Network Rail CEO Mark Carne interview: "Reclassification changes your whole relationship with government"
Mark Carne has had a challenging reign as chief executive of the body in charge of Britain's railways. As the Network Rail boss meets staff to talk about the future of the organisation, he tells CSW's Mark Leftly about the "fundamental" challenge of being reclassified as a public sector body – and the dangers of paying staff "significantly under the market rate"
Mark Carne collects clocks. In his office above London Waterloo station stands a large 1930s mantle timepiece, a gift from a taxi driver who found it in his garage.
An appropriate present, then, for a 56-year-old Cornishman who is in charge of getting Britain’s rail commuters to their destinations on schedule at a time when trains are crammed with their highest number of passengers for 90 years. Carne is chief executive at Network Rail, which looks after more than 20,000 miles of track as well as thousands of level crossings, bridges and tunnels.
He is currently on his annual pilgrimage around Network Rail’s regional offices, meeting 300 staff at a time in over 20 locations. Little more than two years into the job, this is arguably the most crucial set of presentations he is likely to make during his tenure.
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He must convince staff, 36,000 in total, that Network Rail needs to completely revamp its culture following a technical accounting change in September 2014 that has, in effect, turned them all into civil servants and triggered the most turbulent period in the organisation’s already troubled 14-year history. Over the past 18 months, ministers have been infuriated by rising debt and budget busting delays, which resulted in a trio of probes to assess the causes of, and then try to reverse, Network Rail’s ailing fortunes.
“When you have three reviews going it’s a tough time,” says Carne. “Last year was a year of choppy water, as we all adjusted to the new relationship between Network Rail and government.”
When Civil Service World meets Carne, his team is in the midst of moving from Euston to Waterloo. His office is sparse, a framed picture from 1901 illustrating the foundations of the Dawlish sea wall lies on the floor waiting to be hung up.
That historic wall, found between Exeter and Cornwall, collapsed under a railway line because of storm damage a week after Carne joined Network Rail. His experts retrieved the picture from archives in York to better understand how to repair the battered barrier. “The team gave me this picture as a little memento,” grins Carne.
"Now we have to compete along with everybody else in government for funds" – Network Rail CEO Mark Carne
This was the first of Carne’s many tribulations in a job that had been expected to go to a railway professional. Carne was previously a senior executive at oil giant Royal Dutch Shell, charged with translating that industry’s excellent safety record to the rail network. In that regard, he has been a success: it’s more than a year since a track worker fatality, a first in the history of UK railways.
But in other ways, Carne's reign has been bruising. Broadcasters filled the news bulletins with scenes of chaos caused by Network Rail engineering delays at London stations in the winter of 2014/15. Last year, its current £38.5bn, five-year spending programme, CP5, was found to be fraught with delays, construction cost inflation, and insufficient preparatory detail for capital works.
The latter problems were caused by Network Rail’s move from being a private company, whose vast borrowing for investment in track maintenance and infrastructure projects was underpinned by government guarantee.
EU accounting regulations dictated that this unique arrangement, which saw Network Rail have access to incredibly cheap debt from the financial markets, had to be redefined. Network Rail was reclassified as a public sector body, forcing its £34bn debt pile onto the government’s already strained balance sheet.
Network Rail’s loan facility was suddenly limited and it could no longer use a mechanism called Ecam that basically let the group get extra funds for projects that had proved more costly than initially envisaged. Transport secretary Patrick McLoughlin “froze” the troubled electrifications of the TransPennine route between Manchester and Leeds and the Midland Mainline from London to Sheffield.
Carne explains: “It [the reclassification] changes your whole relationship with government. At one level, previously, we were able to borrow from the market and the control on that was essentially the [rail] regulator deciding whether or not that was efficient spend. But now we have to compete along with everybody else in government for funds directly as part of the Department for Transport’s overall budget submissions. So, it’s a pretty fundamental change.”
Despite the organisation’s travails, Carne insists the greater discipline these financial restrictions have placed on Network Rail is “a positive thing”. He adds: “I want to be absolutely clear in that I think the old way in which we operated, with this, if you like, private debt, didn’t lead to efficient capital allocation within the industry, didn’t lead us to value money like a normal company values money.
“What I talk about [in staff presentations] is that we were an independent company, but we actually acted like a regulated state monopoly. Although in principle the structure of our company is one that brings us nearer to government, I want to use it as a mechanism for us to act more like a private company… We’re not going to get into the situation again where we’re committed to deliver projects before we know how much they cost.”
Part of the strategy involves devolving greater responsibilities – such as managing assets – along Network Rail’s eight routes, creating distinct businesses.
But Carne has asked the teams within Network Rail that provide services – such as engineering and procurement – to aggregate their work to lower costs. “I don’t want eight different companies going out and buying sleepers, I want one company to do that.
"We were an independent company, but we actually acted like a regulated state monopoly" – Mark Carne
“But equally, I have to be certain that our service-providing organisations are market competitive. So the test is, go out and prove in benchmarking, in competition, that you can deliver a better service than third parties. If you can’t, then ultimately you cease to exist.”
Private investment will also be encouraged to make the railway more efficient. Carne adds: “Our railway is already full in many, many places and yet we predict that over the next 20 years the number of people wanting to travel by train is going to double. How the hell are we going to manage that? We can’t build our way out of that problem.”
A recurring theme is “the digital railway”, a concept that has been met, privately, with heavy scepticism by rail veterans who think the organisation should stick to its core job of repairing and maintaining track. Carne, though, insists that better scheduling of trains through digital signaling, developed by a private sector rewarded by a profitable return, would “transform” the railway system.
Carne, then, is putting pressure on staff to cut costs and develop ideas for making the most out of an already at-capacity railway system. But the flip side is that external reviews of Network Rail have argued pay must go up.
“We have to reform the pay structure in Network Rail because we have to be able to compete for the kinds of talented people in the rail industry,” says Carne, who commands a £675,000 basic salary. “At the most senior levels we are significantly under the market rate… Train operating companies’ pay has increased significantly more than in Network Rail. It is now at a point where we can’t recruit people at a senior level, I can’t afford them.”
Before the interview ends, Carne says the reclassification means he meets transport department officials more often nowadays. As “positive” as he claims the recalibrated relationship to be, he makes a slightly barbed comment: “There’s a really fine balancing act because you want to be close [to government] to understand what it is that they want and you can deliver. You don’t want to be so close, however, that they’re continuously telling you how to run the railway.
“And I think that’s exactly the same pressures they feel as well. Network Rail are the professionals at running the infrastructure of the railways and we need the space to be allowed to get on with it.”
The clock is ticking on this amateur horologist to get that balance just right.
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