PracticePeople In PracticeExclusive: Rail regulator ‘lenient’

Exclusive: Rail regulator 'lenient'

Proposals to improve Railtrack's performance record do nothing more than 'simply introduce another batch of accounting problems and some weak regulatory controls', according to analysis for Accountancy Age.

In the wake of the Hatfield rail disaster, the research concludes that reforms put forward by rail regulator Tom Winsor for reforming the way Railtrack raises revenue will not ‘necessarily improve the company’s abysmal record of performance and safety’.

John Stittle, senior accountancy lecturer at Anglia University, claims the financial controls proposed by the regulator would increase Railtrack’s #2.5bn revenue stream by 35% next year, followed by further real increases of five per cent a year for the next four years.

Stittle says the changes are an attempt to remove some of the worst anomalies of the current funding regime, but warns that it is not certain the new framework will be a significant improvement.

He adds that most of the efficiency targets imposed by the new controls are ‘woefully lax.’ He writes: ‘The regime is hideously complex. But on virtually every issue the regulator has taken a lenient and generous approach toward Railtrack.’

Also, Stittle highlights that on a number of issues the company only has to achieve the same level of safety as those met by the former state-owned British Rail over five years ago.

Stittle’s arguments on the level of track charges are centred on the return on Railtrack’s capital employed and the company’s cost of capital.

He says the return on capital is based on the regulatory asset base and not on the conventional definition of a company’s net assets as the practical difficulties in identifying and valuing Railtrack’s assets have proved insurmountable.

However, a Railtrack spokesman told Accountancy Age: ‘The efficiency targets are very tough and we will work hard to meet them.

‘The company will be required to find 17% cost reductions over the next five years.’

But Spittle argues that the targetes are undemanding. He says: ‘There is no reason why Railtrack cannot be set a more ambitious target – even up to five per cent per year for the next five years.’

Putting rail safety back on track

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