25% rail cuts? Maybe, or maybe not.

The Observer has a disturbing-looking headline article today on the state of Britain's rail network.

Britain's rail crisis is set to deepen with massive cuts in services and safety maintenance under plans to slash spending on the network, The Observer can reveal.

In a devastating new blow to beleaguered commuters, senior rail industry executives have revealed that train services could be cut by up to a fifth next year - or by more than 3,500 trains a day - leading to thousands of job losses and soaring ticket prices.

Vital repairs on crumbling track and worn-out signals and points face being delayed or left undone as funds are held back, raising fears of repeats of recent crashes at Hatfield and Potters Bar.

Train operators have been told by the Government's railway authorities to come up with plans to run the railways on 20 per cent less taxpayers' subsidy.

I suspect this alarmist looking headline is the first shot by the government in a battle with the train companies over subsidies and costs, and the 25% cuts are only a worst-case scenario intended to scare the companies into action. The problem is that costs for infrastructure work has been allowed to spiral out of control, which contractors and sub-contractors inflating the costs and expecting the taxpayer to foot the bill, regardless of the amount. According to Roger Ford of Modern Railways, the cost of projects large and small has increased by a factor of three or four since 'privatisation'.

Of course, this is not only because of the fragmented structure of the railway, but the government's Health and Safety Executive getting out of hand. While I don't want things to go back to Victorian days when an large infrastructure project cost hundreds of lives, it still seems to me that the HSE is gold-plating things without any consideration of the costs.

What's clear to me is the way the Fragmo-Privatisation implemented by John Major's disastrous government is now completely unravelling. New Labour is now paying a heavy price for not biting the bullet when they first came into office, and hoping they could muddle along with a fatally-flawed system.

There seem two radically opposed options for how to proceed. The first is to attempt to put the nationalised railway back together again in some shape or form (Break out the tins of Monastral Blue paint!), the second is to move further along the privatisation road and give the companies real freedom to set fares and service levels, and ultimately to decide their own structure.

Both courses are risky; the second in particular raises the spectre of large fare rises or deep service cuts, or both. It all depends on what sort of subsidies the companies continue to receive.

Ah, subsidies. The libertarian Patrick Crozier insists that subsidies are the root of all evil, and the railways would be perfect today if Dr Beeching had been free to complete his closures of loss-making rural services. I still believe the rest of the industrialised world has not got it wrong; a rail service has significant external benefits to the economy of the areas it serves, and if that is the case there's a perfectly good justification for at least a proportion of a railways income to be derived from a source other than fares. We justify road investment on this basis, why should railways be any different? The problem is how to come up with a method for applying subsidies without letting companies fleece the taxpayer, which is what seems to be going on at the moment.

I'm not sure what sort of railway we'll have in twenty years time. But we as a nation need to think about what sort of railway we want in twenty years time now; for surely the railway we have now is a consequence of the decisions (many of them wrong-headed) made twenty years ago.