Declassified
Declassified files from 1991-92 reveal the wars in John Major’s government over splitting track and train. CONRAD LANDIN examines the internal disputes over how the railway was to be privatised
Declassified files reveal the internal disputes in John Major’s government over how the railway was to be privatised.
According to his Transport Secretary George Young, John Major was “a pragmatist with a deep suspicion of ideology”. So just how was it that Major went where his predecessor Margaret Thatcher did not dare to tread - and oversaw the break-up and privatisation of Britain’s railways?
From the first signs that the British Rail period was coming to an end, it was clear that this project had divided Major’s government. Leaks and briefings were the order of the day.
Twenty-five years on, Cabinet Office files on the early discussions around privatisation have been released to the National Archives. These documents reveal the extraordinary wars between senior members of the government. And they demonstrate that while the motivations were as varied as the players, ideology was alive and well in Major’s administration.
It is well-known that Major and his first Transport Secretary, Malcolm Rifkind, found themselves at loggerheads over privatisation. Major’s support for breaking British Rail back up into regional companies on a “line of route” basis is typically attributed to a nostalgia for the Big Four of his youth - even though he was only five years old at nationalisation in 1948. Rifkind was instead intent on selling off Intercity, the only profitable BR passenger sector, as a “vertically integrated” business - with track and train remaining together.
But these documents shine a fascinating light on the role of a man who is unknown to all but the most committed of political anoraks. This is Jonathan Hill, who worked in the Policy Unit at No. 10 before becoming Major’s political secretary. He was not to find even five minutes of fame until far later - when, just after the EU referendum, he resigned as Britain’s commissioner in Brussels.
At the Conservative party conference in 1988, then-Transport Secretary Paul Channon announced he would examine the feasibility of rail privatisation. Shortly after, he set out five potential approaches this could take to a Centre for Policy Studies conference:
‘BR plc’ would entail a single private company taking over the railway.
The ‘sector’ option would mean splitting BR along the lines of its newly established business sectors - Network SouthEast, Regional Railways and InterCity.
Under the ‘regional’ option, companies would be defined by the model of four operational regions which, until recently, had been BR’s primary management structure.
There was also the ‘track authority option’, which would split infrastructure and operations in the way that eventually happened. This had been proposed by free market think tank the Adam Smith Institute in 1987.
Finally, Channon also did not rule out a combination of any of these approaches.
According to RAIL’s own Christian Wolmar, when a Cabinet committee was convened to discuss privatisation options after Major entered Downing Street (1990), all of these options were still in play. But by the time the committee reported back to cabinet the regional, sector and BR plc models had all been chucked out.
Major’s support for breaking British Rail back up into regional companies on a ‘line of route’ basis is typically attributed to a nostalgia for the Big Four of his youth. Rifkind was instead intent on selling off Intercity, the only profitable BR passenger sector, as a ‘vertically integrated’ business - with track and train remaining together.
The approach the government adopted was therefore a hybrid: separating infrastructure and operations on most of the network - but maintaining vertical integration on suburban lines around London.
This caused a chain reaction that would take the privatisation plans back to square one, Wolmar recounts in his 2001 book Broken
Rails. Rifkind began pushing his vision for Intercity, and in response Downing Street began to push the regional option once more.
It’s here that we pick up the story, in November 1991. In a document fired off to Downing Street on November 18, Rifkind set out what he hoped to achieve: “To privatise as much of BR as possible by the end of the next Parliament; to promote as much competition and choice as practicable; to… avoid undue complexity and bureaucracy… to find a way of supporting loss-making but socially necessary services which targets subsidy better; and to protect the interests of passengers and taxpayers.”
He also warned: “We cannot achieve a single ‘big bang’ change in the next Parliament. Private sector involvement will
have to be phased.”
But Rifkind’s Department of Transport (DoT) was also heavily briefing in favour of a vertically integrated Intercity - and against separating track and train.
“There is no precedent anywhere in the world for, nor is any other country contemplating, railway privatisation with a track company with competing operators,” an annex to Rifkind’s missive said. “It would not be subject to effective market disciplines, and its costs would be extremely difficult to control.”
On November 26, Rifkind produced another paper, arguing specifically against Downing Street’s push for the line of route option. All services other than Intercity could be divvied up on a regional basis, Rifkind said. The preferred option would be vertical integration, “falling back on the separation between infrastructure and service provision only where unavoidable”. It’s worth remembering that at this point, there were still strong fears across Whitehall that the private sector just wouldn’t bid for some parts of Britain’s railways.
By December 4, Rifkind was seeking permission from Downing Street to announce that the privatisation White Paper would be published in January. This, he said, would quieten public speculation in the press over internal rows.
But Downing Street official Barry H Potter warned Major not to give Rifkind the green light. “This is a trap - you must not agree,” Potter wrote in a covering note, saying the Transport Secretary would use it to firm up his Intercity sell-off.
Having successfully stalled, Major then convened a meeting with Rifkind, Chancellor Norman Lamont, Trade and Industry Secretary Peter Lilley, and Conservative Party Chairman Chris Patten on December 13. Policy adviser Hill provided the PM with an extensive briefing of the war game ahead. Major’s task for the meeting, Hill said, was to “resist pressure to sign up to Malcolm Rifkind’s proposals” and to “keep the line of route option in play”.
Things were getting serious. “Once again Mr Rifkind has been turning a Nelsonian eye to the very clear signals from No 10,” Hill wrote. “I say ‘once again’, because this follows a number of recent declarations of UDI from
[DoT HQ] Marsham Street.” As well as wanting the right kind of British Rail privatisation, Hill thought it “important that Mr Rifkind gets the message that he cannot keep on trying to bounce No. 10 and ignore what he is asked to do”.
Meanwhile, Lamont was pushing hard for a separation of track and train, in the name of competition. Lilley backed him up, and added that on Network SouthEast and Regional Railways he favoured “allowing different operators to run adjacent lines to maximise choice”.
But for Hill, expanding choice and improving services were not the only motivations. Alongside making sure privatisation was “popular with passengers” and “is simple to explain and understand”, he stressed the need to ensure privatisation “will not allow our opponents to play the ‘safety’ card”.
And in this list of “priorities”, which the adviser said Major made clear at a summit on rail privatisation at Chequers (the PM’s country residence), Hill also set out the need to ensure privatisation “smashes the unions”.
In a covering note to this paper, Potter argued that “the smaller the number of lines linked together to form a saleable private company… the easier it becomes to break up British Rail and union control of the rail network”.
The conclusion of the December 13 meeting - as devised in Hill’s battle plan - was a Cabinet Office-chaired working group examining the line of route option. There was no question that it would come out in favour - for that was its point (along with shutting up Rifkind).
However, No. 10 was not keen on the prospect of a separate track authority at this stage, defining its preferred option as “vertically integrated regional railway companies responsible for track, stations, local and main line services”.
An entity of the shape Railtrack would eventually take was seen as bad news. “There would be scope for buck-passing between operators and track authority when things went wrong, and Labour would take us to the cleaners on (admittedly spurious) safety grounds,” said Hill’s briefing for Major.
Hill concluded that the “line of route/ regional option would be the best politics” and “the easiest to defend”. But it would “end up costing the taxpayer more than the alternatives”, due to the inability of the government to distance itself from decisions on investment and fares.
But with an election almost due (April 1992), cost was not the prime consideration. “My view is that in the current political climate we may have to accept that higher cost if we do not want a messy and vote-losing row over the next three months,” Hill advised.
The Treasury was not giving way. When the working party on the line of route option reported back after Christmas, Major was told that the Chancellor was happy with Rifkind’s blueprint - provided Intercity was not vertically integrated.
Lilley, meanwhile, favoured breaking up Intercity into at least two companies, perhaps defined around the East and West Coast Main Lines.
Rifkind seems to have found his increasing isolation infuriating. On January 13, getting on with the job of drafting a privatisation White Paper, he wrote that “dismantling Inter-City… would seem perverse”.
Hill met with Rifkind the same day to discuss his draft White Paper. Reporting back to Major, he said the “good news” was that the Transport Secretary “recognises that he is extremely unlikely to get his White Paper on BR Privatisation before the [1992 general] Election”.
On the other hand, Rifkind was “still hankering after privatising InterCity later as one vertically integrated national business”. This, Hill noted, was “completely incompatible with a Track Authority and franchising”.
No. 10 had now come out in favour of the approach it would ultimately follow through with - creating Railtrack to be privatised, and franchising services route by route.
In these papers, Hill was unabashed in referring to this as a “compromise” with the Treasury and with Lilley’s Department of Trade and Industry, both of which were most
As well as wanting the right kind of British Rail privatisation, Hill thought it ‘important that Mr Rifkind gets the message that he cannot keep on trying to bounce No. 10 and ignore what he is asked to do’.
concerned with competition.
Rifkind had been “arguing against splitting BR into two entities, one responsible for track, the other responsible for operation”. Hill feared that failing to create a track authority - a phrase he said Rifkind was “extremely sensitive” even about using - would “lose [Treasury] and DTI agreement to the compromise”.
No. 10 viewed the track authority and franchising combination as the only way to hold onto any semblance of a regional split. And Major was desperate for a solution that would tap into a sense of local pride - and the special place of the railway in the British heart. Privatising in the model of business sectors would, after all, be seen as prioritising the interests of profit.
And it was not just Major’s personal nostalgia - a tough election was looming for the Tories. The Prime Minister had been supplied with the results of private polling by the Conservative Research Department’s Andrew Lansley, who would later join David Cameron’s Cabinet. In ‘Southern marginals’ and ‘Liberal Democrat marginals’ (the two samples surveyed), there was little appetite either for privatising Intercity or for a track authority. But in both surveys, over two-thirds of voters favoured “returning the rail services to regional companies like the Great Western Railway”.
Although Great Western was one of the first private companies to be handed the keys, the reality was far from a return to the golden age. Great Western’s owner Resurgence Railways was denied bank guarantees - and so the franchise was handed to the under-bidder, a management buy-out with backing from FirstBus (later FirstGroup, which still runs the franchise). And the management buy-out behind LTS (London, Tilbury and Southend), another of the first contracts awarded, had the plug pulled after the BBC reported on its dubious financial arrangements.
The track authority was floated on the stock exchange as Railtrack, a brand name now synonymous with failure (although that’s another story).
In the 25 subsequent years, there have been too many structural shake-ups to list - not least the collapse of privately owned Railtrack and the creation of Network Rail. Prominent industry executives make no bones about the failures of the original model. “Franchising à la 1995 was indeed useless,” former Strategic Rail Authority chairman Richard Bowker wrote in these pages in 2005.
More recently, Michael Holden, who chaired the government-run East Coast, pointed to the reclassification of Network Rail as a publicsector business rather than a not-for-profit one.
“The immediate impact has been to bring Network Rail under much closer governmental control than either it or its predecessor (Railtrack) ever was,” he wrote in
“Ministers are able to instruct the chief executive of Network Rail directly, and do so frequently - either explicitly or else implicitly through nods and winks.”
Perhaps the franchising model is now under more threat than ever. Labour has pledged to take franchises back as they expire - or even invoke break clauses if this is too far ahead.
And the Department for Transport says the East Coast Partnership, which will take over the East Coast Main Line, will offer “a new way of operating train and track - bringing them closer together”.
The Government says this will be just “the first of the new generation of long-term regional partnerships”. Should this be seen as a vindication for Malcolm Rifkind’s vision of vertical integration? Perhaps so - but we’d be wise to reserve judgment until its success can be measured.
Rifkind seems to have found his increasing isolation infuriating. On January 13, getting on with the job of drafting a privatisation White Paper, he wrote that ‘dismantling Inter-City… would seem perverse’.