BREL’s demise
It’s been almost exactly 30 years since the privatisation of British Rail Engineering Ltd (BREL). DAVID CLOUGH charts the story of the previous 40 years of rationalisation and disposal in British Railways’ workshops
COVER STORY The story of 40 years of rationalisation and disposal in the workshops of British Rail Engineering Ltd.
Nationalisation in 1948 brought a massive facility for railway locomotive, carriage and wagon manufacture, maintenance and repair under the control of British Railways.
Each of the pre-1923 companies had their own facilities, and the majority of these were still extant when the Big Four railways disappeared in 1948. In 1955, the year plans for railway modernisation were unveiled, 38 main works employed 69,000 artisan staff.
The British Transport Commission recognised that its plans to transition from steam to diesel and electric motive power would have an impact on workshop capacity, and planning for this was put in hand during 1959.
By the following year, eight works had closed or been downgraded to depot status. Brighton fell into the former category, and Oswestry and Inverness into the latter.
Dr Richard Beeching is largely remembered for line closures and service cuts, although the decisions were actually made by politicians. One aspect of his work that is never mentioned concerns the drive for greater productivity, and the rationalisations that came from this.
The railway workshops offered considerable scope - not least because a smaller, modern railway that was moving away from steam traction and single wagonload traffic required far less capacity than appertained in 1962. At the time, there were 32 locomotive, carriage and wagon workshops, but by 1973 this had fallen to 13.
Across the estate, in 1962 there was surplus capacity of 23%. This was expected to rise to nearly 50% by 1965. Passenger and freight service reductions were said not to be factors in this matter.
In 1962, Swindon was by far the largest employer with over 7,300 staff, divided roughly equally between the locomotive and the carriage and wagon shops. Crewe was the next largest, with a workforce of some 6,800.
An interesting aside concerns the infamous David Serpell, then a top mandarin at the Department of Transport (DoT), and Caerphilly works.
Serpell visited Cardiff in April 1962, to assess whether to build a new diesel depot at Canton or to equip Caerphilly instead. He found that the majority of Caerphilly’s staff commuted from the Cardiff area, and that Canton was in a better location for rail operations. Thus, the former was closed.
Sir Steuart Mitchell was tasked with coming up with a reorganised workshop function, and these were published during mid-1962. These resulted in the Regions losing control to a new central unit (the Workshops Division) from January 1963, and the halving of the number of establishments.
Artisan-grade personnel numbers fell from 56,000 to 38,000, aided by generous redundancy and resettlement payouts. Perhaps because of political sensitivities, only 9% of job losses were in Scotland (against an overall figure of 32%). Mitchell was thanked for his sympathetic approach to the issue.
Cost control (another Beeching initiative) meant that comparisons could be made between the same work in different facilities. Thus, in 1964, when there was local pressure to give Darlington locomotive works further orders to prevent closure, the higher cost of construction there compared with Derby sealed Darlington’s fate.
On January 1 1970, the Workshops Division was converted into British Rail Engineering Ltd (BREL), a subsidiary company of the BR Board. It was to be self-financing.
Further decline in rail-borne freight, coupled with a consequential rationalisation of diesel traction in 1968, led to Townhill, Barassie and Inverurie works succumbing by 1972.
The withdrawal of a further 235 locomotives and deteriorating BR finances in 1971 brought job losses at Crewe, Derby, Glasgow and Swindon. With a workforce of 4,289, Swindon was now on a path to closure as a locomotive works because of the intention to withdraw 110 “uneconomic” diesel-hydraulics.
The history of BREL can then be seen as caught up in chaos theory.
Under the first Thatcher government of 1979, arch Conservative Sir Keith Joseph was appointed as Minister for Industry. A quarry owner in Devon began a lively correspondence involving the minister, in which he complained that the railway-owned Meldon Quarry competed unfairly with those in the private sector.
This prompted Joseph to raise with his colleague at the Department of Transport the notion of whether some of BR’s operations (including the workshops) should be privatised.
It has been said that BREL’s privatisation
The chairman had to admit that recent experience of open competitive tendering for new traction and rolling stock had been beneficial. In short, BR had previously been paying too much and suffering longer delivery times while using BREL as its monopoly supplier.
Large organisations habitually find it difficult to deal with continuing decline for their goods or services, and BREL was no exception.
came on the back of the sell-off of the Railway’s hotels division and Sealink subsidiaries. But as noted above, the idea of privatising BREL had been planted long before then.
Pushing his idea of a sell-off again, on April 10 1981 Joseph floated the idea of turning each BREL works into a separate, privately owned company that would then bid against each other for contracts. In his reply, the Minister for Transport agreed with Joseph but was wary of the industrial relations issue within BR that had so often been an inhibiting factor on progress since nationalisation. A further factor was the combined role of BREL as a manufacturer and maintenance provider, which would take time to separate.
A meeting in November, which brought together not only the two ministers but also a Treasury representative, reviewed the position again. Trade Union reaction, BR’s organisation, the poor prospects for BR investment, and the undertaking given to BR’s chairman to sell off other subsidiaries first, left BREL on the sidelines for the time being. The best course appeared to be to opt for open tendering between BREL and the private sector for new locomotives and rolling stock.
In 1979, the BR Board produced a report on BREL. Among other proposals, it recommended the setting up of a new company to deal with manufacture, and which would be open to competition by 1982, when an arms-length BR/BREL relationship would apply. The report commented that BREL had no means of assessing whether it offered value for money or financial effectiveness.
BREL’s board recognised the company’s continuing shortcomings, and in 1980 it produced a five-year manifesto for improvement. In June 1983, the manifesto was augmented by a new action plan in which the three objectives were:
Development of a strong customer orientation in BREL’s relationship with BR.
Maximising the return on BR’s investment in BREL.
Reduction in unit costs on classified repairs and new build.
The surprise in this is that BREL had only decided to pursue these objectives 20 years after being created as a separate entity! Of course, BREL’s costs fed through into the viability of new investment being sought by BR, as well as pushing up overall railway running costs, and consequently the level of Government support for services - a point made by the Minister for Transport and not BR!
Whatever approach the Board chose to take, the DoT was clear that this could not cut across the ministerial desire to privatise its manufacturing side, and also to look towards outsourcing heavy maintenance and repair. The Serpell Report, published in January 1983, supported this approach as a way of dealing with BREL’s “problems”.
This was radically different to BREL and the Board’s desire of turning BREL into a “free-standing” company within BR, including competitive tendering for major contracts. It seems only BR’s chairman and possibly one or two other Board members were aware of ministerial intentions at this time.
BR appointed consultants to review BREL, and they reported in October 1983.
The report said it would be difficult and costly to segregate manufacture from maintenance facilities. Uncertainty over future new-build investment added to the difficulty of creating a standalone manufacturing entity. BREL’s approach of becoming a freestanding, arms-length subsidiary was accepted as the best option, along with continued restructuring of BREL’s organisation to cut surplus capacity and drive for more export work.
While undoubted progress had been made, there was still a long way to go. It was still not a fully accountable and profitable business, and positive support from BR would continue to be
needed if BREL’s cost base was to be addressed.
With no orders for new wagons for several years, in 1982 BREL had announced the closure of Shildon Wagon Works, its largest such facility. Perhaps unsurprisingly, the Doncaster Works manager said at the time that transferring Shildon’s repair function to his Works was the sensible option. Shildon closed in 1984, and Horwich and Temple Mills then came under the spotlight.
At the start of 1985, GEC and BR held talks to explore the possibility of a commercial relationship between the former and BREL. GEC’s last locomotive, built in-house for BR, had been Class 50 D449 ( 50049) in 1968, but the company had supplied equipment (notably diesel engines and traction motors) for several locomotive and multiple unit designs.
GEC was seeking a partner to undertake construction of the mechanical parts and assembly of locomotives for the home and export markets. While BREL was lined up to fulfil this role for Class 90s, several issues mitigated a formal tie-up.
Firstly, BREL was aiming for a tie-up with either General Motors or General Electric of America, which it regarded as market leaders. Secondly, GEC equipment in Class 58s was proving troublesome. Thirdly, BREL had some way to go in implementing its plan to disaggregate manufacturing and maintenance. Finally, BR did not wish to end up with GEC/ BREL as a monopoly supplier, although some in BR were happy for BREL to collaborate with ASEA of Sweden for the supply of future electric traction. BR’s chairman was concerned at the last point because he recognised that political pressure might rule out BREL forming a monopoly alliance with an overseas supplier.
During early 1985, a core workforce of 15,000 was settled upon for the late 1980s, for both manufacture and maintenance. This could be spread across an estate that ranged from five to nine workshops, depending on preferences for locations and size of facility. Forecast lower demand in future years then added to the need for less capacity.
Glasgow, formerly St Rollox, was to be left with only the refurbishment and repair of Strathclyde rolling stock, in order to avoid the political and industrial relations issues which full closure would cause.
However, Strathclyde Passenger Transport Executive was dissatisfied with the quality of Glasgow’s refurbishment work, and the cost was higher than elsewhere in BREL. Moreover, BR had sufficient maintenance capacity for its needs in Scotland without Glasgow.
The solution was to close the Works (making the employees redundant), then re-employ most of them on BR pay scales in a small part of the site. The new facility would be known as Springburn, under BR’s Scottish Region control with the same workload.
Swindon was also earmarked for closure, but here the availability of alternate employment made closure less problematic. Ministers wanted BR to publicise as much as possible the lengths to which the Board was going to consult with stakeholders, and to assist with finding alternative employment.
An options study in 1985 ruled out a stock market flotation or management buyout as not feasible at the time. A publicly owned company under Department of Trade & Industry auspices seemed unlikely unless eventual privatisation or flotation was a genuine prospect.
Retention within BR or sell-off to the private sector, either in its entirety or piecemeal, were the most viable options. Trade investors felt that there was significant over-capacity in the sector, and further rationalisation was unavoidable.
A further review within BR concluded that it was appropriate to retain in-house facilities for maintenance above that capable of being carried out at Regional depots, to ensure
certainty of supply of components. These facilities would be termed the Maintenance Group and comprised Springburn, Doncaster, Wolverton and Eastleigh.
Crewe, York and the two works at Derby, which were engaged primarily in new build and heavy overhaul, would be the New Build Group and there was no need for these to remain within BR. Horwich Foundry was viewed as a standalone business suitable for sale.
While the plan to create manufacturing and maintenance units was announced in January 1986, there was no mention of any sell-off. Implementation of the split came in April 1987.
In October 1986, BR’s chairman updated the minister on progress towards the remit for capacity reduction and strategic options, including privatisation, for BREL. Compared with the 1982 Serpell baseline, considerable changes had been made which proved that the need existed and how BREL had been sapping BR’s resources. The following table summarises the situation.
The chairman had to admit that recent experience of open competitive tendering for new traction and rolling stock had been beneficial. In short, BR had previously been paying too much and suffering longer delivery times while using BREL as its monopoly supplier.
Worse, BREL had been insolvent (its liabilities exceeded its assets) for a number of years, and only remained a going concern by virtue of BR’s continuing support. There would probably have to be a writing-off of all or part of BREL’s £140 million debt to BR, plus provision for restructuring costs within BR’s own external funding.
Even worse, tender evaluation for several contracts revealed a much greater degree of uncompetitiveness than expected, and that it was clear BREL had a long way to go to be viable. In any event, BR did not wish to rush BREL’s reorganisation between manufacture and maintenance, because of concern about the security of supply for its traction fleet.
Yet another issue that emerged in late 1986 was forward workload for some of the works within the New Build group. Would the DoT agree to scheduling new DMU and EMU orders to provide a dowry for buyers?
The alternative was further run-down of capacity, involving possibly 5,000 job losses and likely industrial relations fall-out. These job losses would cost BR a further £ 50m, which would ultimately have to come from HM Treasury. One option was to place BREL into insolvency and pick up the pieces thereafter.
The merchant bank engaged by BR to advise on the sell-off was frustrated at a twoyear deferment, because the interest it had garnered in the disposals would evaporate by then. Moreover, BR had second thoughts as to whether Crewe was a new build or a maintenance workshop, and therefore into which grouping it belonged.
Overlaying all these points was intransigence from BREL management. They did not agree with splitting manufacture from
maintenance, but had to go along with this. They certainly were implacably opposed to the break-up of the company and piecemeal sale of workshops. The BR Board faced a very difficult situation.
Early in 1987, BREL admitted it would lose £4m on the £12m West Coast Driving Van Trailer contract, which it had taken on at Metro-Cammell’s price. A similar loss was also forecast for its Mk 4 coach sub-contract.
BR was very unhappy about this turn of events because, ultimately, it would have to finance the deficit. It was highly reprehensible of BR to have given BREL the DVT order in a supposed competitive tender situation, and Metro-Cammell would rightly have been furious if it had known.
In September, Doncaster Wagon Works was sold to RFS Industries Ltd, a management-led consortium. Part of the Doncaster site was chosen to become a central stores for BR.
BR announced its plans for BREL in November. Press comment on the prospects was negative. The Daily Telegraph said: “The best way to get rid of a white elephant is to give it to someone else.” A management buyout was the expected outcome.
A prospectus for sale was issued in August 1988. By then, Crewe, York and the two sites at Derby had been transferred into a new company (BREL 1988 Ltd), BREL’s debt to BR had been converted into £160m of loan stock, employee-related issues appertaining to a transfer of undertaking had been resolved, and financial and legal relationships had been tidied up. Later that year, Horwich Foundry was sold to the Parkfield Engineering group for £ 2m.
Metro-Cammell’s parent company had grave concerns that BREL would be “stuffed” with forward orders to make it more attractive, leaving poor prospects for other contracts for the rest of the industry. Metro-Cammell would also not bid against GEC. In fact, BR deferred a decision on the Networker EMU order until after BREL’s sale had been concluded.
Bids had to be submitted by December 21 1988, and two offers were in contention: one from GEC, and the other that combined the management, ASEA Brown Boveri Ltd and Trafalgar House.
Two issues now emerged. Firstly, there was a distinct possibility that the bids might be for a negative value - that is, the bidders wanted BR to pay them to take BREL. Secondly, the management bid in effect placed ownership in the hands of overseas businesses because of the way the consortium was structured.
On January 13 1989, the management bid was accepted, and this cleared DoT and regulatory approval on April 18. The price paid was £13.6m, but this was after BR wrote off recent losses of £ 64m. This write-off proves BREL 1988 actually had a negative value without the write-off, and this was done to give the semblance of a positive outcome.
Some commentators at the time had valued BREL 1988 at a minimum of £ 70m, and argued that the sale had been at below the true value. They were proved wrong when the new owners sued BR for £150m, with an eventual settlement of £ 65m.
Previously, the same commentators had been perplexed at BR’s decision to open BREL to competitive tendering, which the foregoing has shown to be the correct (perhaps only) course of action.
Large organisations habitually find it difficult to deal with continuing decline for their goods or services, and BREL was no exception.
Being bankrolled by BR (and ultimately the Treasury) merely delayed the process, and was not helped by poor control by BREL’s directors and the BR Board. BREL’s performance can be argued as a key component in the long-term rundown of UK-owned railway equipment manufacturing.