Appointment In July 1999,
John Prescott MP, Secretary of State for the Environment, Transport and the Regions and Deputy Prime Minister, appointed Winsor as Chris Bolt's successor as Rail Regulator and
International Rail Regulator. On his appointment after the British general election in 1997, Prescott had declared he was going to take a far tougher line with the privatised railway industry. Prescott had been fiercely opposed to the privatisation in 1996 and was one of the 'old Labour' stalwarts who wanted to renationalise the industry outright. Despite having said in opposition that its policy was a 'publicly owned, publicly accountable railway',
New Labour would not promise renationalisation, even if it could have afforded it. In its manifesto for the 1997 election, it had committed itself to a policy of increased accountability of the privatised companies to the public interest through tougher and more effective regulation. This was seen as an imaginative policy. If it was properly implemented, it could achieve virtually all the government's objectives for a better performing, more efficient railway without the expense or controversy of renationalising the assets. At the
Labour Party conference in September 1998, Prescott declared that he was going to carry out a 'spring clean of the regulators'. Many commentators realised this meant the appointment of a tougher, more
interventionist replacement for Swift.
New regulatory approach Winsor's five-year term as Rail Regulator began on 5 July 1999. He immediately announced a new regulatory agenda, one which contemplated holding the privatised railway companies much more closely to account. It also involved radical changes to the regulatory and contractual matrix for the privatised industry. It replaced enforcement regulation with incentives, and changed the financial, contractual and licensing environment in which the industry operated. Winsor's ability to pursue his new regulatory agenda was significantly hampered by problems with
Railtrack coming to a head very shortly after he took office. One of Winsor's principal motivations in applying for the post of Rail Regulator had been his frustration with — some critics elevated it to a visceral hatred of — Railtrack's incompetence and how it impeded so much progress in the privatised railway. He was also reported as being increasingly exasperated with the failure of his predecessor to hold Railtrack properly to account, and to use the powers of the office to apply pressure on the company and to reform—increase—the powers of the Rail Regulator to make regulatory and contractual accountabilities more effective. Winsor was severely critical of what he found when he took over the office of the Rail Regulator. He described it as a dysfunctional organisation, which was inward-looking and barely able to do the job it had been given by Parliament. He said changing this quickly was all the more important because the ability of the train operators—Railtrack's direct customers—to apply pressure and secure fair terms and reasonable performance from the infrastructure operator was weak. This was because their contracts were weak, with a poor specification of what they got for their money and uncertain and ineffective remedies when things went wrong. His reform agenda had three major planks: • changing the financial framework in which the infrastructure manager operated through the periodic review of its revenue requirements, changing the structure of access charges so as to introduce a higher degree of incentives; this led to his deciding (in October 2000) to increase Railtrack's income from £10 billion to £15 billion for the five-year control period 2001–2006. • reforming Railtrack's network licence—its principal instrument of accountability to the public interest—by the introduction of nine new conditions covering matters such as its disposal of land, dealings with dependent users, the establishment of a reliable, comprehensive register of the capacity, condition and capability of its assets, its means of accounting and its stewardship of its assets (including the setting up of a system of regulatory reporters to assess the company's progress and competences in areas of network operation specified by the regulator). The aftermath of Hatfield—what it revealed about the state of Railtrack's asset knowledge—led to the carrying out of a further financial review in 2002–2003. The conclusions were announced on 12 December 2003 and gave
Network Rail (Railtrack's successor) an additional £7.4 billion.
Problems with Railtrack Winsor's focus was on Railtrack, which he regarded as performing most unsatisfactorily. He criticised it for 'policies of neglect of its assets and hostility to its customers'. In his first month in office he took enforcement action against it in relation to its performance. He threatened a maximum financial penalty of £42 million if it failed to improve its performance towards passenger train operators by 12.7% in the operating year 1999–2000. The penalty would be £4 million for each percentage point it missed. Railtrack eventually missed this target by 2.7% and was fined £7.9 million in December 2001. Railtrack criticised the penalty as 'the largest fine in corporate history' which it was not. But it did represent a significant hardening of regulatory approach to the one which the company had enjoyed under the previous regulator. Winsor's relationship with Railtrack was stormy. He saw it as his duty to hold the company more closely and vigorously to account. He criticised its many failures, including its poor knowledge of the condition, capacity and capability of its assets, rising numbers of broken rails and deteriorating track quality measures, its bad relationship with its train operator customers, its performance shortcomings, poor contracting and procurement strategies and the soaring costs of its projects (especially the renewal and upgrade of the West Coast main line). Instead of getting involved in eye-catching new projects such as taking over the
London Underground and
High Speed 1, Winsor believed Railtrack should concentrate on the core job of operating, maintaining and renewing the national network.
Gerald Corbett, Railtrack's chief executive, led the management team which resisted this new regulatory pressure. On 3 April 2000, under the headline 'Railtrack Declares War on Regulator',
The Guardian newspaper reported that 'Railtrack is adopting a "culture of defiance" against the rail regulator.' Winsor was reported as describing this stance as an 'attitude which beggars belief'.
Hatfield and its aftermath passing a memorial garden for the crash victims Further enforcement action came in 2000 over Railtrack's inadequate work on the
renewal and upgrade of the West Coast main line. But the
watershed for the company— and the British railway industry—was on 17 October 2000 when a broken rail caused a
high-speed train, travelling at , to
derail at Hatfield, north of London, killing four passengers and injuring over 70 more. Corbett immediately offered his resignation, but the company's senior management tried to rally support for him amongst senior figures in the railway industry to persuade him not to go. Prescott and Winsor withheld their support, although they did not do it publicly. but a month later when he offered his resignation a second time, it went through.
Steve Marshall, the company's finance director, succeeded Corbett. Because Railtrack's
asset knowledge was so poor, it did not know with sufficient certainty where else on its network the type of metal
fatigue—called gauge corner cracking or
rolling contact fatigue—could cause another accident. It imposed over 1200 emergency
speed restrictions across the network, causing the effective disintegration of the integrity of the operational network for months. Winsor took further enforcement action against Railtrack, first to compel the production of a coherent recovery plan—something the company had failed to do for six weeks after the crash—and then to ensure the plan was carried out. Normal network operation was substantially achieved in May 2001.
New financial settlement for Railtrack On 23 October 2000, Winsor announced a new regulatory financial settlement of £14.8 billion for Railtrack for the five years 2001-2006 This represented a 50% increase over the settlement for the previous regulatory control period, 1995–2001. Railtrack's poor asset knowledge hampered the work. The fact that the company's information—and that of the Office of the Rail Regulator in the past—was so unsatisfactory frustrated Winsor. Railtrack had the right to appeal Winsor's decision on its financial settlement to the UK
Competition Commission. It decided not to do so, principally because on 15 January 2001 Winsor made a public announcement committing to carry out an interim regulatory review of the company's financial position, with the potential—near certainty— it would lead to a substantial increase in Railtrack's allowed revenues, to finance the substantially increased work programme which the Hatfield crash showed was necessary. Winsor endorsed the acceleration. To achieve favourable accounting treatment for the revenues, the government agreed that its franchising arm, the
Strategic Rail Authority, would set up a 50:50 joint venture company, known as Renewco. The accelerated revenues would be made available to Railtrack via that vehicle. The agreement was that Renewco would be set up by 30 June 2001; if not, Railtrack would have the right to apply to Winsor for an interim regulatory review.
New chairman – secret negotiations with government In June 2001, Railtrack appointed a new chairman, John Robinson. It then embarked upon secret negotiations with the government for a generous financial bail-out, deliberately concealed from Winsor, who could and would have thwarted what was being proposed. The Railtrack negotiating strategy involved the government agreeing to
cost-plus financing of the company for several years, and a four-year suspension of the economic regulatory regime. Many commentators have subsequently remarked that Railtrack was naive to think the government would ever agree to such a thing, but Railtrack apparently thought so. During this time, Renewco was not set up, and Railtrack (and the Strategic Rail Authority, which was also in the dark about the negotiations) pressed the government to do so. The government did not regard Railtrack's bailout proposals as their only option. They prepared for an alternative in secret, the
insolvency of Railtrack. As a result, the company would be put into railway administration, a special kind of corporate status which ensured continuity of network operations, despite the financial condition of the operator.
Threat to independent regulation On 5 October 2001, Transport Secretary
Stephen Byers called Winsor to a meeting to explain the government regarded Railtrack as insolvent. Byers advised him a petition for railway administration in respect of Railtrack would be made to the
High Court in London on 7 October 2001. Winsor expressed surprise that the company was on the precipice of insolvency, having just had a 50% increase in its allowed revenues in his October 2000 regulatory review. Moreover, the company had not said anything about its precarious position to him though he had the power to advance potentially billions of pounds in additional revenues to it. Winsor asked Byers whether the chairman of Railtrack knew all this. Byers replied that Robinson would be informed at a meeting immediately after Winsor's interview with the Secretary of State. Winsor told Byers he expected Railtrack to apply to him immediately for the promised interim review after hearing this news. In the early evening, they called Winsor and asked whether he would be prepared to carry out an interim review.
Adverse City and industry reaction Immediately after Railtrack went into administration (the same day the US and UK began the war in
Afghanistan) there followed a period of very considerable public and City criticism of what the government had done. There were allegations of
renationalisation by the back door, and great turbulence in investor confidence, as Winsor had warned. The government strongly asserted it had been justified in reacting as it had to a 'failed privatisation' and a railway in crisis. It said firmly there would be no compensation for investors. Railtrack shareholders immediately made plans to sue the government for what they saw as the unlawful confiscation of their property. Winsor maintained media silence on the affair for a month, until 7 November 2001 when he gave oral evidence to the House of Commons Transport Select Committee. In that evidence, he explained what had happened, and the threatened legislation to extinguish independent economic regulation of the railway industry. That evidence led to Stephen Byers being called to account for his actions in Parliament, since on 5 November 2001 he had denied to Parliament making any threats to Winsor. As a result of the controversy, Winsor was put under increasing political pressure. The prime minister's official spokesman refused to tell journalists whether the prime minister still had confidence in the rail regulator. As he later explained, Winsor refused to resign since he had done nothing wrong. In the face of industry and financial markets' pressure, the government withdrew their threatened legislation and instead announced the regulatory regime for the railways would be reviewed. The independence and jurisdiction of the rail regulator were unaltered during the remainder of Winsor's five-year term. Later after his term ended on 15 July 2004, the government announced a legislative intention to reduce the power of the rail regulator. It intended to advance additional money to Railtrack's successor, Network Rail, at future regulatory reviews. The controversy of Railtrack's administration continued. Byers' political problems intensified with other problems, including difficulties associated with the actions of his special adviser
Jo Moore. She had remarked to a colleague at the
Department for Transport Local Government and the Regions that 11 September 2001 may be
a good day to bury bad news. The controversial and mishandled departure of his press spokesman
Martin Sixsmith was also a problem. Byers was subjected to relentless media and political attacks, and on 28 May 2002 he resigned. He never regained Ministerial office. Byers' replacement as Secretary of State for Transport was
Alistair Darling MP. It fell to Darling to get Railtrack out of administration. The process was taking far longer than had first been supposed by Byers or senior civil servants at the Department for Transport. , who replaced Stephen Byers as transport secretary.
Railtrack – how to end the administration The government realised ending Railtrack's administration required the High Court to be satisfied the company was solvent. Darling needed Winsor to announce his willingness to carry out an interim review of the company's financial position, with the probability he would allocate substantially greater sums to the company for the operation, maintenance and renewal of the network. To enable Winsor to make that decision, Darling knew he needed to make a formal statement to Parliament to the effect that the government had reviewed the economic regulatory regime for the railways and was satisfied with it, and in particular that its independence was an essential cornerstone of the regime and of continuing private investor confidence in the railways. Darling made that statement on 12 June 2002, and Winsor announced his intention to carry out the interim review on 22 September 2002. That explanation satisfied the High Court and it discharged the railway administration order on 2 October 2002. Railtrack was immediately acquired by Network Rail and renamed Network Rail Infrastructure Limited on 3 February 2003.
£22.2 billion settlement Winsor's interim regulatory review lasted until 12 December 2003. He then announced an additional £7.4 billion in funding, taking Network Rail's income for the five years 2004–2009 to £22.2 billion. Winsor was severely criticised by some politicians—notably the House of Commons Transport Select Committee under the chairmanship of the MP
Gwyneth Dunwoody—for his power to increase public spending on the railways by such a large amount without Treasury approval. This change was made in line with the
Labour government's policy of establishing regulatory boards to take the place of single regulators. Railways were the last but one of the principal economic regulators to be reformed in this way (the last being the
regulatory authority for the water industry). Winsor later remarked he was glad that for five years he had been able to do the work of nine people. ==White & Case==