Nigel Harris asks if a Rail Review is approaching...

Public ownership wins support as franchise woes grow

What are we to do with our railways? In my Comment in RAIL 858 I said that the way we currently franchise our passenger network is ‘dead in the water’ and nothing I have learned since has deflected me from that conclusion.

Not a single person or organisation has said that I’m wrong and more than a few have expressed heated agreement. You will maybe notice that I haven’t said that franchising is a busted flush - because I don’t believe that - but the way the Department for Transport has implemented franchising most certainly is.

A number of franchises are stressed and this is largely because of the DfT’s approach - not in concept, but in implementation. Bluntly, franchises were signed which were undeliverable from the outset. What makes it inexcusable is that DfT went ahead having been told in advance they were undeliverable. Thus, the TSGN, SWR and VTEC franchises were all signed off despite NR telling DfT that their train plans could not be delivered by existing infrastructure. It’s hardly surprising that problems followed. On VTEC, financial problems dragged Stagecoach down before the infrastructure problems hit, but on GTR the timetable had to be rewritten. On SWR the capacity constraints are now becoming clear.

As I pointed out in my last Comment ( RAIL 859), the DfT has a powerful incentive to push the boundaries to breaking point given that it pays out £ 374 million in subsidy but nets £1.9 billion, yielding a massive margin of £1.5bn.

This also resulted in the infamous ‘one way ratchet’ being applied to bids, which led directly to over-ambitious bidding. This meant that franchises were not only undeliverable in practical terms, but also financially. Had VTEC’s premium payments been based on, say, 6% compound growth and not 10%, then Stagecoach might still be running the East Coast. It is, after all, a healthy railway, growing at around 5% a year. It was not the railway which failed, but the franchise deal itself. It isn’t franchisING that has been the problem - it’s the franchisES. There’s a big and important difference.

Sure, there have been some positive changes. Departing Chief Executive Mark Carne was clear that NR is now a signatory to new franchises, rather than a mere consultee, and that this will ensure that there will be no more undeliverable timetables, which can trigger financial stress and collapse when contractual service enhancements cannot be delivered.

There have also been changes in the contractual details too, whereby financial stress tests/risk assessments now play a much bigger role with the aim of preventing the overbidding, which was inevitable/required to ensure victory.

But it’s just too late. Where once DfT required four bidders to define a competitive process, it now finds flimsy reasons to claim that two is better. This is nonsense, risky, unsustainable - and most certainly not in the public or passenger interest. In return for very significant financial, corporate and reputational risk, it is no surprise that commercial bidders are scarce, leaving mainly overseas state railways with the appetite and resource for the significant risks involved. Far from being bailed out, Stagecoach paid a hefty £ 200m price for its East Coast adventure. No surprise then that outspoken and hardnosed National Express CEO Dean Finch was recently quoted as saying that in the event of him showing signs of wishing to return to UK rail he should “be taken out and shot.” When you consider NX once held nine franchises - not far short of half the total - the seriousness of the problem is clear. But what comes next?

There’s no clarity on the promised East Coast Partnership - and the only industry consensus that I can see is that this main line is the last route you’d experiment on like this. So, on the one hand there’s a crisis of organisational confidence, while at the coalface there has been a very significant collapse in public, passenger, political and media confidence in rail after the post May 20 timetable meltdown.

In such febrile, fertile ground, the nationalisation argument has thrived as passengers, people and pundits ignore facts in the search for a simple, silver bullet solution. No matter that NR is already nationalised and that all passenger services are already publicly owned - they are simply contracted out for private operation, so what public ownership (as promised by Labour) means is far from clear.

There’s no way that any government would buy the ROSCOs (£10bn at least) nor would they want the freight companies, which leaves only the passenger franchises. The only plan I’ve heard here is that franchises will be taken back as they expire, “at no cost” and would be publicly run thereafter. This does not withstand even the most superficial scrutiny.

For public ownership of the passenger business to save money, Government would have to run the network for less than the 2% which the current owners/TOCs run it for. Do you believe that’s possible? No, me neither. And yet this hare continues to run. It needs calling out clearly, comprehesively and continuously.

Worse, further damage is being done by the principle that if you don’t set the agenda, then someone else will - and as a working class Northerner it saddens and disappoints me that railway unions are pushing a self-serving (no problem) agenda, but with a less than straight argument (big problem).

In a press release condemning the latest fare increase news by DfT, the Transport Salaried Staff Asociation (TSSA - known as rail’s ‘white collar’ union) said: “It’s clear that since privatisation passengers have become cash cows for greedy private operators. It’s time to end this vicious cycle by bringing our railways back into public ownership so we put passengers, not shareholders, first.”

The problem with that is the 3.2% fare increase effectively announced in August by the DfT applies only to regulated fares, with financial benefits making their way, via the franchise mechanism, to Government. Shareholders derive no benefit from these annual maximum regulated fare increases, currently set by the Retail Price Index.

This is important because I suspect a Rail Review is coming and it is crucial that these fundamental points are clearly understood, lest we end up politically being pushed into a position where the baby is thrown out with the bath water and we do real damage to our railway and its capability to deliver.

If we must flirt once again with nationalisation, let us be crystal clear what ‘public ownership’ actually means before we put our railways back into the annual public fight for funding with the NHS, education, defence, social care, police, environmental policy, overseas aid and numerous other important sectors clamouring for cash. Whatever queue forms, rail would be right at the back of it.

“...Government would have to run the network for less than the 2% which TOCs run it for. Do you believe that’s possible? ”