View from City Road: Costly ticket to privatised railways

For the pounds 92.2m spent by British Rail in the year to 30 April on preparing itself for privatisation, the railways could have bought themselves nine InterCity 225s, or 29 four-carriage commuter trains.

The money would have paid for a quarter of the cost of modernising the West Coast main line. Alternatively, it might have funded the total cost of modernising the London/Tilbury/ Southend route. More to the point, it would have paid for the 11 per cent pay deal being demanded by unions - presently costing the nation hundreds of millions of pounds in disruptive one-day strikes - 14 times over.

Instead of which it has been blown on preparing for a privatisation that few wanted and even fewer think will work in terms of securing a better deal for the consumer.

It is also open to question whether it will reduce the costs of running the railways to the taxpayer. Something approaching half the money, it seems, went on expensive legal and consultancy fees. Under the terms of the restructuring, the rails, in the form of Railtrack, were separated off from the trains, and the four companies that ran the trains were broken down into 25 new ones.

What has been spent so far - as Frank Dobson, shadow transport secretary, was quick to point out yesterday - is only the start. The pounds 700m predicted in his Deeper Darkness at the End of the Tunnel - the Soaring Cost of Rail Privatisation is an exaggeration for the figure includes costs for redundancies that probably would have happened anyway. None the less, the final tally is going to run to several hundreds of millions. Whether the efficiencies gained by private sector management are capable of paying for that cost is anyone's guess, but at this stage it certainly seems questionable.

Radical restructurings have become a fact of modern business life and it could be argued that British Rail needed this kind of shake-up whether or not it remains in the public sector. The sums spent by BR look like small change next to the vast restructuring costs being incurred by many leading private sector companies. Set against what water cost to privatise, the figures also look tame. In that case, pounds 5bn of national loan fund debt had to be written off and pounds 1.6bn of cash injected into water company balance sheets. On top of that, the water authorities spent pounds 176m preparing for privatisation and pounds 64m went on creating the National Rivers Authority. Finally, a pounds 73m debenture had to be repaid and the broking and merchant banking fees associated with selling the companies to investors ran to pounds 131m.

There are two vital differences between the privatisations of water and rail, however. The first is that water is a fundamentally profitable industry and, as we have seen, potentially highly attractive to investors. Rail is not. The Government is going to have to pay the private sector to run the railways indefinitely. Water raised pounds 5.23m for the taypayer before costs; rail will raise nothing.

The second difference is that John Major's is a fragile government existing on a slender majority. It becomes much more difficult in these circumstances to justify and push through such costs. Rail privatisation is too well advanced to backtrack now, but the Public Accounts Committee would be well advised to keep a very careful check on how and why all this money is being spent.