The Derailment of Railtrack

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1:46Gerald Corbett: Thanks for listening to A Long Time in Finance with Jonathan Ford and Neil Collins.

1:57Jonathan: Privatisation has a bad name today. It's fair to say that it's not been an untrammeled success. During the 1990s, the Thatcher government acted as though it was the answer to almost everything. The process reached its ideological peak with Britain's railways. This always looked ambitious, since trains don't make money while governments are always short of it. The industry was broken up with rail track responsible for those bits that were not supposed to move. In summer 1997, Gerald Corbett was appointed chief executive. Three weeks later, the Southall train crash killed seven people, and two years on, the Paddington disaster killed 31, Britain's worst rail disaster in a decade.

2:46Jonathan: A year later, a derailed train at Hatfield killed four. Gerald Corbett has now written a memoir. He's called it When Something Happens, although When SH1T Happens might be a more appropriate title. He's with us today. Welcome, Gerald.

3:05Neil: Good afternoon.

3:06Jonathan: So your career has been much more than Rail Track, but today we would like to focus on that and the lessons you took away from your three years in charge. Firstly, what do you think you learnt?

3:18Neil: I learnt a lot about myself. They say that you're either successful or you learn a lot. The railway was the last of the great Thatcher privatisations. Mrs Thatcher didn't want it to happen. She didn't think it was a good idea at all, partly because of the subsidy. And John Major's government did it, and they did it in a huge hurry. And the initial plan was just to privatise the train operators by selling the franchises and the rolling stock and some other bits and pieces. But RailTrack was going to be kept in the public sector because it was a monopoly. And that's actually where the bulk of the subsidy went and where the bulk of the expenditure went.

3:54Neil: And it was quite difficult to conceive of RailTrack being a sort of profit-making thing when that's what it was. Then in about 1992, Bob Horton, who's the chairman of RailTrack, When Bob came in charge, he was rather more confident about being able to privatise Railtrack and sell it with a regulator to look after the public service aspect of it. And the Treasury quite liked the sound of the one billion plus that that would raise. And it would also get 30 ,000 unionised railway workers away from the Treasury and into the private sector. And that would be easier to manage. Bob then also had the idea of privatizing the maintenance contractors, who were 20 of the 30 ,000 staff.

4:42Neil: That would be better for RailTrack by getting the unions away, and it would raise a bit more money. So that became the cunning plan. The railway managers were all against it for obvious reasons, because the railway is an engineering system. And it's much, much easier to manage when it's run as an integrated system. and is run as an integrated system basically around most of the world. But that was not the decision. I say in the book, the lunatics have got hold of the keys to the asylum. That's slightly overplaying it because there's some very clever people in the treasury. But that was the course that they went on against the railway industry's own better judgment.

5:21Neil: So when I arrived, which was a year after the float, which had gone very well, I inherited this position at the heart of the old railway, which had been then broken into 100 different companies, all tied together by these adversarial contracts. An important contract was the contract with the train operators. And they were incentivized to grow. Their subsidy was going to decline every year. But if they added lots of new trains and charged people more money, they could grow their revenues and make their profits. So they were heavily incentivized to grow. So we, on the other hand, through our regulatory framework and through the economic architecture, were set up to improve train performance, improve punctuality.

6:03Neil: We had no incentives for growth at all.

6:05Gerald Corbett: At the heart of the whole rail track empire was a bunch of track and infrastructure, some of it of quite extraordinary antiquity. And presumably the task was that over time you would essentially reinvest the...

6:20Neil: Well, that was... You're absolutely right.

6:22Gerald Corbett: And renewing the network to make it more efficient or whatever.

6:25Neil: Absolutely. That was the cunning plan. We grew our profits by putting in place programs and investments and things to improve punctuality and to improve efficiency. And although the payment we got from the train operators went down every year, that was to save the Treasury money. And let's not forget the subsidy dropped from$4 million a year in 1997 to zero in 2000. So it sort of worked. But we were heavily incentivised to reduce costs. And the idea was that we would use public money and our success and our profits and everything to fund big investment in the railways. We were also given the money to redo every single station, two and a half billion, which actually worked quite well.

7:05Jonathan: How much did you and your executives know about what you actually had in RailTrack?

7:12Neil: I mean, I'd read all the stuff and I'd been through the interviews and I'd read all the papers. and I was aware that it was fragmented and the challenges and the difficulties and everything. The executive knew about it too.

7:24Gerald Corbett: It was worth saying, as Neil said, you took over as chief executive in 97. The company had been privatised in 94, sold at a share price of about 390. By 1998, it looks as if it was a very successful business. It was up at nearly 20 quid.

7:38Neil: Yeah, I joined as a fiver. With the first three years of RailTrack, the train, our bit of punctuality improved quite significantly because of the programmes that we put in place. And we had the Labour government who, as it became clear, that they weren't going to nationalise it.

7:54Gerald Corbett: They had a windfall tax, didn't they?

7:56Neil: Well, it would have cost them an absolute bomb. And I think they realised that if they got a different regulator and he held us more to account and he would force us to fulfil and manage ourselves for our public service obligations, and that was the way they wanted to go. So I think the fact that Labour got more comfortable with us, That also helped the share price. So we had rising profits. We had a relationship with the government improving. And then we helped them save the Channel Tunnel Rail Link, which was a fantastic deal.

8:26Gerald Corbett: Do you think the shareholders actually understood the business that they were investing in? Or do you think they basically thought this is a dividend machine, it's going to be great and everything will be fine?

8:36Neil: The initial investors thought it was going to be a proper, and that's how it was set up, to be a regulated utility. every five years the regulatory review would drive down the the subsidy the amount of money we got and we become more and more efficient we weren't set up to grow at all but also during that first three years and that helped the share price as well we sort of won the public and neil will remember this won the public argument for rail track to get have some growth incentives because it was misaligned with the train operators having all the growth incentives and us having none but one of the big problems we had was the way the government decided to handle the crash at Ladbroke Grove.

9:11Gerald Corbett: Well, we should just set the scene, to be honest. We come to the crashes and the first crash... Southall. Southall in the spring of 19... Well, Southall, the driver

9:20Neil: was loading his bag and he went steeping through the... So a human error.

9:23Gerald Corbett: But the first big one that everyone remembers is the Ladbroke Grove crash. Was Ladbroke Grove, yes, yes.

9:27Neil: Well, that was terrible. It was three minutes past eight in the morning. The sun was shining bright. The Little Thames Turbo, two miles out of Paddington, found itself face-to-face with the Cheltenham Flyer. Yeah. And we're travelling at 90 miles an hour. The combined impact of the two was 130 miles an hour. And that's the worst, in terms of impact, that's the worst crash that there's ever been. It was ghastly. But the background to it was this particular signal 109, which was a red light. And the previous two signals, which were double yellows and yellows, and he'd cancelled his horn. He'd gone through them.

10:01Neil: And then he went steaming through the red light. Normally when a driver goes through a red light, 95 % of the time they bang on the brakes after three yards because they realise what's happened. But he didn't. He accelerated and he ended up in the face of the Cheltenham Flyer and he died immediately. There were 31 people who died.

10:19Gerald Corbett: You know, Ladbroke Grove is obviously a terrible event. You get the sense it doesn't have the same impact on you as Hatfield did subsequently. You kind of survived that one.

10:30Neil: Yes, but I remember Peter Parker.

10:32Gerald Corbett: Chairman of British Rail back in the 70s and 80s.

10:35Neil: Indeed. His advice to me before I took it on was he said, you can survive one crash, but you won't survive two. But it was the way that the government handled Ladbroke Grove and the way they blamed us and the climate that they set that made fall out from Hatfield so difficult.

10:52Jonathan: But another thing that happened was actually the safety record

10:54Neil: of the railways said it got better. I mean, 1998 was the first year when we didn't have a single passenger death on the railways. We then spent 2 ,000 roaring into action, and we put into place a series of programmes. We got reduced the number of spads by another 30%. We got on top of broken rails because, of course, there were more trains thundering over the track. Inevitably, more rails started to break.

11:16Jonathan: But obviously, broken rails were the responsibility of rail track. Correct. Whereas a rogue driver was hard to predict.

11:24Gerald Corbett: But maybe we should come on to Hatfield. You've come through the Ladbroke Grove accident. Yes. You've got your new sort of safety regime under this new organisation, which is... Well, we changed it.

11:35Neil: Yeah, we did quite a lot. But Hatfield was a broken rail.

11:39Gerald Corbett: Yeah.

11:40Neil: And it was in a terrible state. And it had been earmarked for replacement. And it turned out that the replaced rail was alongside the track and had been put there four or five months previously. But the possession for it to get done, for some reason, was missed in April. They didn't want to do it over the summer because the line was very busy. And so it just hadn't been done.

12:06Gerald Corbett: But this goes back to the web of contracts by which you were managing this business. This wasn't being done by RailTrack's own engineers. This was being done by a contractor.

12:15Neil: That's right, because all the maintenance went out to the contractors. So there was one contractor, Balfour Beatty, who was in charge of maintaining the track. Another contractor, Jarvis, who were in charge of replacing the track. And there was us who was in charge overall, and we were tied together with these contracts. But at the heart of it was the most important safety thing that didn't happen was the track patrolling. Because the final sort of safety measure you have for your track is once a week, the main lines are manually patrolled by track workers walking. And under BR, there were three track workers patrolling the track on a weekly basis.

12:53Neil: Balfour Beatty had reduced it to two in order to meet their efficiency targets. Even the whole network? No, no, no, no, no. Just for the long... There were thousands of people patrolling the track. But once a week it was patrolled by three people. They reduced it to two people, which meant that it was only patrolled from what's called the CESS, which is alongside the track, which actually meant that you couldn't see the track from the top. So it wasn't the safety action that you thought it was. If it hadn't changed the track patrolling, then the hope would have been that the chap would have seen that the rail was in bad, really bad shape and would have banged the speed restriction on.

13:30Neil: Now, so when that happened, because after Ladbroke, well, it was our accountability. There was no hiding from that. So I tended my resignation, which I thought was the right thing to do.

13:41Jonathan: And why was it not accepted, do you think?

13:44Neil: I must admit, I thought it would be. But, you know, we'd gone through Ladbroke Grove. I'd said that if the signal partner had been not in good working order, it had been our fault, so to speak, I would have resigned. because the reason we get paid all this money in the end is because we are actually accountable and when it became obvious that evening the crash was at one o 'clock and by that evening we knew it's a broken rail it was obvious I thought that I had to go and I thought it was much better if I just I just resigned and then there was a sort of I did it the next following morning there was a board meeting that evening and the chairman was flying back from America and there was a sort of silence after the announcement went out it was and then suddenly the phone started going because um the The first person who came on was Steve Norris.

14:27Neil: He just rang up and said, this is ridiculous. You shouldn't resign. You're part of the solution. And then other people started to ring us as well. And Gus MacDonald rang and everything. Who's Gus MacDonald? He was Transport Secretary.

14:43Gerald Corbett: OK, yeah, yeah.

14:44Neil: And then Number 10 rang and said, what's going on? And they said, well, we don't want you to resign. We want you to deliver the transport plan. It's not your fault. And I said, well, I am accountable. I'm the chief. He said there's 20 ,000 bloody miles of track around the whole country. There's 900 broken rails a year. You can't have the chief executive. It's not your personal fault. And then number 10 put out an announcement saying, Mr. Corbett's doing an important job at a difficult time, which is from number 10. Absolutely. Don't fall, Neil. Kiss of death.

15:14Gerald Corbett: You enjoy the full confidence of the board.

15:18Neil: No, but that is pretty supportive. A football manager. And then Pam Warren, who was known as the lady in the mask, who was the leading light. You need to introduce her. Who is she? Well, Pam Warren had been on the Cheltenham Flyer at Labbrook Grove. And she'd been in the front carriage. And she'd been very badly burnt and had had umpteen operations and had to wear a mask for several years.

15:42Jonathan: Right.

15:42Neil: And she was the leading light of the Paddington Survivors Group, who we'd had several meetings with. And then she held a press conference that said that they didn't think I should resign and that they wanted me to continue to work on improving safety and so on and so forth. So you had no choice, really. You allowed yourself to retort ground. Believe it or not, I did quite enjoy the job. I mean, it was mission impossible, but I did quite enjoy it. And we were making some progress.

16:11Jonathan: Good news, your sentence has been extended. Good behaviour.

16:15Neil: No, Neil, I did enjoy it. It was very demanding, but I did enjoy it.

16:19Jonathan: Not long after, you were fired. Yes, a month after. This is the thing that's really bizarre, it seems to me. And reading your book, I get very little insight into why it happened. Well, I don't really know why it happened.

16:34Neil: I mean, the month after the crash was terribly busy, as you can imagine. And we did have to check all the rails because there'd been a crash and the rail had broken. and to restore public confidence in it, we felt we had to check the whole network. And of course, the engineers were absolutely petrified.

16:53Gerald Corbett: Why were they petrified? Because it was such a big task? Or they were worried it would show a double mass?

16:58Neil: No, if there was another crash, and it turned out that there'd been two broken rails in a month, and we hadn't done anything, then they could be liable for corporate manslaughter. Under our safety case, the legal liability sits with the engineers and the head of track engineering. even though most of the engineers in the privatization had moved into the maintenance contractors and any information that there was had moved into the maintenance contractors but we still had the accountability so they said they said i think quite rightly we got to check everything and that we need to do that to restore public confidence and they came up with a set of guidelines that any rail with a crack of more than 30 millimeters would have to be replaced and their best estimate was that there'd be 300 of these there'd be 300 speed restrictions we'd have to put on around the network but it turned out two weeks after that there were 1800 and with hindsight that's putting the speed restrictions on putting the trains down to 20 miles an hour yes it meant that if a train did derail on one of those sites it wouldn't come off the track but it was it was quite draconian and i can remember professor smith ronan smith who was working with us on gauge corner cracking which is all about cracked rails him saying you know they're absolutely petrified they stopped making engineering judgments but anyway we had to do that so the whole network slowed it was also the worst the wettest october in living memory i just got on with it and i was quite surprised when the chairman called me in and um and said they thought we ought

18:27Gerald Corbett: to go and why did what was his reasoning he just said i've often wondered why they did it because

18:33Neil: when i went back to my office after we'd announced it because he wanted me to announce it to them and say it was my idea which i wasn't that keen on because it made it look as i was running away and then I was persuaded to do that because it would make it easier for the company going forwards Philip was petrified that they started attacking my successor and attacking the board for getting rid of me and and and I eventually for a number of reasons went along with it but no I I said to him well that was there any political pressure no there's no political any shareholders no when train operators complaining no and um and I said why are you doing it and everything I said it's and he said, everybody's attacking us.

19:13Neil: We think you're going, we'll lance the boil and people won't be able to attack us.

19:17Gerald Corbett: It didn't work so well. I've gone over in my mind.

19:21Neil: You don't get it. I don't get it either, Neil. I think it was, the network was in a mess and there was a general feeling that someone had to go.

19:29Jonathan: It sounds as though they panicked, really.

19:31Neil: I've gone round in circles about it and talked to people and the railway people were astonished. Yeah, but your instinct was right. Yes, the share price dropped 13 % in between getting back in the lift, having addressed the news, because we had to go outside the Rail Track house and tell all this to the TV cameras. And by the time I got back to my office, the shares had dropped 13%.

19:55Gerald Corbett: I want to move on to the aftermath. The situation is a complete, you know, as you suggest, a mess in the sense that you've imposed all these speed restrictions. So all your train companies are using their adversarial contracts to demand money back and not to pay things that they owe you. And you also have huge bills for renewal and repair of things which haven't been done, which now have to be done at warp speed. So you're left with money draining out of the bucket.

20:26Neil: We knew that, and there was a big bill, but I think I would have got the network back to normal much quicker because the real problem was the speed restriction of the 30mm crack. As I left, we were beginning to understand what drove the rate of propagation of that crack. And so I do think if I stayed and given it a bit of woomph, within six weeks we'd have been able to change the speed restriction policy, which isn't easy to do because you have to get the HSE on side and you have to get the government on side and everybody. And everyone's absolutely petrified in case you get it wrong and there's another crash and then they get blamed.

21:03Neil: But I think we could have done that. But the real problem was that they did change their strategy for dealing with the government. And they thought the best thing to do was just to ask for more money. Correct. And so they asked for more money.

21:14Gerald Corbett: One and a half billion.

21:15Neil: And then they very quickly became part of the problem while there was the solution.

21:19Gerald Corbett: You left RailTrack. The company obviously is left with the enormous bill of trying to...

21:25Neil: There would have been a big bill anyway, but we would have got through it.

21:27Gerald Corbett: No, no, no, no. This is not an attack on you, Jeremy.

21:30Neil: It's just to say there's a big bill.

21:31Gerald Corbett: they can't fund it out of their existing finances so they go to the regulator and they say could we have a billion and a half advance to tide us over effectively pulling forward money we're going to have to spend at some point so we can get over this hump and the regulator says okay fair enough and then they completely make a mess of it by announcing that despite making a 534 million loss, they're planning to pay a dividend with their results. And I remember writing about this at the time, that kind of mad, you know, on the one hand we're bust, on the other hand we need to pay a dividend so we can have a rescue rights issue, I suppose.

22:10Neil: The right way to have done it, because we were given a 50 % increase in our access charges and our revenues by the regulator in the review a week after Hatfield. And the right thing to have done would have been not to have gone asking for money, but just concentrated on getting the network back, not to have given up enhancement schemes, not to have given up the CTRL. And then the new regime comes in, brings some of it forwards and everything. We get the new chairman. Then I would have had to go because you can take an organisation through two train crashes, but three. And then once we got the new chairman on board and understanding what it was about, and I think he could have then gone in and asked for more if it turned out that we needed more.

22:49Gerald Corbett: When do you think the government decided that they basically wanted to put RailTrack into administration. Because in October 2001, which is after the demand for money, the government essentially stopped payments being made to...

23:04Neil: Well, the new chairman had a meeting in June and a meeting in July. And that was when they were asked for the regulatory system to be suspended and everything. And I think they realised, buyers realised then, that this wasn't going to work. And that's when they started doing the planning for the administration. And everybody seemed to know about it, Neil. And the share price went sort of down like that. But nobody at Rail Track House seemed to know. It's often the way with these things, isn't it?

23:30Gerald Corbett: Yeah. But it's not funny.

23:33Neil: It's very sad because if that Balfour Beatty track patroller had actually seen that the rail was in the state that it was, the crash wouldn't have happened. We'd have then had the regulatory review, which would have been a great triumph, and we could have made perma progress on all the different programs, and we might have escaped in spite of all the challenges.

23:52Gerald Corbett: Can we talk a bit about the actual administration? You must have been a shareholder in the company.

23:58Neil: I sold all my shares the day I left. So did my mother. Very wise. So did my mother.

24:05Jonathan: Were you advising your mother?

24:09Gerald Corbett: But when the administration takes place, because of the things we've been talking about, the question of the way that the government had handled this, asking a judge essentially to declare the business to be insolvent and put it into liquidation. You have an almighty fight between the private shareholders in one group and the institutions in another basically holding out for a payment.

24:32Neil: Yeah, Steve Marshall, my successor to his credit, did eventually realise that the government had behaved badly and he led a fight back and he got some more money for them. But the mistake was made. If they had fought the administration and called the regulator and got the review started or just had an argument with the judge and got through to Monday, then all the shareholders would have jumped up and down and they might have been able to stop it.

24:56Jonathan: So it was like they just gave up. Were the shares worthless in the end?

25:01Neil: No, no, they were.

25:02Gerald Corbett: When it went bust, first of all, the government said, well, you can have the cash left in the company, which was 370 million quid, which was 70p a share. and unsurprisingly the shareholders took umbrage at this and said that wasn't enough. They then raised it to 250p a share by basically lobbying in some taxpayers' money and the proceeds of the Channel Channel Rail Link.

25:22Neil: Yeah, that's right.

25:23Gerald Corbett: And the institutions accepted 250. The private shareholders fought on for 650p on a basis which I can't quite figure out and they went to the High Court in 2005 and were told by the judge to take a hike. So I don't know what, I assume they ended up getting 250 as well.

25:39Jonathan: Do you think it could have been rebuilt?

25:42Gerald Corbett: Do you think it was a viable structure from what you saw of it?

25:46Neil: Eventually, Network Rail itself took the maintenance back in-house, and that removed one of the big interfaces that had been crashed at privatisation. That would have made it easier. You then have had a privatised rail track, but at least that was integrated, and that would have been simpler, and it might have worked. But it would have been better to have kept rail track in the public sector, because whenever something went wrong, if it's in the private sector, you're going to get blamed. You're going to get a repeat of Ladbroke Grove. And you can't run these safety-critical industries if you're being vilified the whole time.

26:18Neil: I think the best way to have done it would have been to go back to the big four that there was in 1948 because these things are regional monopolies, really. And if they'd privatised the big four and had a regulator that compared and contrasted, and then if one of the four companies boosted up and everything and were vilified, it wouldn't taint the others. Anyway, it's all going back now into Great British Railways.

26:42Jonathan: I was going to say, what is your view of Great British Railways?

26:46Neil: I think it'll be easier to manage, but I think the old problems will recur because you've got the minister on top of a big utility and all the political interference that inevitably happens as a result of that. You've got annual cash budgets that you have to agree with the Treasury. The railway won't get the investment that it had. It won't have the management and so on and so forth. So I think the old problems would emerge. and maybe in 10-15 years time there'll be a chance to try the regionally integrated railways maybe or open access which is the train operators will will expand and it'll be like it was going to be at the beginning that rail track wasn't going to be privatized and only the train operators and the

27:24Gerald Corbett: roscoes were going to be privatized just looking at those subsidies it's whatever the structure is

27:29Neil: It's a bit muddied by 2020. I agree.

27:33Gerald Corbett: So 2020 was an amazing year. But even, I think in 25, 26, we're talking about 11 billion of subsidies. So it's still absolutely enormous. And that is excluding all the HS2 stuff, which is another 10 billion. Oh, God, HS2. Let's not get on to HS2, please. We're not allowed to talk about that. It makes Neil two ups.

27:52Jonathan: So we can look forward to the railways being run for the benefit of the workforce rather than that of the passengers.

27:58Neil: Are you cynical, Neil? Of course not.

28:01Jonathan: But I do remember British Rail. Yes. Along with the sandwiches and strikes and everything else.

28:07Neil: But we always hope for the best, and there are some good people on the railways, and a lot of money has been poured into them, and the rolling stock's much better than it was. The growth has been fantastic. All the research that's been done comparing our railways now with the continental ones looks quite positive. So there's some good news about.

28:25Gerald Corbett: I mean, you think you notice from these, I mean, obviously, the structure of subsidy has changed dramatically. But my feeling is that undoubtedly a lot of work has been done. But I suspect if you look at all the stories about the way things get planned for and the way infrastructure projects work in the UK, a lot of money has been wasted on kind of various bat tunnels and what have you, which means that you're spending a hell of a lot to renew the railways. Well, the MPs were always terribly keen to get money spent in their constituency.

28:55Neil: Of course. I mean, every day there'd be a letter and a phone call from someone saying, can we possibly... Peter Lilley was over the moon in Harperdon when we cut the trees by the railway, I remember. Leaves on the line.

29:07Gerald Corbett: Brilliant.

29:09Jonathan: Well, it was a sad experiment, which you were unfortunate to be at the moment when these...

29:18Gerald Corbett: Dr Frankenstein.

29:19Jonathan: Accidents happened. that was a long time in finance with jonathan ford and neil collins production and editing by nick hilton please rate and review it on your podcast app