Most misunderstood is the interaction between profits and safety. Enlightened managers don’t seek to maximise any one year’s profits – certainly not at the expense of safety – but to optimise shareholder value, the overall worth of the business. Endangering future profits by undermining safety is a great way to destroy shareholder value. The Railtrack question is not about whether the private sector can deliver safety. As we said a year ago, nobody accuses British Airways of taking shortcuts on safety.
Labour – and the DTI’s Stephen Byers – don’t seem to have worked this out yet. And their obvious contempt for shareholders in Railtrack revealed how little the government understands the role of capital markets. The real question to ask about Railtrack is how to make the economics stack up. As Anthony Hilton pointed out recently in the Evening Standard, Tesco generates #24bn turnover with #1bn of assets. The entire railway industry turns over just #7bn on an asset base worth #60bn at replacement cost.
The problem is how to structure a partnership between the public and private sectors to ensure adequate funding to bring railways up to the standard we expect in the 21st century.
So does Labour resent the idea of handing over billions to a profit-making company to manage the railway infrastructure? Or is it simply balking at the level of investment needed? Either way, this government will pay the price for pulling the rug out from under Railtrack. Private sector funding will be notably absent for future PPP projects or privatisations, such as BNFL, healthcare and transport, that rely on government funding guarantees. Worse, sadly, we are now about to return to an era where rail funding is determined neither by market forces nor safety imperatives – but by the fleeting whims of those arch short-termists: politicians and treasury spin doctors.
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