Andrew Mourant
With the Scottish Government having secured legislative powers allowing public bodies to bid for future franchises, could Scotland lead the way for rail services being returned to public ownership? ANDREW MOURANT reports
“But regardless of ScotRail’s improvement plans, including extensive replacement of tired old rolling stock, diehard opponents of privatisation will claim that the franchise system is hopelessly wasteful.”
Whatever fate has in store for the East Coast Main Line - either being run once more by the Department for Transport, or by current operator Virgin (on a short-term, not for profit contract) - south of the border the franchise churn is likely to continue. Unless, of course, Labour comes to power.
But in Scotland things are different. It has the means to act independently, and restoring trains to public ownership is being considered - as a principle rather than as some knee-jerk reaction to a crisis. Such is the fallout from the independence referendum of 2015, after which Westminster shovelled more powers towards Holyrood.
ScotRail, owned by the Dutch state operator Abellio, is due to keep the franchise until 2025, after being given a ten-year deal worth just over £ 6 billion. That could still happen, but the Government also has the option to exercise a break clause in 2020. By then, the path may be open for existing public bodies to bid for the rail franchise, or for a new public sector body to be created if necessary.
Scotland’s Transport Minister Humza Yousaf is mulling all this over, and we should know more of what he’s thinking before too long,
according to Transport Scotland ( TS).
“Our view is that there should be a level playing field between the private and public sector,” a spokesman told RAIL.
“In 2016, we secured legislative powers allowing public bodies to bid for future Scottish franchises, and we’re currently working to identify a suitable body. We hope to make an announcement later in the spring.
“Given the legal requirement to award rail franchise contracts by competitive tendering remains, our aim is to inject competitive tension into the bidding process - to generate better value bids and a more ‘public interest’ approach to operating the railways.
“We want to deliver the best outcome for the taxpayer, the passenger and railway staff. This will enable the Scottish Government to ensure rail services in Scotland that deliver maximum economic and social benefit.”
The emphasis on staff welfare and social benefit marks a shift - it has hardly been conspicuous in franchise bids by the private sector to date. Yet this was a key point made by the Transport Salaried Staffs’ Association (TSSA) union, which recently published a report calling for public ownership of Scotland’s railways to be restored.
TSSA says that under Abellio (and previously when operated by First), the ScotRail franchise has been one of the most subsidised in Britain. In 2015-16, for instance, it received £ 293 million in government funding, the third highest amount in the UK in terms of funding per passenger kilometre.
“Bids from public sector groups and social enterprises could be encouraged if the Scottish Government ensured that future franchise objectives feature a greater emphasis on social and environmental objectives, as well as… the rights of workers, staffing levels and rates of pay, rather than on narrow conceptions
Given the legal requirement to award rail franchise contracts by competitive tendering remains, our aim is to inject competitive tension into the bidding process - to generate better value bids and a more ‘public interest’ approach to operating the railways.
Transport Scotland
of efficiency associated with private sector operators,” says the TSSA.
As for efficiency and passenger satisfaction, ScotRail isn’t bottom of the heap. A recent Transport Focus study found that 85% of passengers were satisfied with their journey in autumn 2017 (although down from 90% in its spring survey).
This surpassed both the UK average of 81% and ScotRail’s 83% rating recorded in autumn 2016, although it did fall well short of the top performer - open access operator Grand Central (96% satisfied).
Like other train operators ScotRail has had to compensate passengers for poor services - for example, £ 587,527 between April and December 2016 (around £ 2,000 per day). Overcrowding was the biggest gripe, although the company claims new trains and more seats will sort this out.
Time will tell. Yousaf has reiterated that a break clause on ScotRail’s contract could be activated in two years’ time, with a new operator taking over in 2022 if Abellio is
judged to be falling short of its contractual obligations. What slack it will be granted for failures here and there remains to be seen.
But regardless of ScotRail’s improvement plans, including extensive replacement of tired old rolling stock, diehard opponents of privatisation will claim that the franchise system is hopelessly wasteful. With Scotland fertile ground for this kind of thinking, TSSA’s report is (if nothing else) timely. Inevitably it divides opinion, with its assertions contested by those who doubt that public ownership of the franchise will solve the network’s deficiencies.
Like many advocates of public ownership, TSSA leans on the InterCity East Coast franchise saga as a favourable case study, stating: “It ran at a profit with customer satisfaction reaching record levels. It proves the potential of publicly run railways, even within the limitations imposed by fragmentation and the franchise system.
“During five full years of operating the franchise, Directly Operated Rail (DOR) returned over £1bn to the DfT in premium payments. It also made over £ 30m in profits, and by 2015 had achieved a customer satisfaction score of 94% - an all-time record for the franchise. Levels of sickness absence declined by a third.
“Figures suggest that reinvesting operating profits into fares under public sector operation would allow for a 6.5% average fare cut, while retaining present funding levels. This could be even higher if, as with East Coast, public operation led to greater efficiency, or if further funds were freed up by the abolition of the franchise system.”
Not everyone agrees. The sceptics include Tom Harris, a former rail minister under Labour from 2006-08, who describes talk of nationalising ScotRail as “a meaningless distraction”.
Harris now runs a public affairs company, Third Avenue Communications, and also advises the think tank Reform Scotland.
“East Coast ‘succeeded’ under public ownership in that it continued to make a profit,” he says.
“But the premiums it returned to DfT were considerably smaller than the amounts of money surrendered by both its predecessor National Express, and its successor Virgin Trains East Coast.
“And even that lower level of premium couldn’t have been delivered without East Coast Trains getting a special deal from Network Rail that allowed them to pay only the level of track access charges that private companies were obliged to pay.”
Which rather begs the question: why should DOR have been obliged to pay more? Who, exactly, would have benefited if it had?
Harris told RAIL he considers the Scottish Government’s flirtation with a public sector bidding process is for “political reasons… to try to avoid criticism from Labour and others that it’s too beholden to the private sector”.
TSSA, like other advocates of nationalisation, says good money is being thrown away by the franchising process.
“In 2015, resources expended by various bidders for the ScotRail franchise amounted to an indirect extraction of over £ 30m from the public transport system,” it claims.
“If ScotRail operated permanently on a public sector basis, this would help eliminate non-productive costs and facilitate long-term thinking and planning.”
However, Harris counters that any public sector bid will cost significant money - “between £10m and £15m, which would have to be found… with no guarantee of actually winning the franchise”.
He adds: “There’s been no confirmation that a new contractor will be sought in 2020. I’d be surprised if Abellio (ScotRail) were not permitted to continue to the agreed end of its franchise.”
Another plank of TSSA’s argument is the cost of acquiring trains.
“The Scottish Government should purchase rolling stock directly, ensuring ROSCOs [rolling stock companies] will no longer be able to extract profits from the rail system by leasing trains to train operators at excessive rates,” it says.
“The total savings, previously estimated at £127,000 per carriage per year, could amount to millions annually given the necessity for ScotRail to replace its ageing fleet. Profit leakage via ROSCOs would be eliminated. The public sector would be able to borrow at lower interest rates than the ROSCOs.”
Harris regards that view as “optimistic to say the least”, claiming: “The reduced cost of leasing vehicles would be massively outweighed by the cost of purchasing very expensive carriages in the first place.”
That, of course, depends on the nature of whatever deal might be struck.
As for increasing efficiency, Harris believes the way forward is for Network Rail to be devolved in Scotland.
“It was responsible for more than half the rail delays ( 54%) north of the border in the last year,” he says, adding it is “logical” that Holyrood could run rail infrastructure rather than Westminster.
There’s been no confirmation that a new contractor will be sought in 2020. I’d be surprised if Abellio (ScotRail) were not permitted to continue to the agreed end of its franchise. Tom Harris, Former Rail Minister
Meanwhile, Reform Scotland says that rather than argue over who runs ScotRail, the debate should focus on Scotland’s “poor rail connectivity and lack of electrification”.
The independent think tank asks: “What about links between Dumfries and Galloway and Edinburgh? Or Glasgow Crossrail, or Edinburgh and Glasgow airport rail links?
“In 30 years’ time, do we really want a situation where it could take less time to reach London by rail from Edinburgh than to Inverness? Links to London are important, but so are links within Scotland, which are sadly lacking.
“We aren’t saying that the Scottish Government should definitely create a new high-speed line to the north, or improve links to major towns in the Borders, or introduce other new lines. But we are calling on it to look at these options. We need a Scottish rail infrastructure commission to look at transformational change.”
Transport Scotland’s Yousaf is aware of the “accountability gap” where, despite receiving “significant public resources”, Network Rail Scotland isn’t directly accountable to the Scottish Parliament. More devolution and better governance arrangements for NR would improve matters, says Transport Scotland.
Although Network Rail’s performance has its critics in Scotland, TSSA claims the infrastructure company has been hamstrung through “holding down” the access charges that train operators pay to use its tracks - “to such an extent that the income is lower in real terms today than in 2003, despite increasing passenger numbers. The shortfall is then made up in large part by government grants. Public money subsidises the low access charges upon which train operating company profits depend.”
TSSA has imagined various models for public ownership of ScotRail.
“It could take the form of an arms-length public body, an integrated public transport body, or a co-operative governance model with government financing.
It says: “If UK-level legislation enforcing the franchise system were repealed, or powers devolved to the Scottish Parliament, the Government could abolish competitive tendering by making a Direct Award to a public sector operator regardless of Scotland’s future relationship with the EU. This would be our strong preference over a public sector franchise bid.”
A co-operative model, meanwhile, would bring “worker and passenger representation into the ownership as well the governance. Scotrail could be part-owned by trade unions and groups such as season ticket holders besides the Scottish Government, “which would likely remain the largest shareholder.”
Day-to-day running should rest with a small executive board, comprising people with a proven track record of railway management. This would be overseen by a board of trustees “focused on strategic governance” - ideally including trade union representatives, local government, passengers, freight users, environmental organisations and transport authorities.
Moreover, says TSSA, new funding mechanisms should be identified to help finance investment in rail.
“At the very least, land value levies on areas benefiting from major infrastructure projects should be introduced to ensure that the public, rather than just local landowners, benefits from the increase in nearby land value that occurs when a new railway or station is built.”
Harris concedes that nationalising ScotRail could be made to work.
“But the costs and risks involved are probably, on balance, not worth it,” he says.
“TOCs take between 2.5% and 3% of profits each year, so yes - that could, on a one-off basis, be invested back into the industry.
“But the high cost of fares in the UK is because of a political decision by the Labour government, and continued by this one, to switch the burden of subsidising the railways from the general taxpayer to the fare payer. Unless you want to increase the general tax burden, largely for non-rail users, then fares aren’t going to fall.”
Bids from public sector groups and social enterprises could be encouraged if the Scottish Government ensured that future franchise objectives feature a greater emphasis on social and environmental objectives. Transport Salaried Staffs’ Association