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News that Network Rail executives are to receive bonuses, despite missing several modest targets, reveals the incompetence the British public can be persuaded to think they’re happy with
Sir David Higgins is a lucky man. He’s the chief executive of Network Rail who, we learned last week, is receiving a £99,082 bonus on top of his £577,000 salary. This wasn’t his first lucky break. He was already lucky enough to be the chief executive of Network Rail, which is a good job. His previous strokes of luck include being appointed chief executive of the Olympic Delivery Authority, the highest-paid quango boss in the UK, and being knighted for “services to regeneration” despite not being a Time Lord.
“But how can you be sure it’s luck?” you may be asking. “Perhaps Sir David is a very capable man.” I’m sure he is. But then he’s lucky to be so. Either way, he’s lucky: either he’s a jammy moron who fails upwards into ever higher-paid government work, or he’s fortunate enough to have been born with the skills to attain those positions by merit – or somewhere in between. It’s pragmatically sensible to give people jobs on merit, but that doesn’t mean that, on any deep level, they merit their own merit – unless you subscribe to some sort of Glenn Hoddle-style theory in which Sir David was a kindly tortoise in a previous life.
Sir David isn’t the only lucky guy at Network Rail. His charmed team, on salaries of about £350,000, are all getting bonuses: there’s Paul Plummer, the strategy director, landing a serendipitous £59,759; Robin “fluky” Gisby, the operations director, and Simon “butter side up” Kirby, the infrastructure projects managing director, who are getting £63,708 each; and, last but not least, group finance director Patrick “the scratchcard wonder” Butcher whose Thank You for Turning Up to Work present this year is £67,658.
What nice amounts to get as a surprise. Clearly, this isn’t a world in which your salary is a small nominal sum and the bonus is the lion’s share of your pay. These are bonuses in the proper sense of the word. Lovely jackpots, on top of extremely good salaries, which they can spend on fun. They can organise their finances based on six-figure incomes which, while Britain needs rail infrastructure, will arrive more reliably than any train. And then a huge five-figure sum turns up just for booze and holidays. An unexpected boon: like the buffet car having any sandwiches left.
The reason I was particularly drawn to this winning table of players in the Grand Casino of Public Money is that the organisation they run hasn’t shared in their luck. Network Rail, which costs the taxpayer more than £3bn annually, has missed important performance targets lately. “Lately” being the key word because that’s how the trains run. It missed its targets on financial efficiency, asset stewardship and, crucially, both freight and passenger train punctuality. Higgins’s guys were supposed to ensure that 92% of trains ran on time, which sounds like a modest aim, and only managed to hit 90.9%.
However, they did achieve their “passenger satisfaction” target of 84.3% which, in my view, is merely a testament to how passengers’ expectations of the train service have been managed downwards over decades of incompetence. Sir David’s team are standing on the shoulders of giants in terms of the crap the British public can be persuaded to think they’re happy with.
I’m not sure what 84.3% satisfaction means anyway. Are 84.3% of passengers satisfied? Are 84.3% of passengers with sufficient time on their hands to fill in a bullshit survey satisfied? Or is each passenger, on average, 84.3% satisfied about the railways within him or herself? If so, what does that mean? If there’s a train at the platform but it never moves, how satisfied are you? It can’t be 0%. It might be as much as 10%. Maybe people’s wonder at the technology of rail travel will lead them to be 60% satisfied just by the fact that it exists at all.
What is certain is that, if passengers are satisfied with a punctuality rate of 90.9% on the most expensive railway in Europe, they’re wrong to be. A target should be something you aim for. In the case of train punctuality, it should be 100%. That’s not to say it’s reasonable to expect every single train to be on time, any more than a darts player would expect to get a triple 20 with every dart. Targets and expectations are different. But the idea that 92% punctuality is the target – that to attain 93% would be to have missed, or overshot, the mark and wasted resources on a level of excellence officially defined as unnecessary – is absurd. If the Network Rail bosses had missed what they should have been aiming for by the same margin as they missed this barn door of a bullseye, then 99.1% of trains would have been punctual and they might deserve some beer money.
Explaining the bonuses, set at 17% of salaries, Richard Parry-Jones, Network Rail’s chairman, said that they could have been as high as 60% if more targets had been hit, but that: “Bonuses are only awarded for achievements significantly beyond what is expected of an executive.” This confused me. How can they have achieved “significantly beyond what is expected” if they missed several targets? Were the targets not expected to be hit? Do they consider 92% punctuality to be a pie-in-the-sky aspiration like my suggested 100% target? It appears these executives have been given bonuses because they did some of the things they were asked to. They were partially competent and consequently are deemed to have exceeded their employers’ expectations. Then again, perhaps that makes sense as their employers are the same taxpayers who are 84.3% satisfied with terrible trains.
Parry-Jones blamed the missed punctuality targets on “a year of extreme weather, the wettest on record” – in other words, bad luck. This means the bonus system is poorly structured; the company isn’t benefiting from their chief executive’s key asset. Sir David doesn’t strike me as a man who has many rainy birthdays. I reckon it would be safe for him to play golf in a thunderstorm – he’d probably get a hole in one. Network Rail needs to make his luck its own. But the weather wasn’t bad luck for Sir David – he got his bonus anyway – only for millions of passengers. The network failed to shelter under Higgins’s lucky star.
Napoleon supposedly said: “Bring me lucky generals” – in preference, the implication being, to talented ones. It’s a sound approach, but it only works if their remuneration packages are index-linked to victory. You shouldn’t get a medal for a defeat even if it wasn’t your fault.
David Mitchell’s memoir, Back Story, is out now in paperback
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Figures suggest there will be a record 1.5 billion journeys on the railways this year and more money is needed
Network Rail has warned that the smooth running of Britain’s trains will be jeopardised without increased investment to meet demand as passenger numbers and the track operator’s debt continued to grow.
Figures suggest there will be a record 1.5 billion journeys on the railways this year, which Network Rail says is driving increasing investment. Patrick Butcher, group finance director, said: “We borrow to invest to make the railway bigger. With passenger growth of 5% a year, our debt is going to keep increasing.”
Borrowing rose to just over £28bn, up from £27.2bn in six months, although Network Rail said the value of its assets — the railway network — rose with investment and inflation to £45.3bn from £43.1bn.
Critics of the railway structure claimed the debt amounts to a hidden subsidy, on top of the £4bn annually that the Department for Transport puts into the system. Transport commentator Christian Wolmar said Network Rail’s debt was now five times higher than when it was privatised, saying that it “shows that real subsidy is much higher than politicians admit”.
Butcher warned that an impending “capacity crunch” would require further investment to keep services at their current levels of space and reliability. He said that, since the track operator’s formation in 1992, “we’ve taken train punctuality up to 91-92%, costs down 50% and we’re running 20% more trains. But we don’t think you can keep doing that forever”. He said: “We can run more trains, but they will be less reliable. Or you can keep [performance] up, but that will cost more money.”
Network Rail is in the early stage of negotiations with the Office of Rail Regulation over its funding, including the scale of maintenance works and operating costs, for the five years from 2014. In July the then transport minister Justine Greening announced an investment programme worth £9.4bn, including £4.2bn of new schemes and upgrades, to be carried out in that period, but that will be a fraction of the overall settlement.
The government has pledged to make passengers pay more towards the cost of the railways so taxpayers can pay less and – since the McNulty review in 2011 identified apparent possible cost savings of 30-40% in train operations – has demanded further efficiencies.
Network Rail insiders meanwhile fear that the delays in train franchising and procurement will slow planned improvements, as they redevelop stations and track in anticipation of new rolling stock. Siemens has yet to finalise the Thameslink contract announced 18 months ago. The fallout from the west coast fiasco – where three DfT officials were suspended after flaws were found in the franchise bidding process – and the current freeze on new franchises also puts associated investment from train operators at risk. The DfT has yet to agree terms with Virgin for its interim west coast contract, due to start on 9 December.
On Thursday RMT general secretary Bob Crow proposed that Network Rail should have the right to bid for train operating franchises.
Butcher said: “We’ve got the expertise, and could we run trains? Yes.”
However, he added: “We have a prohibition in our licence that prevents us bidding for franchises,” and he said that Network Rail would not be “agitating to have it changed any time soon”.
Rail infrastructure company’s net debt soars due to a rise in capital investment, but profits also rise from £136m to £573m
The net debt of Network Rail has soared to more than £28bn, it has been announced. The rail infrastructure company said its net borrowings had risen from £27.2bn at the end of March 2012 to just over £28.04bn at the end of September.
The increase was not unexpected, it said, and was primarily due to the funding of capital investment and, to a lesser extent, the increase in the valuation of RPI inflation-linked bonds.
The figure was disclosed as it announced its financial results for the first half of the 2012/13 financial year.
Profit after taxation rose sharply from £136m in the first half of 2011/12 to £573m in the period April-September 2012. Revenue was up from just under £3bn to £3.167bn. Capital expenditure – the amount invested in the railway over the period – was £2.064bn compared with £2.071bn in the same period last year.
Network Rail added that the value of the railway network increased from £43bn at the end of March 2012 to £45bn at the end of September.
The results come as the company faces a tough challenge to cut costs as well as attempting to improve, at the behest of rail regulators, punctuality on long-distance services.
The group’s finance director, Patrick Butcher, said: “The railway continues to see strong traffic growth which provides us with the challenge of getting the balance right between capacity, reliability and efficiency.
“We have seen growth on the network of 5% a year for a decade and this is set to continue. That means we continue to become more efficient so we can continue to invest to meet this growth.”
The half-year level of expenditure was about the same as last year “despite the suspension of work during the Olympics and the reduction in activity following the achievement of key milestones on the King’s Cross and Thameslink projects (in London)”, he said.
“Our daily focus remains on running a safe, reliable and efficient railway service for passengers and freight users alike. While train punctuality is at high, historical levels Network Rail recognises that on parts of the network performance is not as good as it should be. As we have before, we will continue to take any appropriate action to improve services.”
Subsidies to the railways since privatisation have increased by about 450% to around £5bn a year (Editorial, 21 August). Fare rises of up to 11% will doubtless contribute to the recently announced £12m-a-year bonus scheme for the top six executives at Network Rail. The coalition is in an ideological trap because any infrastructure problem, such as railways, has to be based on the private sector.
Railway privatisation was a triumph of ideology over common sense to produce the most expensive, fragmented, under-invested railway system in western Europe. Integration or cooperation within the system is bedevilled by at least 20 different franchisees, all operating to different timescales, plus the requirements of various regulators and the Department of Transport.
Franchise holders have no incentive to invest when three years later they could lose the franchise – as Richard Branson discovered last week after spending an estimated £60m preparing Virgin’s bid. Meanwhile, several European state railway systems, able to plan coherently for the future – good railways with reasonable fares being seen as a good thing – are now running UK franchises and exporting the (guaranteed) profits to keep fares lower and improve the quality of services in their home countries.
Melton Constable, Norfolk
• What possible rational case can be made for “reforming” the Highways Agency to make it “more independent … so it can borrow large amounts without increasing the public deficit” (Report, 22 August)? The new body has to look “more independent” – so its borrowing costs will be higher than government’s, but met almost entirely from tax revenue (tolling of existing roads having been ruled out as politically difficult). So the taxpayer will be paying more for the roads, simply to save ministers’ faces, and possibly in the hope of fooling the IMF and the markets. This looks like more financial engineering – fresh from its triumphs in the private sector.
The Commons report on the rate-fixing scandal may not fully explain what went on at the bank, but it is surely right to condemn ‘a prolonged period of extremely weak governance’
The report by Andrew Tyrie’s committee of MPs on the Libor-fixing scandal is a good read, unless you happen to be one of the characters mentioned in the 122 pages. For example, on the vexed topic of the role of Bank of England deputy governor Paul Tucker, and whether or not he encouraged Barclays to reduce its Libor submissions, the report concludes that the bank “did not need a nod, a wink or any signal” to reduce rates. “The bank was already well practised in doing this.”
Remember that the fines against Barclays covered two periods – from 2005, when Libor submissions were being distorted to potentially make profits, and the period during the banking crisis, when the submissions were being lowered to avoid the negative publicity that a high rate might attract.
In fact, the MPs’ report correctly makes the point that the conversation between Tucker and the former Barclays boss Bob Diamond that took up so much of the Treasury select committee’s time is probably a bit of a “smokescreen”, distracting from evidence that individuals had been attempting to manipulate Libor a full three years before the crisis.
It is certainly a confused story: Diamond’s “file note” of the conversation, which he sent to the bank’s then chief executive, John Varley, and copied to chief operating officer Jerry del Missier, reads as if Tucker wanted Barclays to get its Libor submissions down. But Tucker and Diamond insist this was not what was intended, while del Missier has since admitted he misunderstood. And a dump of documents alongside the report provides Varley’s point of view: he says he did not discuss the matter with Diamond, although he did ring officials to insist Barclays was not in difficulty during the crisis period.
And then there are the accusations that Diamond gave “highly selective” answers when he appeared before the hearing – largely a reference to what he said when asked about regulatory concerns. Documents published on Saturday include a letter from the Bank’s chairman, Marcus Agius, to the committee that appears to support Diamond. Agius tells the MPs that Diamond “had not had the benefit of seeing in advance” some of the documents on which their questions were based. But the verdict on Diamond – who insists he was candid – remains damning.
It is a sorry state of affairs and one that MPs believe is likely to be replicated in other corners of the City. Royal Bank of Scotland has already prepared the ground by warning that a fine is coming. The FSA has said that seven institutions, in addition to Barclays, are being investigated for attempting to manipulate interest rates.
But for now the spotlight is on Barclays, which, the report says, saw a “prolonged period of extremely weak internal compliance and board governance”. The bank’s chief executive has now gone and the chairman, Marcus Agius, will go at the end of October when Sir David Walker takes over. But Walker – highly respected and widely seen as the right man for the role – has insisted that a full-scale clearout of the boardroom will not be needed once he has found a replacement for Diamond.
Surely he is wrong. As the MPs point out, many of the bank’s non-executives were in post for substantial parts of the period in question: David Booth joined in May 2007; Fulvio Conti joined in May 2006 and has been on the audit committee since September 2006; Sir Andrew Likierman joined in May 2004 and has been on the audit committee since September 2004. Sir John Sunderland, who led the search for a new chairman, joined in June 2005.
This board needs new blood – and that includes ensuring that the new chief executive comes from outside the existing management.
A reminder that life is also a precious commodity
The appalling loss of life at the Marikana mine has shocked South Africa and should remind the rest of the world that platinum and other commodities used in modern life are often produced in volatile circumstances. The particulars of the incident – in which more than 30 demonstrators were killed by police, raising memories of the apartheid-era Sharpevillecorrect massacre – are exceptional, but injuries and loss of life from mining accidents are not.
Statistics from the South African Chamber of Mines show that until 2007 more than 200 South African miners were dying a year in accidents. In 2010 the figure was 120 – 32 of those in platinum mines. Lonmin’s financial report on the first half of this year highlighted problems at Marikana, saying its operations there “have been able to maintain production despite the headwinds of industrial relations, safety stoppages and community unrest”.
What happened last week remains unclear. Lonmin said it “deeply regretted” the incident but insisted it was a public-order rather than an industrial-relations issue.
Clashes between police and demonstrators in which lives are lost may be unusual these days, but disputes over wages for dangerous mining jobs are not. The strikers at Marikana were asking for a pay rise to 12,500 rand a month – less than £1,000 – at a time when mining companies are grappling with falling commodity prices and looking to cut costs.
In recent days mining firms such as Rio Tinto and BHP Billiton have talked about the need to save money and slow developments to reflect a slowdown in demand from customers such as China.
In the wake of the shootings Lonmin’s share price fell, but the concern was over the loss of production rather than life.
We rely on mines such as Marikana to make our lives easier: the metal plays a vital role in the catalytic converters used to purify car exhaust fumes. The problems have forced Lonmin to halt production at all its South African operations, which account for 12% of global platinum output, and that could have repercussions for the car industry.
In a boom time, commodities, often mined in struggling developing nations such as South Africa, can produce lots of jobs, plus enormous wealth for mining companies – and host governments. But they can also highlight disparities in wealth and trigger corruption, which is why people talk about the “commodity curse”. That curse looks to have struck again.
Complex rail system means missed connections
Before the banking crisis, the railways functioned as a lightning rod for the economic, political and social concerns of the day. Whether it was privatisation, the closure of rural lines under Beeching, or high fares, the rail network represented more than just a means of getting from A to B.
Last week saw rail take centre stage again, thanks to confirmation of another year of inflation-busting fare increases and the award of the £5.5bn west coast rail franchise to FirstGroup, signalling the exit of Virgin Trains from the rail business. Amid the blame and counter blame from unions, Tories, Labour and passengers, one thing became clear: we have lost a collective sense of what the railway is for.
Given the current structure of the industry, that is no surprise. The Department for Transport leases the right to run privately operated trains on routes that are presided over by Network Rail, a quasi-private and state-funded company. Who oversees this? The Office of Rail Regulation monitors safety and Network Rail’s finances, which include debts of £27bn underwritten by the fare payer. Oh, and fares are set by the government. Not the train operators. It’s a mess.
No wonder passengers feel a total lack of empowerment. As the late, great historian Tony Judt wrote: “The railways … are a collective project for individual benefit. They cannot exist without common accord and … common expenditure.” This muddle, and lack of institutional clarity, endangers their future.