Tom Winsor
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Tom Winsor (born December 7, 1957) is a British lawyer and economic regulatory professional who was, from July 5, 1999 until July 4, 2004, the Rail Regulator and International Rail Regulator for Great Britain.
[edit] Legal career
Tom Winsor was born in Broughty Ferry, Dundee, the third son and fifth child of Thomas V M Winsor and Phyllis Bonsor. He was educated at the state comprehensive school Grove Academy, Broughty Ferry, from where, in 1976, he went to the University of Edinburgh to study law. After graduation in 1979, he served his two-year Scots legal apprenticeship with Dundee law firm Thorntons & Dickies, and practised for a year after that doing mainly litigation in Dundee Sheriff Court. In 1982 he enrolled as a postgraduate student at the Centre for Petroleum and Mineral Law Studies of the University of Dundee under Professor T C Daintith, and received a Diploma in Petroleum Law in 1983.
He was employed as a solicitor by the leading Edinburgh law firm Dundas & Wilson from 1983 until 1984, from where he moved to London and joined City law firm Norton Rose, specialising in energy law and project finance. In 1991 he left Norton Rose to become a partner in City law firm Denton Hall, where he worked first on the design and implementation of the regulatory regime for the privatisation of the electricity industry in Northern Ireland.
After the flotation of Northern Ireland Electricity plc on the London stock exchange in 1993, Winsor was seconded by his firm to the Government Legal Service as chief legal adviser and general counsel to the first Rail Regulator, John Swift QC. The Rail Regulator was the statutory officer - established by the Railways Act 1993 - for the economic regulation of the British railway industry, which was about to be privatised. Winsor's secondment lasted two years and he returned to his partnership at Denton Hall in August 1995. With his partners, over the following four years he built a successful railway and regulatory law practice, working on some of the most important railway projects in the UK, including the financing of the first phase of High Speed 1 and the upgrade of the West Coast main line.
[edit] Rail Regulator 1999-2004
[edit] Appointment
In July 1999, John Prescott MP, then Secretary of State for the Environment, Transport and the Regions and Deputy Prime Minister, appointed Winsor as Swift's successor as Rail Regulator and International Rail Regulator.
On his appointment after the British general election in 1997, Prescott had declared that he was going to take a far tougher line with the privatised railway industry. Prescott had been fiercely opposed to the privatisation in 1996 and was one of the 'old Labour' stalwarts who wanted to renationalise the industry outright. Despite having said (in opposition) that its policy was a 'publicly owned, publicly accountable railway', New Labour would not promise renationalisation, even if it could have afforded it, and had instead - in its manifesto for the 1997 election - committed itself to a policy of increased accountability of the privatised companies to the public interest through tougher and more effective regulation.
This was seen as an imaginative policy, since, if properly implemented, could achieve virtually all of the government's objectives for a better performing, more efficient railway without the expense or controversy of renationalising the assets. At the Labour Party conference in September 1998, Prescott had declared that he was going to carry out a 'spring clean of the regulators', which many commentators realised meant the appointment of a tougher, more interventionist replacement for Swift.
[edit] New regulatory approach
Winsor's five-year term as Rail Regulator began on July 5, 1999, and he immediately announced a new regulatory agenda, one which contemplated holding the privatised railway companies much more closely to account. It also involved radical changes to the regulatory and contractual matrix for the privatised industry, replacing enforcement regulation with incentives, and changing the financial, contractual and licensing environment in which the industry operated.
Winsor's ability to pursue his new regulatory agenda was significantly hampered by problems with Railtrack coming to a head very shortly after he took office. One of Winsor's principal motivations in applying for the post of Rail Regulator had been his frustration with - some critics elevated it to a visceral hatred of - Railtrack's incompetence and how it impeded so much progress in the privatised railway. He was also reported as being increasingly exasperated with the failure of his predecessor to hold Railtrack properly to account, and to use the powers of the office to apply pressure on the company and to reform - increase - the powers of the Rail Regulator to make regulatory and contractual accountabilities more effective.
Winsor was severely critical of what he found when he took over the office of the Rail Regulator, describing it as a dysfunctional organisation which was inward-looking and barely able to do the job it had been given by Parliament. Changing this quickly was, he said, all the more important because the ability of the train operators - Railtrack's direct customers - to apply pressure and secure fair terms and reasonable performance from the infrastructure operator was weak because their contracts were weak, with a poor specification of what they got for their money and uncertain and ineffective remedies for when things went wrong.
His reform agenda had three major planks:
§ changing the financial framework in which the infrastructure manager operated through the periodic review of its revenue requirements, changing the structure of access charges so as to introduce a higher degree of incentives; this led to his deciding (in October 2000) to increase Railtrack's income from £10 billion to £15 billion for the five-year control period 2001-2006
§ reforming Railtrack's network licence - its principal instrument of accountability to the public interest - by the introduction of nine new conditions covering matters such as its disposal of land, dealings with dependent users, the establishment of a reliable, comprehensive register of the capacity, condition and capability of its assets, its means of accounting and its stewardship of its assets (including the setting up of a system of regulatory reporters to assess the company's progress and competences in areas of network operation specified by the regulator)
§ completely rewriting the contracts at the track-train interface, replacing a contractual structure which set infrrastructure manager against its customers with a true, co-operative joint venture of mutual interest, recognising the intensity of the interdependence of the two parties; this was achieved by the establishment of a new model track access contract and major reforms to the industry-wide network code.
The reform to the financial structure was announced on 23 October 2000, only a few days after the Hatfield rail crash. The aftermath of Hatfield - what it revealed about the state of Railtrack's asset knowledge - led to the carrying out of a further financial review in 2002-2003, the conclusions of which were announced on December 12, 2003 and gave Network Rail (Railtrack's successor) an additional £7.4 billion.
[edit] Problems with Railtrack
Winsor's main focus was the company which he regarded as performing most unsatisfactorily - Railtrack. He criticised it for 'policies of neglect of its assets and hostility to its customers', and in his first month in office took enforcement action against it in relation to its performance, imposing a financial penalty of £42 million if it failed to improve its performance towards passenger train operators by 12.7% in the operating year 1999-2000. Railtrack criticised the penalty as 'the largest fine in corporate history', which it was not. But it did represent a significant hardening of regulatory approach to the one which the company had enjoyed under the previous regulator.
Winsor's relationship with Railtrack was stormy. He saw it as his duty to hold the company more closely and vigorously to account, and criticised its many failures, including its poor knowledge of the condition, capacity and capability of its assets, rising numbers of broken rails and deteriorating track quality measures, its bad relationship with its train operator customers, its performance shortcomings, poor contracting and procurement strategies and the soaring costs of its projects (especially the renewal and upgrade of the West Coast main line). Instead of getting involved in eye-catching new projects such as taking over the London Underground and High Speed 1, Winsor believed that Railtrack should concentrate on the core job of operating, maintaining and renewing the national network.
[edit] Resistance and enforcement
Gerald Corbett, Railtrack's chief executive, led a management team which resisted this new regulatory pressure. On April 3, 2000, under the headline 'Railtrack Declares War on Regulator' , The Guardian newspaper reported that 'Railtrack is adopting a "culture of defiance" against the rail regulator', a stance which Winsor was reported as describing as an 'attitude which beggars belief'. However, the relationship between the two men was courteous and professional, even though Winsor was a severe critic of the philosophy and approach underlying Corbett's leadership of Railtrack. When Corbett offered his resignation after the Hatfield rail crash, the company's senior management tried to rally support for Corbett - to persuade him not to go - amongst the senior figures in the railway industry. Winsor is thought to have been the only senior figure who withheld support, although he did not do it publicly. Corbett's resignation was not accepted by Railtrack's board, but when a month later he offered his resignation a second time, it went through. Corbett was succeeded by Steve Marshall, the company's finance director.
[edit] Hatfield and its aftermath
Further enforcement action came in 2000 over Railtrack's inadequate work on the renewal and upgrade of the West Coast main line, but the watershed for the company - and the British railway industry - was on October 17, 2000 when a broken rail caused a high-speed train, travelling at 115 mph, to derail at Hatfield, north of London, killing four passengers and injuring many more. Gerald Corbett immediately offered his resignation, but his board refused it, and Corbett remained in office for a further month when he resigned again, this time having his offer accepted. Corbett was replaced as chief executive by the finance director, Steve Marshall.
Because Railtrack's asset knowledge had been so poor, the company did not know with sufficient certainty where else on its network the type of metal fatigue - called gauge corner cracking or rolling contact fatigue - could cause another accident. And so it imposed over 1200 emergency speed restrictions across the network, causing the effective disintegration of the integrity of the operational network for months. Winsor took further enforcement action against Railtrack, first to compel the production of a coherent recovery plan - something which the company had failed to do for six weeks after the crash - and then to ensure that the plan was carried out. Normal network operation was substantially achieved in May 2001.
In responding to the crash, Railtrack had carried out a highly inefficient programme of track renewal and replacement, costing hundreds of millions of pounds. Track was replaced without the ballast and sleepers underneath also being renewed, and some track had to be replaced a second time.
[edit] New financial settlement for Railtrack
On October 23, 2000, Winsor had announced a new regulatory financial settlement of £14.8 billion for Railtrack for the five years 2001-2006, a 50% increase over the settlement for the previous regulatory control period 1995-2001. This was the culmination of a regulatory review of the company's asset maintenance and management plans and the demands which passenger and freight train operators were likely to make of the network in the future. But the work was hampered by Railtrack's poor asset knowledge, and Winsor had been frustrated that the company's information - and that of the Office of the Rail Regulator in the past - was so unsatisfactory. The Hatfield crash and Railtrack's reaction to it showed immediately that the company's asset management plans for the future were inadequate and more work - and so more money - would be needed. The problem was no-one then knew how much. (It turned out to be an extra £7.4 billion.)
Railtrack had the right to appeal Winsor's decision on its financial settlement to the UK Competition Commission. It decided not to do so, principally because on January 15, 2001 Winsor made a public announcement committing to carry out an interim regulatory review of the company's financial position, with the potential - near certainty - that it would lead to a substantial increase in Railtrack's allowed revenues, to finance the substantially increased work programme which the Hatfield crash showed was necessary.
[edit] Short-term financial assistance
In order to alleviate its immediate financial pressures - the huge cost increases of the rerailing programme after Hatfield - on April 1, 2001, Railtrack agreed with the government an acceleration of part of Winsor's financial settlement, bringing forward into 2001 revenues which were not due to be paid to the company until 2006. Winsor endorsed the acceleration. In order to achieve favourable accounting treatment for the revenues, the government agreed that its franchising arm - the Strategic Rail Authority - would set up a 50:50 joint venture company (which became known as Renewco), and the accelerated revenues would be made available to Railtrack via that vehicle. The agreement was that Renewco would be set up by June 30, 2001, and if it wasn't, Railtrack would instead have the right to apply to Winsor for an interim regulatory review.
[edit] New chairman - secret negotiations with government
In June 2001, Railtrack appointed a new chairman, John Robinson. The company then embarked upon secret negotiations with the government - they were deliberately concealed from Winsor, who could and would have thwarted what was being proposed - for a generous financial bail-out of the company. The Railtrack negotiating strategy involved the government agreeing to cost-plus financing of the company for several years and a four-year suspension of the economic regulatory regime. Many commentators have subsequently remarked that Railtrack was naive to think that the government would ever agree to such a thing, but Railtrack apparently thought so. During this time, Renewco was not set up, and Railtrack (and the Strategic Rail Authority, which was also in the dark about the negotiations) pressed the government to do so.
The government did not regard Railtrack's bailout proposals as their only option. In secret, they prepared for an alternative, the insolvency of Railtrack and, as a result, the company being put into railway administration, a special kind of corporate status which ensured continuity of network operations despite the financial condition of the operator.
[edit] Threat to independent regulation
On October 5, 2001, everything was ready. Transport Secretary Stephen Byers called Winsor to a meeting to explain that the government regarded Railtrack as insolvent and that a petition for railway administration in respect of Railtrack would be made to the High Court in London on October 7, 2001. Winsor expressed surprise that the company could be on the precipice of insolvency, having just had a 50% increase in its allowed revenues in his October 2000 regulatory review, and that the company would not have said anything about its precarious position to its economic regulator who had the power to advance potentially billions of pounds to it in additional revenues. Asked by Winsor whether the chairman of Railtrack knew all this, Byers replied that John Robinson would be informed at a meeting immediately after Winsor's interview with the Secretary of State. Winsor told Byers that he would expect Railtrack, upon hearing this news, would immediately apply to him for the promised interim review. Byers replied that any such step would be met by the government introducing emergency legislation into Parliament to take the rail regulator under direct political control, to stop the review taking place. Winsor told Byers of the very severe adverse consequences such a step would involve, but Byers was unmoved. Ministers had made up their minds.
The next day - Saturday October 6, 2001 - the board of Railtrack met to discuss what the government intended to do. In the early evening, they called Winsor and asked whether he would be prepared to carry out an interim review. Despite the threatened legislation to stop him, Winsor replied that he would be prepared to help. Although he explained to Railtrack that he could not complete an interim review over a single weekend, he said he would be prepared to make a public statement that he had started the process, and suggested to Railtrack that if they were to show that to the administration judge the next day, the administration order would probably not be made. But Railtrack rejected Winsor's willingness to intervene, and the company went into administration - unopposed - the next day, Sunday October 7, 2001.
[edit] Adverse City and industry reaction
Immediately after Railtrack went into administration - the same day the US and UK began the war in Afghanistan - there followed a period of very considerable public and City criticism of what the government had done, with allegations of renationalisation by the back door and great turbulence in investor confidence, as Winsor had warned. The government strongly asserted that it had been justified in reacting as it had to a "failed privatisation" and a railway in crisis, and said firmly that there would be no compensation for investors. Immediately plans were made by Railtrack shareholders to sue the government for what they saw as the unlawful confiscation of their property. Because at that time Winsor's role in the affair was not yet known, there were suggestions that he too would be a defendant for having (as was thought) colluded with the government in bringing down Railtrack. Winsor maintained media silence on the whole affair for a month, until November 7, 2001 when he gave oral evidence to the House of Commons Transport Select Committee. In that evidence, he explained what had happened and the threatened legislation to extinguish independent economic regulation of the railway industry. That evidence led to Stephen Byers being called to account for his actions in Parliament, since on November 5, 2001 he had denied to Parliament making any threats to Winsor. As a result of the controversy, Winsor was put under increasing political pressure, with the prime minister's official spokesman refusing to tell journalists whether the prime minister still had confidence in the rail regulator.
Winsor refused to resign, since, as he later explained, he had done nothing wrong. In the face of industry and financial markets pressure, the government withdrew their threatened legislation and instead announced that the regulatory regime for the railways would be reviewed. The independence and jurisdiction of the rail regulator was not altered during the remainder of Winsor's five-year term, although immediately afterwards - on July 15, 2004, the government announced a legislative intention to cut down the power of the rail regulator to advance additional money to Railtrack's successor - Network Rail - at future regulatory reviews.
[edit] Byers' political problems intensify
The controversy of Railtrack's administration blazed on, and Stephen Byers' political problems intensified with other problems, including difficulties associated with the actions of his special adviser Jo Moore who had remarked to a colleague at the Department for Transport Local Government and the Regions that September 11, 2001 may be a good day to bury bad news, and the controversial and mishandled departure of his press spokesman Martin Sixsmith. Byers was subjected to relentless media and political attacks, and on May 28, 2002 he resigned. He never regained Ministerial office.
Byers' replacement as Secretary of State for Transport was Alistair Darling MP. It fell to Darling to get Railtrack out of administration, a process which was taking far longer than had first been supposed by Byers or senior civil servants at the Department for Transport.
[edit] Railtrack - how to end the administration
The government realised that ending Railtrack's administration required the High Court to be satisfied that the company was solvent. Darling needed Winsor to announce his willingness to carry out an interim review of the company's financial position, with the probability that he would allocate substantially greater sums to the company for the operation, maintenance and renewal of the network. To enable Winsor to make that decision, Darling knew that he needed to make a formal statement to Parliament to the effect that the government had reviewed the economic regulatory regime for the railways and was satisfied with it, and in particular that its independence was an essential cornerstone of the regime and of continuing private investor confidence in the railways. Darling made that statement on June 12, 2002, and Winsor announced his intention to carry out the interim review on September 22, 2002.
As a result, on October 2, 2002 the government was able to tell the High Court that Railtrack was not insolvent because the regulatory review had been promised and could lead to substantially more money for the company. The High Court was satisfied with that explanation and discharged the railway administration order on October 2, 2002. Railtrack was immediately acquired by Network Rail and renamed Network Rail Infrastructure Limited on February 3, 2003
[edit] £22.2 billion settlement
Winsor's interim regulatory review lasted until December 12, 2003, when he announced an additional £7.4 billion in funding, taking Network Rail's income for the five years 2004-2009 to £22.2 billion.
Winsor was severely criticised by some politicians - notable the House of Commons Transport Select Committee under the chairmanship of Gwyneth Dunwoody MP - for his power to increase public spending on the railways by such a large amount without Treasury approval. Winsor's reply was that that was his statutory remit and he would not be deterred by irrelevant political considerations in carrying it out.
[edit] End of term
Winsor left office on July 4, 2004, and returned to the private practice of law in London as a partner at global law firm White & Case. His practice there has been divided equally between railway and regulatory work in the United Kingdom and in Europe, South East Asia and Africa.
[edit] Rail Regulator abolished
On July 5, 2004, the government brought into force the Railways and Transport Safety Act 2003, which abolished the statutory position of Rail Regulator, and replaced the single-person regulator model with a nine-member corporate board called the Office of Rail Regulation. This change was made in line with the Labour government's policy of establishing regulatory boards to take the place of single regulators, and railways was the last but one of the principal economic regulators to be reformed in this way (the last being the regulatory authority for the water industry). Winsor later remarked that he was glad that for five years he had been able to do the work of nine people. In January 2007, the ORR board was enlarged to eleven members.
[edit] Controversy and court
Winsor was a witness in the legal action - heard in the High Court in London in June and July 2005 - brought by 49,500 private shareholders of Railtrack against the Secretary of State for Transport for misfeasance in public office. Not all aspects of the administration of Railtrack were aired in that case, and in the House of Commons on October 24, 2005, further criticism was levelled at the government concerning the circumstances in which Railtrack went into administration.
Those criticisms were made by shadow transport secretary Alan Duncan MP and Kenneth Clarke QC MP, and were defended by transport secretary Alistair Darling MP and Stephen Byers MP. Darling was later severely criticised for having that day tabled a motion in the House of Commons expressly congratulating the Government on the threats it had made to the independence and jurisdiction of the Rail Regulator in October 2001, despite Darling's own formal statements to Parliament between June 2002 and February 2004 that independent economic regulation of the railways was essential for the continuation of private investment in the industry, and effectively would and should be inviolate.
In 2006 two of Winsor's policies established whilst he was Rail Regulator - on the structure of network access charges (October 2000) and the conditions on which new passenger train operators without franchise contracts with the British government (called open access operators) are permitted to compete with companies which do (May 2004) - were challenged in the High Court in London. The case was a judicial review brought by Great North Eastern Railway Company Ltd against the Office of Rail Regulation. Two open access operators were joined in the case as interested third parties, one of which - Grand Central Railway Company Ltd - was a client of White & Case. Winsor therefore both represented his client and gave evidence in the case as a witness. The defence of the case was successful.
