Elizabeth Truss is the MP for South-West Norfolk
Network Rail relies on a huge amount of public subsidy and heavy government regulation to run its operation. Yet at a meeting in February, I was told by its executives that it was a “private” company and it could “do what it wanted” on the controversial local issue of the pedestrian railway crossing at Downham Market on the Fen Line to King’s Lynn. The organisation has been true to its word. Last week after years of wrangling with local people who did not want a an ugly footbridge imposed on their station, the organisation simply decided that instead of making their barrow crossing safe they would simply close it and force pedestrians to walk on the road. I was told by executives that Network Rail simply had not worked on any innovations to pedestrian crossings for the last twenty years. After writing to the Chief Executive twice and raising the matter in Parliament, I still have not received a satisfactory answer. The speed of response is slower than any private sector company or government department I have dealt with.
This week, the McNulty review presents further evidence on the failings of Network Rail. The review shows that the organisation has far higher costs than its overseas counterparts and that little cost reduction has been achieved since the 1990s despite huge productivity increases in the private sector. It is 40% less efficient than four European rail networks it was compared to. The gap is partly due to “excessive wage drift and inefficient working practices". In scenes reminiscent of the 1970s, I have heard of cases where a gang of four workers is insisted on to replace a bolt on the track. It has also proved difficult to define responsibility and align incentives following the original decision to split the track from train operations. Yet Network Rail is an organisation with little incentive to sort these problems out.
Network Rail exists in a twilight zone of organisations that relies heavily on public subsidies and regulations but is convinced that it is “commercial”. The salary of the Chief Executive, David Higgins, is not publicly available, though we know that the previous Chief Executive was paid £1.25m. Unlike somebody in a genuine commercial organisation Mr Higgins faces little risk that the revenue stream will stop. The train operating companies are tied in to using the Network. The Government has committed future public funds to subsidising the railways. Passengers have little choice.
Network Rail is only one of the twilight organisations that operate in the pseudo-commercial sector which is neither fully public nor private sector. British life seems to have a surfeit. From the BBC where the Director General is paid £838,000 to universities where the Vice Chancellor of Birmingham is paid £392,000, senior executives claim large rewards for managing a guaranteed cash flow.
I am all for organisations and people who take real risk being rewarded. If you risk your house or livelihood on a venture that delivers real value; of course a profit is justified and is a good thing. It motivates and ensures that resources in our economy are optimised by the “invisible hand”. That is an honest profit and we need more of it in Britain to get out of the hole we are in. However these twilight organisations are not in the business of taking risks with their own money. The role is essentially technocratic. In job terms, is it very different from running a major Government department? The top civil servant at the Home Office is paid £200,000.
And these high rewards do not signify any better service for customers. Being insulated from the rigours of the market often means that they are treated as an afterthought, like the people of Downham Market who want their pedestrian crossing made safer. Private sector companies are far more responsive to public opinion, going to huge lengths to understand their preferences with loyalty schemes and research. This is because their revenue streams depend on goodwill. They operate in a real market with real customers.
Government departments too are not immune from scrutiny. Ministers can be hauled before the House of Commons and asked an Urgent Question. They are directly accountable in Parliament to MPs with a cause. Their finances are subject to public scrutiny and not protected by “commercial confidentiality” which other organisations often are. Failings are laid bare for all to see.
But the twilight zone executive goes without this public scrutiny or consumer pressure. They evade the forces of the market or democracy. The station crossing at Downham Market is not an isolated example. Decisions are regularly made without due regard for us as electors or as customers. There is little clear incentive to become more efficient or save money. We need better mechanisms to gain proper oversight of these behemoths. The large rewards paid to executives in these organisations should be brought into line with civil servants. The new creed should be “no public money without public accountability” and “no excessive reward without risk”.