I'm With Stupid
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The puns in that article are impressive. Shame they ran out of steam halfway through. Fuck, they already did that one.The rail network is now being re-nationalised.
End of UK rail privatisation
News
11 MAY 2022
UK railway privatisation has finally run out of steam and is being withdrawn from service. Nigel Hawkins examines the contentious scheme’s 25-year history.
Nigel Hawkins
UK railway privatisation, launched in the mid-’90s, has finally turned full circle: the Department for Transport (DfT) has confirmed its controversial railway franchise system will be scrapped. With the winding-up of the franchise system, the UK railway sector is effectively reverting to its former status as a nationalised industry, a shift that started with the re-nationalisation of the collapsed Railtrack – later Network Rail – in 2001. While the privatisation policy of the ’80s focused primarily on utilities, including British Telecom, British Gas, the 10 water companies and the electricity supply industry, the focus moved to the railway sector in the early ’90s.
On the wrong track
The UK railway network was first developed by private companies during the great construction era of Victorian Britain. By 1948, though, they had been nationalised as British Rail, an amorphous, bureaucratic organisation that attracted much criticism from passengers, whose requirements seem to have been accorded little priority.
In the mid-’90s, British Rail was controversially split up. The rail network was transferred to Railtrack while the customer-facing passenger transport element was subjected to a franchising system, whereby bidders would apply to become the train operating company (TOC) for a specified region. Freight was handled separately while the management of rolling stock was allocated to the three rolling stock companies (Roscos).
The railway franchising system was chosen – partly at the instigation of the Treasury to drive competition – via open access on the network. Vertical integration as a policy was discarded, apart from on the Isle of Wight. Hence, the concept of a regional railway system, which had been the model pre-World War II, was not reintroduced – a major error.
Instead, the railway franchise system arguably had its roots in the controversial TV franchising auction in 1991, where the right to broadcast in the valuable Midlands region was won by the sole bid from Central Independent Television for a derisory sum.
The first franchise put out to tender was won by Stagecoach, which, despite its colourful history, had prospered on the back of the privatisation of the bus sector during the ’80s. On 4 February 1996, the 5.10am train to London Waterloo duly left Twickenham station, thereby becoming the first passenger train service to be operated under a private franchise since 1948, when the network had been nationalised.
Subsequently, in 1996, the initial public offering of Railtrack, the owner of the nationwide rail network and many related property assets, took place. Despite a massive backlog of maintenance, it flourished initially, before failing in 2001 when it was renationalised, virtually overnight.
Derailment
During the past two decades, passenger numbers on the railway network had grown sharply until being decimated by Covid-19 in 2020. On the franchising front, there have been various controversies in a flawed and financially complex process. First, several offshoots of EU publicly owned railway companies have been successful, their bids aided by access to cheap government-backed financing.
Deutsche Bahn, SNCF/Keolis, Trenitalia and Abellio have all featured prominently as bids from UK-quoted companies dried up. The long-running episode involving the re-franchising of the West Coast Main Line (WCML) highlighted some dreadful modelling errors at the DfT: legal proceedings ensued.
Not surprisingly, Covid-19’s devastating impact on rail passenger numbers has proven to be the final nail in the coffin for the beleaguered railway franchising scheme, as the terse announcement from the DfT on 21 September 2020 confirmed. Existing rail franchising contracts are to be replaced – with immediate effect – by new Emergency Recovery Measure Agreements. In time, a white paper will be published with a range of proposals to reform the UK railway system – how it should be managed, financed and regulated. An emphasis on benefits for passengers has been pledged, although markedly reduced fares seem improbable.
Train of thought
In analysing the impact of railway privatisation over a 25-year period, it is clear there have been real successes alongside the widely reported failures. Investment levels have been considerable, with much of the capital expenditure being channelled through Network Rail, which in 2019/20 undertook £5.2bn of capital expenditure. But there has been criticism of its capital expenditure management, with serious problems arising on some of its electrification projects.
Nevertheless, both Network Rail and its predecessor, Railtrack, have inherited massive backlogs in seeking to maintain the UK’s extensive track network, not forgetting a vast number of old bridges and tunnels – a process that has led to a safer railway after a sequence of rail disasters a generation or so ago. Furthermore, major schemes, most notably on the much delayed upgrading of the WCML, have been completed, albeit at a high cost.
The three Roscos, which were established at privatisation, have also invested heavily in new rolling stock, where very discernible improvements have been achieved. The replacement of many self-powered diesel units is one such example. While there has understandably been criticism of the high train fares levied on certain lines, generally at peak times, the additional investment has enabled the pronounced increase in passenger journeys over recent decades. According to data from the Office of Rail and Road, total passenger train journeys in 2019/20 were 1,742m compared with 1,258m in 2009/10, a decade earlier. For 1999/2000, the relevant figure was 931m, compared with 812m in 1989/90. These figures exclude travel on the Heathrow Express, Eurostar, the London Underground and on light railways.
Tunnel vision
All in all, railway privatisation has undoubtedly yielded some clear benefits along with the many pronounced shortcomings. Aside from the profound error in preventing vertical integration at the outset – the Isle of Wight excepted – the most egregious shortcomings, which were directly related to the railway franchising system itself, were:
- Lack of accountability to passengers for shortcomings, as many TOCs found that Railtrack/ Network Rail were directly responsible for an estimated 60% of delayed or cancelled services rather than the franchisee.
- Ticketing problems, especially for long journeys, caused directly by the shift from a monopoly supplier (British Rail) to franchisees.
- The complex money-go-round system devised for railway privatisation meant vast sums of money was circulated around various participants following the break-up of British Rail.
- Overbidding for franchises on the basis that it gave you the best chance of winning – the East Coast Main Line (ECML) seemed fated in this respect, with successive franchise holders making heavy losses and having to retire, or be retired, from the ECML fray.
- An indeterminate bidding policy as some franchises were very short term, thereby discouraging investment, while others were too long, which could give rise to years of possible underperformance by the incumbent operator.
- Compiling credible revenue projections, which were correlated with projections for the national economy, proved very difficult. Forecasting commuter passenger figures was particularly challenging.
- The complexity and costs of bidding, as demonstrated by the controversial saga of the WCML franchise process.
- The entry of overseas train bidders, generally offshoots of the local monopoly train company, who benefited from very low public sector borrowing rates. Many became successful bidders, a trend hardly in keeping with the original railway privatisation principles.
Franchise winners
In the early years of railway privatisation, five bus-orientated companies were successful in winning railway franchises, with Stagecoach procuring the initial South West Trains bid.
Subsequently, other bus companies, FirstGroup, National Express, Arriva – now owned by Deutsche Bahn, despite its ongoing efforts to sell it – and Go-Ahead, became major participants in the provision of railway passenger services.
The Stagecoach experience is illustrative of the topsy-turvy nature of investing in UK railway franchising, with all its twists and turns. In the first half (H1) of 2020, Stagecoach reported rail revenues of just £2.8m. This compares with a H1 2011 revenue figure, almost a decade earlier, of £525m, which yielded an operating profit of £22.9m.
FirstGroup, a leading railway franchise holder, has also experienced real volatility. Between mid-February 2020 and mid-March 2020, its shares fell by around 80% as the Covid-19 crisis suddenly deepened. Winning overseas bidders have also featured prominently, certainly in recent years. They include Deutsche Bahn, SNCF/ Keolis, Trenitalia and Abellio. Given that most of these overseas operators will have access to more competitive public funding rates, the issue of whether ‘a level playing field’ is in operation has, not surprisingly, been raised.
With hindsight …
In assessing railway privatisation, along with its successes and failures, it is pertinent to consider what would have happened had railway privatisation never been introduced, with British Rail retaining its dominance over the sector. The evidence suggests:
- British Rail would have had to fight each year – probably with limited success – against the claims of the NHS, social security, education and others for its share of public expenditure funds.
- Lower investment, especially in stations and rolling stock, would have been likely; while the WCML and ECML upgrades may not have even taken place.
- A probable panic-stricken response to the high-profile track and signalling related rail crashes – Southall in 1997, Ladbroke Grove in 1999, Hatfield in 2000 and Potters Bar in 2002 – with large sums of public money being spent.
- Prior to the Covid-19 impact, markedly fewer passengers would have been expected to use the network as low industry standards deterred some potential rail travellers.
- Considerably fewer trains would have been scheduled, handling fewer passengers.
- A rapidly worsening financial deficit within British Rail, which would needed to have been periodically plugged.
- Minimal support for the High Speed 2 (HS2) project, given what would have been major financial constraints in the railways sector.
Of course, the above conclusions are theoretical but – irrespective of the problems of railway privatisation – maintaining, modernising and refinancing the old British Rail, which had a dreadful public image, would have been immensely challenging.
No train, no gain
Within the railway sector but outside the franchising process, two other major issues are pertinent: the future of Network Rail and the HS2 project. As by far the largest participant in the railway sector, albeit unquoted, improving the performance of Network Rail remains a priority.
Network Rail’s net debt at March 2020 reached a massive £54.6bn and, given its heavy capital expenditure, it seems set to remain cash-negative. Under international accounting rules, Network Rail’s net debt is now deemed to arise from within the public sector and it has been consolidated within the national accounts. In view of its challenging financial situation, it is increasingly difficult to implement major reforms. The government’s determination to pursue the highly controversial £100bn HS2 project has major implications for the long-term railway network, assuming it is neither cancelled on financial grounds – still a possibility – nor radically reconfigured.
The benefits, when set against its extraordinary cost, are marginal at best. Like certain EU ‘grand projects’, HS2 will continue to be justified as such and, assuming it is eventually completed, will have consumed vast amounts of cash before transporting a single passenger.
Train wreck
Despite some successes, railway privatisation will be widely seen as a flawed policy, not least by the present government, which has effectively reversed it. The franchising process has proved increasingly controversial, while government interventions and U-turns have been unsettling. Indeed, even the Shaw Report by Nicola Shaw, chief executive of High Speed 1, into the future of Network Rail, stated “Since privatisation, the government’s involvement in the railway has been constantly changing and adjusting to events, without, so far, ever quite settling into a happy equilibrium.”
Nigel Hawkins is the infrastructure and renewables specialist at Hardman & Co. He has been involved in analysing the utilities sector since the ’80s. He covered the privatisation of the water and electricity companies for Hoare Govett between 1989 and 1995. Between 1984 and 1987, he was the political correspondence secretary to Margaret Thatcher.
Do you have a link to it btw? I've been teaching puns in class at the moment and I might share it with my kids.
