Rail needs a re­think to get light at end of the tun­nel

The Sunday Telegraph - Money & Business - - Business - Ben Mar­low

Barely a week goes by at the minute with­out fur­ther ev­i­dence of the em­bar­rass­ing mess that Bri­tain’s rail­ways are in. Af­ter Vir­gin and Stage­coach had the East Coast line seized from them by min­is­ters, it was the turn of bum­bling trans­port op­er­a­tor First­group last week, as it re­ported a whop­ping £106m hit on the Transpen­nine Ex­press line.

De­spite con­tin­ued com­plaints about the qual­ity of the ser­vice, which op­er­ates three routes out of Manch­ester, the fran­chise has achieved 10pc like-for-like pas­sen­ger growth over the last year. Com­muters it seems are not vot­ing with their feet when it comes to our dis­mal rail­ways, per­haps be­cause of a dearth of al­ter­na­tives.

Which makes the hor­ren­dous write-down all the more calami­tous. How can you notch up such big losses when pas­sen­ger num­bers are surg­ing?

The cock-up rightly proved to be the fi­nal nail in the cof­fin for hap­less boss Tim O’toole who has been forced to stand down.

Many of its prob­lems were self-in­flicted but don’t ex­pect the Transpen­nine fi­asco to be an iso­lated case. As we re­port to­day, Bri­tain’s rail op­er­a­tors are fac­ing fur­ther losses of as much as £1bn across a string of strug­gling fran­chises.

How come? Over the last few years, the gov­ern­ment has al­lowed aggressive, over-thetop, high-risk bid­ding to re­peat­edly oc­cur.

Se­nior in­dus­try sources blame the grow­ing preva­lence of overseas state-backed bid­ders, which have waded in, snap­ping up big chunks of the UK rail net­work at silly prices. One in two of the 1.7bn pas­sen­ger jour­neys made in the UK each year will be on trains op­er­ated by for­eign firms. With a very low cost of cap­i­tal and a will­ing­ness to ac­cept high-risk pro­files, they have been able to eas­ily out­bid do­mes­tic op­er­a­tors.

The prob­lem is that many will never get close to their am­bi­tious tar­gets. Take Abel­lio’s Anglia fran­chise. The Dutch firm will need about 8 to 9pc growth in pas­sen­gers to hit bud­geted rev­enue growth of 10 to 11pc per an­num. Last year, the rate was run­ning at just 3.6pc – so it is well short. Losses could be as much as £270m.

Ar­riva won the con­tract to run the North­ern ser­vice with a bid that was hun­dreds of mil­lions above any­body else’s, fu­elling ex­pec­ta­tions that it too is set for a hefty hit. First­group’s write-downs on Transpen­nine could even­tu­ally dou­ble, while it may also run into trou­ble on South Western Rail­way.

The fran­chise model is deeply flawed. The gov­ern­ment needs to come up with an al­ter­na­tive. Mean­while, O’toole is set for an exit pack­age of £700,000.

‘Com­muters it seems are not vot­ing with their feet when it comes to our rail­ways’

Pester look­ing pre­car­i­ous

Hav­ing cor­rectly called the pend­ing de­par­ture of Tim O’toole last week, I’m go­ing to dou­ble down and take a bet on who is next for the board­room chop.

There is no plea­sure in see­ing chief ex­ec­u­tives fail. Con­trary to the pre­vail­ing nar­ra­tive be­ing ped­dled by Cor­byn and comrades, busi­ness is largely a force for good. When a com­pany thrives every­one ben­e­fits: em­ploy­ees; sup­pli­ers; share­hold­ers; the tax­man; and wider so­ci­ety. Suc­cess should be cheered, fail­ure mourned.

Per­haps the me­dia is prob­a­bly all too of­ten guilty of fo­cus­ing on the cock-ups, but it is our job to hold those in power to ac­count and scru­ti­nise mis­takes, and few have got it as spec­tac­u­larly wrong as Paul Pester at TSB. The bank’s IT melt­down should be­come a lesson in how ma­jor crises can spiral out of con­trol if han­dled in a ham-fisted way.

The de­ci­sion to rush a project of that scale was hor­ri­bly reck­less and no doubt fu­elled partly by both greed and pres­sure. In­cred­i­bly he was in line for a £2m bonus once the new sys­tem was in place. Mean­while, the fees that TSB was pay­ing to for­mer par­ent Lloyds had dou­bled. Pester was a man in a se­ri­ous hurry.

He also ig­nored best prac­tice, which is to stag­ger such mas­sive tech up­grades. Cus­tomer liveli­hoods were threat­ened af­ter be­ing frozen out of their ac­counts for days, even weeks in some cases.

But it was his bun­gled han­dling of the af­fair that was truly un­for­giv­able. Pester not only ini­tially re­fused to apol­o­gise but also played down cus­tomer claims that the prob­lems hadn’t been fixed.

This week he faces an­other grilling by MPS, while the FCA is con­sid­er­ing its own in­ves­ti­ga­tion. If Pester sur­vives it will be a mir­a­cle.

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