Railtrack was a group of companies that owned the track, signalling, tunnels, bridges, level crossings and all but a handful of the stations of the British railway system from 1994 until 2002. It was created as part of the privatisation of British Rail, listed on the London Stock Exchange, and was a constituent of the FTSE 100 Index. In 2002, after experiencing major financial difficulty, most of Railtrack's operations were transferred to the state-controlled non-profit company Network Rail. The remainder of Railtrack was renamed RT Group plc and eventually dissolved on 22 June 2010.
History
Background and founding
During the early 1990s, the Conservative Party decided to pursue the privatisation of Britain's nationalised railway operator British Rail.[1][2] A white paper released in July 1992 had called for a publicly owned company to be primarily responsible for the railway infrastructure, including the tracks, signalling, and stations, while train operations would be franchised out to various private companies.[3] However, Robert Horton, who would become the first chairman of Railtrack and thus play a leading role through the early years of the organisation's existence, lobbied for the infrastructure-holding company to be privatised as well in order to maximise financial gains; this position was also supported by several figures within the Conservative government, such as the Chancellor of the Exchequer Kenneth Clarke and the Secretary of State for Transport Brian Mawhinney.[2][4]
On 1 April 1994, in accordance with recently passed legislation, the newly established Railtrack took control of Britain's railway infrastructure from British Rail.[5] Its primary revenue sources were the track access charges levied on train operators and the lease of stations and depots. Furthermore, the company routinely received funding from the British government; the resulting money was largely spent on the railway network in accordance with plans laid out by the rail regulator.[4] Between its creation and late 1998, the company reportedly had a relatively calm relationship with its first economic regulator, John Swift QC, who exercised a strategy of encouraging Railtrack to make its own commitments towards improvement.[6] According to the railway historian Christian Wolmar, the regulator had intentionally acted weak as to avoid complicating the creation and privatisation of Railtrack.[4] In January 1996, the British government confirmed its plans to privatise Railtrack for £2 billion with a total asset value of £4 billion.[2][5]
Railtrack's initial operations were disrupted by an industrial dispute that largely ran between June and September 1994;[10][11] at one point, the company's management proposed dismissing all of its signallers, comprising roughly 4,600 staff.[12] Railtrack's first chief executive, John Edmonds, pursued a strategy of disposing of engineers and outsourcing their work wherever possible with the goal of reducing costs.[4][13] Within its first few years of operation, Railtrack appeared to perform well financially, annual profits were recorded while its share value quadrupled within a relatively short timeframe.[4] Furthermore, during the mid-to-late 1990s, several high-profile investment projects in cooperation with train operators and other partners were announced by the company.[5]
Issues and controversies
The Southall rail crash in 1997[15] and the Ladbroke Grove rail crash in 1999[16] called into question the negative consequences that the fragmentation of the railway network had introduced to both safety and maintenance procedures. Railtrack was severely criticised for both its performance in improving Britain's railway infrastructure and for its safety record.[9][17] It was observed in Lord Cullen's inquiry into the Ladbroke Grove accident that trains would have been prevented from passing any signal at red had an Automatic Train Protection (ATP) system had been fitted and operational; however, ATP's national adoption, a recommendation made after the Clapham Junction rail crash in 1988, had been abandoned as the cost was considered to be excessive for the increase in safety.[18]
Administration
On 7 October 2001, Railtrack plc was placed into railway administration under the Railways Act 1993, following an application to the High Court by the then Transport Secretary, Stephen Byers.[40][41] This was effectively a form of bankruptcy protection that allowed the railway network to continue operating despite the financial problems of the operator. The parent company, Railtrack Group plc, was not put into administration and continued operating its other subsidiaries, which included property and telecommunications interests. If this action had not been taken, rail services throughout Britain might have entirely stopped for a time.[4][42]
For most of the year in administration, the government's position had been that the new company would have to live within the existing regulatory settlement (£14.8 billion for the five years 2001–2006). However, it soon became obvious that that was impossible, and that the aftermath of the Hatfield crash had revealed that the network required significantly more money for its operation, maintenance and renewal. It was reported on 23 November 2001, that a further £3.5 billion might be needed to keep the national railway network running, a sum disputed by
Transfer of assets to Network Rail
Network Rail was formed with the principal purpose of acquiring and owning Railtrack plc. Originally the Government allowed private companies to bid for Railtrack plc. However, with limited availability of financial data on Railtrack, the political implications of owning the company and the very obvious preference of the government that the national railway network should go to Network Rail, no bidders apart from Network Rail were forthcoming, and Network Rail bought Railtrack plc on 3 October 2002.[48][49] Railtrack plc was subsequently renamed to Network Rail Infrastructure Limited.[50]
Network Rail's acquisition of Railtrack plc was welcomed at the time by groups that represented British train passengers. The attitude of Railtrack's customers – the passenger- and freight-train operators – was much more cautious, especially as they were wary of a corporate structure under which shareholders' equity was not at risk if the company's new management mis-managed its affairs.[51]
Liquidation
On 18 October 2002, Railtrack's parent company, Railtrack Group, was placed into members' voluntary liquidation as RT Group.[52] The Railtrack business (and its £7 billion debt) had been sold to Network Rail for £500 million, and the various diversified businesses it had created to seek to protect itself from the loss-making business of running a railway were disposed of to various buyers.[53] £370 million held by Railtrack Group was frozen at the time the company went into administration and was earmarked to pay Railtrack shareholders an estimated 70p a share in compensation. The Group's interest in the partially built High Speed 1 line was also sold for £295m.[53] During December 2002, Railtrack Group was delisted from the London Stock Exchange; that same month, the company announced an agreement to sell its remaining property interests, RT Group Developments, to the property developer Hammerson in exchange for £63 million.[54]
Compensation
Litigation
In late 2001, Railtrack shareholders formed two groups to press for increased compensation.[55] A lawyer speaking for one of those groups remarked on GMTV that his strategy was to sue the government for incorrect and misleading information given at the time Railtrack was created, when John Major was Conservative Prime Minister. An increased offer of up to 262p per share was enough to convince the larger shareholder group, the Railtrack Action Group, to abandon legal action. The chairman, Usman Mahmud, believed that legal action would not be successful without the support of management and major shareholders.[56]
The legality of the decision to put Railtrack into railway administration was challenged by the smaller Railtrack Private Shareholders Action Group. Their action against the government alleged that the Secretary of State for Transport at the time – Stephen Byers MP – had, by deciding to cut off funding for Railtrack and asking the High Court to put the company into railway administration, committed the common law tort of misfeasance in public office.[4]
Management
Robert Horton was the first chairman of Railtrack; he resigned from this role in early 1999 amid reports of disagreements between Horton and the company's then-chief executive Gerald Corbett.[69] Steve Marshall became the company's next chairman; following the company's entering into receivership, he announced his own resignation in October 2001 and actually stood down in March 2002.[70] That same month, Geoffrey Howe was appointed chairman of Railtrack Group (the part of the business not in administration) and quickly pursued a strategy of seeking compensation from the British government.[70][71]
Railtrack's first Chief Executive, John Edmonds, was a keen proponent of outsourcing the company's engineering activities and driving down costs.[13][14]
See also
- History of rail transport in Great Britain 1995 to date
- Impact of the privatisation of British Rail
External links
References
- Tim Strangleman. Nostalgia for Nationalisation – the Politics of Privatisation Sociological Research Online, 2002, retrieved 5 December 2022^
- The great train sell-off: Who dunnit? BBC News, 20 October 2000, retrieved 5 December 2022^
- New Opportunities for the Railways: The Privatisation of British Rail