No easy way back on track

ANYONE who attempts to get the railways back on track deserves sympathy. Unfortunately, the brave words of the new 'strategic plan' are not enough.

Putting the system right will cost a great deal - up to £70bn. At least £30bn, and perhaps £34bn, of that needs to come from the private sector.

One test of the Byers era is whether that money will be forthcoming and what it will cost. The original plan was that Railtrack (where I hold shares) would raise £15bn and the train-operating companies the rest. To help them borrow, they would be given longer franchises. Now longer franchises seem to have been dropped, several operators are losing money and their ability to come up with the funds looks doubtful.

As for Railtrack's successor, it is having considerable difficulty being born, let alone turning itself into an effective fund-raiser.

The question that keeps returning is: what on earth did Stephen Byers think would follow from his decision to force Railtrack into administration?

As big investors point out, an extra 0.5% on the cost of those £30bn borrowings will add up to £1.5bn in 10 years. The cost of shattered confidence could be much higher. Admittedly, the Transport Secretary inherited a complex, fragmented industry. The danger is that failure to get a grip on it may be sending him back into virtual renationalisation mode.

The funding crux will come when 'Son of Railtrack' has to raise its first billions. Bankers think it will struggle to do so without a Government guarantee. The public ownership lobby could then argue that, since the taxpayer is underwriting the bills, why not go the whole hog?

That makes it all the more urgent to find a new structure that will minimise bureaucracy, foster competition and attract private funding. This can be done, but the omens are far from encouraging.

Manufacturing misery
UK manufacturing is going through a technology-led slump. A sharp 0.7% drop in November brings the annual fall in manufacturing output to 5.4% and, in all, industry's production to 4.8%, the sharpest declines since the 1990-92 recession.

Though oil and gas output was weak, the fall was greatest in 'new economy' sectors such as electrical/optical equipment, down 7.1% in three months.

The eclipse of technology, whose strength previously obscured the decline in traditional industry, has left manufacturing with nowhere to go. In fact, the statistics confirm that it has gone nowhere since 1995, with output crawling up just 0.06% a year over six years.

The production of all UK industry has risen just 1.2%, against 18% in euroland.

Britain's economy is still growing impressively, but the plane is flying on two engines, consumer and public spending. The industry and investment engines are barely turning over. That slowed the growth of the whole economy to a halt in the three months to December, says the National Institute of Economic and Social Research.

Not surprisingly, there was deflation in industry in 2001, with producer prices down 1.2% and input prices down 6.6%.

Polar opposites
THE Financial Services Authority wants to end the rule by which investment advisers are 'polarised into 'tied' firms, which sell one company's products, and independents, which choose from the lot. Chairman Sir Howard Davies says there would be an outcry if other retailers - hi-fi sellers, for example - were allowed to stock only one product.

Since 'polarisation' of advisers was introduced by the FSA's predecessor, this is ironic. But Davies is right to recognise that there is no point in stopping, say, Barclays from offering Legal & General's products as well as its own. This would simply curb consumers' choice.

The FSA will allow outsiders to buy adviser firms. Its problem is to cherish and protect truly independent advice. Investors need to be more aware that 'independent' advisers can still earn hefty fees from a bank or insurer.

The danger is that the FSA will add more complexity - over 250 pages of consultation documents on Monday for starters. This can only reinforce a 'bias to size', with only the largest groups able to afford the costs of compliance.