa system, to deal with immigration?

In contrast there are tough words for those who want to preserve Englands green and pleasant land ?? or what remains of it. Mr Brown has decided his crusade is to go to war with the Nimbys, using a highly overcentralised and bossy state to drive through new houses, nuclear power stations, new runways and eventually new train lines. He thinks he can make himself more popular by announcing unpopular decisions. It is an unusual approach.

Readers of this blog will know that I think Mr Brown is fighting yesterdays war on housing in the wrong way, instead of fighting todays war the right way. The issue today is not how to expand the supply of new housing, but how to stabilise the market in second hand homes. If he does not succeed in protecting the UK housing market from the credit crunch, housebuilders will not want to build all the extra homes in Mr Browns 12 year plan.

Mr Brown tries to create the impression that the credit crunch is made in the USA. He needs to recognise that the run on Northern Rock was made in the UK. It is banks based in London and regulated in London that are having to pull in their horns after a period of easy money and excess which occurred during his time as Chancellor. Today Mr Brown needs to come up with the right mixture of regulatory reform and money easing to prevent the credit crunch pushing house prices down too far too fast and undermining his hopes for new homes.

He also needs to understand that in many constituencies that Labour needs to hold in the suburbs and the countryside in England there are strong feelings that communities can only take so much extra development. There is growing resentment at the way large scale high density development is pushed onto reluctant communities by the centre. Trying to trap the Tories over Nimbyism is a very high risk strategy at the best of times. It is particularly silly at a time when government can force through the planning permission but cannot force a housebuilding industry under pressure to build on the scale Mr Brown thinks is needed.

Mr Brown is right that the UK is short of transport capacity of all kinds. It has become so because this Labour government has failed to initiate any major new project to expand rail, road or air capacity. They have completed the Channel tunnel rail link they inherited, but precious little else.

Readers of this blog will know that I pursued their last announcement that they intended to build Crossrail, only to discover that they are not going to make the final decision about it this Parliament. I doubt if anything has changed, and assume this is another re-announcement of the same lack of progress. Their much publicised difficulties with engineering works on the West coast mainline over Christmas will not encourage them to try to speed up rail improvements, against the background of poor performance and a shortage of trained staff.

The Prime Minister is also right in realising that we are also short of generating capacity. This island of coal set in a sea of oil and gas did almost run out of energy last winter. This Christmas I was asked to help constituents who had a power cut all Christmas day so they were unable to cook their Christmas dinner. I forget how many times we have heard they are going to take the ??tough?? decision to build nuclear stations. We heard that before the consultation before last, only for them to be defeated by a legal challenge. They had to consult again.

I have regularly suggested they hold a competition between all the low and no carbon technologies for generating power to decide which mixture would give us the best trade off between low cost and good security of supply. Has Mr Brown now got as his command all the figures, so he knows nuclear is the outright winner? How much subsidy ?? or guaranteed carbon price ?? will it take to justify building a new generation of nuclear stations? Will the taxpayer or the electricity consumer pay?

If Mr Brown is to turn this interview into a working vision of the future he needs to have answers to these questions:

1. How much will Crossrail cost? Who will foot the bill? When will the contract be let?
2. How will nuclear power be subsidised or supported to enable it to compete with gas and coal? Why is it better than renewables and other low carbon options?
3. How will he stabilise the residential housing market, so that housebuilders will want to build all the homes he seeks? Will he take seriously the objections of local communities who may have their own views on numbers of new homes and densities? Will he recognise that new homes require new roads, schools and hospitals to sustain them?

It is easy to caricature Mr Browns statement: he wants a UK where you will have to live next door to an expanded airport, or a nuclear power station, or a new housing estate which he intends to drive through regardless of local opinion.

He is right that the UK needs to expand the capacity of its networks. He is wrong to think there are simple top down answers, and to believe that local opinion can be overwhelmed. The art of government is persuasion. More need to be persuaded that the government has the right answers. In the meantime there are many other things that could be done to remedy the transport shortage, the electricity shortage, and the housing problem.

Visiting local Post Offices before Christmas reminded me just what a mess this government has made of one of the few remaining nationalised industries. If anyone still thinks nationalisation is the answer, they would be well, advised to study the Post office as an object lesson in how not to run a business.

At a time when government worries about human carbon output, they switched the Post office from sending many of its letters and parcels by train to sending them by road. They were,apparently, unable to negotiate a contract that made sense for such a large users of the railways, with the railways where the track has recently been taken back into a form of public ownership!

Claiming to understand the importance of the large inherited network of small post offices, the government took away their main source of livelihood, the substantial counter business they used to transact for various government departments. Apparently, it is more efficient to transact these items through the for profit private banking sector, than through the nationalised postal counter network.

Their management style and the government business loss combined to create huge losses for the Post office. These were then reduced by a triple whammy for taxpayers customers and staff ?? a subsidy, big increases in the monopoly charges to carry a letter, and staff cuts with closures.

The atmosphere in the business is not good. Many of the staff resent the way they are expected to find the cost reductions the management say are necessary. The lower paid staff have to deal with customers, explaining o to them the big increase in charges the decline in service.

Customers resent the surging price of posting a letter, the move to single deliveries each day, and the likelihood that your delivery does not arrive before you leave for work. Middle ranking managers lack authority and responsibility to drive the business. They do not control their property and other assets, and they have little ability to try to increase the volume of business or try out new services.

If you take the case of my local main Post Office in Wokingham, you see a typical example of how local people are prevented form transforming the business. The Wokingham Crown Office and the sorting office are combined on the same premises in Broad, Street, one of the principal streets in the town. The sorting accommodation is cramped and out of date, with some employees having to work in sheds beyond the main complex. The sorting office site is a very valuable site which could probably be redeveloped for office accommodation, freeing Post office capital to acquire a better located sorting site where vehicle access could be much easier and where there was enough decent accommodation for all staff.

The front of the building is a good looking early twentieth century structure, with plenty of room to add more counters which are much needed to deal with the growing numbers forced to use the main Post Office by the closure of smaller offices elsewhere. 2 more are scheduled in the latest cull which the Post office is currently consulting about. The users of these offices are very unhappy about the proposals. It is difficult to see how the main Office can deal with them at peak times without a major overhaul and expansion.

Unfortunately local management is not empowered to sort out the property mess and release the property potential. Capital spending permission comes form the centre, and that means it rarely if ever comes. Local management are not encouraged to try out new services that might work well in Post Offices in their area, and are not rewarded generously for increasing the revenue of the business.

If you think the only ways to raise profits are closures, higher prices, and cuts in staff numbers you end up with a very demotivated business. If you tell the staff that if they are more efficient getting around their delivery area they have to come back to base to do some other work, you do not motivate your postal workers readily or well.

You have a very old fashioned nationalised business. The irony is that it is government which is knocking the stuffing out of it. The double blow of the loss of government business and the introduction of competition means the Post Office is no longer capable of sustaining its traditional volume and range of services and outlets.

In 2005 I voted for change when I voted for David Cameron. I voted for him to change the Conservative party, and to go on to change the way political parties are run and organised, as a platform for going on to change our country for the better.

I wanted him to move away from the big money highly spun model of politics that defined the Blair era. I was delighted when he came out for a ?50,000 cap on individual donations to parties, championed more local, family and individual decision making, and stood against more centralisation of decisions in the EU, Whitehall and quangoland.

In Iowa the victories of Barack Obama and Mike Huckabee were also victories for change. They were a small voice grabbing the medias attention for a few days, saying that many US people too are fed up with big money centrally driven politics. At least in the snows of Iowa the big money battalions of Hillary Clinton and Mitt Romney were brushed aside.

It may be that on either or both the Democrat and republican sides big money machine politics makes a comeback in subsequent contests. It could be that Barack Obama continues to do well, but finds the pressures of machine politics start to overtake him. In the meantime even those of us who disagree with some of his policy proposals should study his inspiring words about the how to undertake politics, how to change politics for the better, how to engage people again in democracy by overcoming their cynicism about the process.

In his victory address Mr Obama said:

??You said the time had come to tell the lobbyists who think their money and their influence speak louder than our voice that they dont own the government, we do; and we are here to take it back??

??The time has come for a President who will be honest about the choices and challenges we face; who will listen to you and learn from you even when we disagree; who wont just tell you what you want to hear, but what you need to know????

These paragraphs are a fine text. People are sick of tired of parties that raise large sums of money, spend it on researching what the average view is, and then on saying that is the view of the party. Labour has tried this for more than fifteen years, and proved conclusively that it does not produce good or competent government.

People are fed up with being lied to. In the UK we have a cheaper version of the US big money politics, but we have a worse version of the dislocation between central government and people, because we have two central governments, one UK based and one European. All too often this dual monarchy spawns too much regulation, too much intrusion and too much cost. All too often the UK government pretends to want something which it has to do under EU law and is then forced to display inflexibility and deafness in the face of public disagreement.

All sensible politicians in Britain will study Mr Obamas success in Iowa, and take to heart his fine words about the need for political parties and leaders to listen and reconnect with voters, free from the costly intermediation of big money lobbying.

PS: I see some are out to misrepresent this statement- I am not a Democrat party supporter, I do not support all Obama’s policies and I am not proposing that people should vote Obama. That is a matter for Americans, not for me. Any sensible Republican or Conservative needs to understand the reasons for Obama’s popualrity, and will discover that one of his main messages about how we need to change the way the big parties undertake their politics is relevant to us.

There are two tired and overworked phrases in this governments repertoire which we are about to hear concerning Northern Rock.

The first is ??We have learned the lessons?? of whatever catastrophe they are talking about.

The second is: ??We will make sure this will never happen again??.

Ministers usually recite these phrases instead of providing proper analysis of what went wrong, and in place of ensuring the people in whatever regulatory system they have are up to the job and empowered to make the right decisions in good time.

I remember when I was the DTI Minister responsible for financial regulation, in the days when the DTI regulated insurance and financial services itself, having to handle the occasional problem. Each time the cry would go up to change the law and regulation. I usually pointed out that what had happened was a breach of the law or regulation anyway. We werent short of laws even then and there are many more now. It was intelligent enforcement that had failed. I was also pressed to guarantee it would never happen again. I was usually careful to make no such guarantee, and to point out that in any field of human endeavour there will always be some mistakes and some lawbreakers.

This government is foolish to say there will never be another loss of data by the public sector, because there will be. They should claim instead it is much less likely. They do have to be able to say there will never be another run on a bank, as we know we can have a period of more than a hundred years without one. Something uniquely wrong has happened on their watch.

My concern with Northern Rock is that the government does not appear to have learned the lessons. It is usually wise to manage a crisis to a conclusion before attempting to learn all the lessons. This crisis is far from over. Where there is a need for earlier action ?? as there may be on a deposit guarantee scheme ?? it needs to be carried out as an interim response, not foreclosing other action to mend the regulatory system once the crisis has been resolved or is stable.

What are the lessons of Northern Rock?

It is unwise for a Chancellor and Bank Governor to lecture the banking system about the need to deal with their own banking mistakes without assistance from the authorities, just a few days before offering massive assistance on a scale never before seen in the UK. If the authorities know of an institution in trouble ?? as they did a month before the run on the Rock ?? they should avoid inflammatory statements that they might have to rescind.

It is unwise to keep the banking system starved of cash until a major institution is in deep difficulties, and then to provide money to the system after a run on a bank has begun. If money is going to be provided, it should be provided early.

A tripartite structure for responding to a banking crisis is too inflexible, and keeps the Bank starved of important hour by hour information on the state of banking markets. There should be a unified command under the Bank of England. The Bank should have to keep the Chancellor informed, and submit to his judgement if things become out of hand. The Bank needs to get back the management of government debt, and day to day banking supervision, as it had before the Brown reforms.

The Basel I capital rules did not work as intended, and Basel II may now make matters worse. The government should enter discussions with the international community about a sensible capital adequacy regime, which gives enough attention to liquidity, and which deals differently with off balance sheet items.

The world authorities should avoid seeking to increase the capital requirements rapidly at a time of banking risk aversion. Any necessary increase in banking capital requirements should be phased in, as the system stabilises and starts to function more aggressively. IT will make matters worse if we hear the sound of regulators slamming the doors on capital adequacy after the horse has bolted, against a background of damaged balance sheets and a reluctance to lend.

The government should consider changes to allow take-overs of banks in trouble to take place rapidly, with the negotiations happening in private. This may well entail changing or clarifying EU law. This should be carried out urgently.

The government has asked the private sector to come up with a better deposit guarantee scheme. This should be put into effect promptly. More importantly,. The government should work out how to climb down from its blanket guarantee of all bank deposits in the UK of any bank in trouble without triggering a further run, seeking to do this in parallel with the changes to the overall guarantee system.

Even the engineering works fail to run on time

The first thing people need from train travel is reliability. If there is a frequent train service with trains running to timetable, you can plan your day and your journey accordingly. If there are too few trains, or if the trains are late, the whole day can be disrupted. Busy people are then into cancelling meetings, failing to turn up for appointments, or for politicians letting down audiences who have sought their help to keep democratic debate alive in the UK.

The second thing regular users of trains need is affordability. The latest round of fare increases are in many cases swingeing, at a time of restrained earnings growth, higher taxes and mortgage payments, and a credit crunch. We are used to many of the things that are supplied by the competitive private sector becoming cheaper over the years, as the bargains in the January sales in the clothing and textile departments remind us, and as the ever better car offers on the forecourts confirm. The poor old train commuter is sandbagged again. He or she is being made to pay an ever heavier price for trying to rely on the railway.

So why are train travellers this week being made to pay through the nose, and why are they being told that there are still no trains on part of the West coast mainline near Birmingham?

The answer is partly the botched nationalisation of Network Rail by this government, partly the technology and partly the fixation of trying to get more speed out of the railway instead of concentrating on reliability and affordability, the things that matter most to passengers.

The government has been at its most prejudiced when it comes to transport. The bankruptcy of Railtrack turned a poor solution into a worse solution, leaving all the evils of monopoly in place when it comes to track provision, whilst removing the restrictions on overspending that applied to Railtrack but not to Network Rail. The answer is exactly what you would expect from a monopoly with effective recourse to the taxpayer to underwrite almost any level of spending it wishes to undertake on the existing network ?? an expensive but inefficient system where the passenger can be made to pay by both higher fares and more cancellations and delays, and where the taxpayer picks up a huge tab as well.

The governments answer to the growing cost of rail travel is to seek to make the main competitor, road travel, dearer as well. Because the private sector parts of road travel are becoming more efficient more quickly, the government has to intervene more and more to slow traffic down, to increase the costs of road fuel and to increase the costs of road use by adding specific road charges to the high motoring taxes. Despite all this, rail still only accounts for 6% of travel, because the railways in their current state simply cannot take the extra volume they would need to take if we were to effect any kind of modal shift from car to train.

The pursuit of higher speed for trains is the immediate cause of the delays on the West coast mainline. If you wish to allow trains to achieve speeds twice as fast as you think safe for road traffic, you need to change all the signals and to check the track very carefully. If you wish to sustain those speeds over any distance you need to lay new straight track for longer distances. The railway is not offering a competitive service for so many of us for so many of our journeys owing to too much political interference in priorities and the endless pursuit of the prestige project of super fast trains between large cities.

The railway under this government has become a great black hole, devouring huge amounts of taxpayer cash and taxpayer guarantees. They refuse to order their priorities in line with the public need for more and more reliable trains, not necessarily faster trains.

The railway Ministers should realise just how big a gap has opened up between rail and road transport. Standards of safety, fuel efficiency and passenger comfort have advanced much more rapidly on the roads than on the tracks. It is an offence to travel in a car without a seat and seat belt, yet you may still have to travel on a long distance fast train with no seat, let alone a seat belt. The interiors of modern cars are well padded in case of a crash, with no sharp or hard surfaces offering a threat to life or limb, whereas the train interior is full of hazards in a crash. The luggage in a car is placed in a separate compartment to the passengers, whereas on a train it is left in an overhead luggage rack with no restrains, so it can hurtle around the carriage in the event of derailment. Trains remain far too heavy. As a result they guzzle too much electricity or diesel, take long distances to stop, and are limited to very few trains an hour on any given stretch of track as a result.

The answers to the railway problem are not all difficult or too expensive. I do want to see the huge inherited network of great routes into our main cities and between our main cities taking more of our traffic, and I want them to do so in a way which is accessible to more people. I want to see more fuel efficient trains, lighter trains, and more frequent services ?? the three happen to go together.

My proposals are these:
1. Order new much lighter trains with better brakes, so we could go from running under 30 trains an hour on a typical piece of track, to 40 trains an hour
2. Spend the money on increasing capacity and reliability of what we have got, instead of concentrating on prestige projects for very fast trains using conventional train technology
3. Break Network Rails monopoly, reuniting track and train running and ensuring there is some competitive challenge in the network as a whole. Wherever possible there should be more than one company offering a service between major places.

If the rail providers had to compete for business they would not get their priorities so wrong, or let down their passengers so often. Nor would they be planning such a huge fare hike. The airport owner in London knows it has to compete with Paris and Amsterdam airports, so it does not close the main runways at Heathrow for engineering works over holiday periods when people want to travel. The shops do not close early in January because there are too many people wanting to sue them in the way we see tube stations closed at busy times. It is high time we had some new thinking, geared to the needs of us, the passengers.