After 15 years of a misguided experiment, the railways must be brought back under public ownership

December 11, 2012 10:32 am

The word ‘omnishambles’ could have been coined for the chaotic handling of the West Coast franchise. The Laidlaw report into the causes of the debacles – published on Thursday shortly after the Government announced Virgin will run the franchise for 23 months longer – highlights a disastrous state of affairs in the Department for Transport (DfT) but also makes clear that Ministers must bear some of the blame.

The roots of the problem go back to Alistair Darling’s 2006 decision to abolish the Strategic Rail Authority which had overseen the franchise process and the railway’s investment programme. In its place was created, in effect, a ministry for railways, giving civil servants oversight of the day to day running of the system and responsibility for strategic decisions.

That system held together provided there were competent ministers in charge. Andrew Adonis, with his understanding and passionate support for the railways, was highly effective in the role. Under the recent succession of Tory ministers however, the system began to creak. It was inevitable that once a tyro like Philip Hammond, who had no real interest or understanding of the railways, was put in charge, there would be problems. A 30 per cent cut in DfT staff and the decision to split responsibility for railways between two civil servants – a decision Patrick MacLoughlin has announced will be reversed – proved particularly problematic.

The Tory government committed a further serious policy mistake. Theresa Villiers, now Northern Ireland Secretary but formerly number two to both Hammond and Justine Greening at the DfT, banged on for years in opposition about the need for longer franchises in order to attract investment. This was not based on any evidence and many rail managers were deeply sceptical. Train operators have few assets and most of the investment on the railway is carried out either by Network Rail or the rolling stock companies. Shriti, now Lady, Vadera once referred to operators as ‘thinly-capitalised equity profiteers of the worst kind’.

However, the Coalition adopted Villiers’ suggestion and sought bids for the West Coast mainline on the basis of an extended 14 year franchise. But there was a fundamental problem of uncertainty. No one knows what the state of the economy will be in 14 months’ time, let alone 14 years. Since the growth in passenger numbers is closely related to GDP growth, this turns estimating future fare revenue into a guessing game.

This uncertainty made the whole system too complicated to manage. A complex ‘GDP deflator’ was introduced to prevent companies enjoying super profits in the event of an economic boom. But the civil servants unfortunately got the numbers wrong, a fact eventually brought to light once Virgin challenged First Group’s initial victory in the recent bidding process.

The calamity of the West Coast Mainline presents Labour with a great opportunity. It is time the Party announced that it will put a stop to the flawed franchising system and take the franchises back in house. This has already happened with the East Coast line which has just celebrated three years in public ownership. The result: record performance figures, a huge increase in passenger numbers between London and Scotland, and a rise in people using first class as there are many more cheap offers.

So much for the nonsense that only private companies are interested in growing the railways. It is time to end the ridiculous franchising system not least as no one has been able to answer the question I’ve been asking for years: ‘what is franchising for?’. The key point about profits is that they should be a reward either for taking risk or for investing capital. The franchise operators do neither. The system allows them to make around £250m per year on the basis of very little investment and hardly any risk. Moreover, the franchising process itself, as we have discovered, is a waste of time and resources. After 15 years of a misguided experiment, the railways must be brought back under public ownership. This would not only save money but also be widely welcomed by the travelling public.

Christian Wolmar is a writer and broadcaster specialising in transport

  • http://twitter.com/robertsjonathan Jonathan Roberts

    So in other words, Government has proven itself to be so incompetent that it can’t even handle simple tendering processes, nor does it fully understand how to take the key strategic steps necessary to make the railways work.

    And the answer to this Government incompetence is to let Government run the whole industry? No thanks! It just doesn’t make sense to me.

  • christianwolmar

    The government would not run the railways which, oddly, they do at the moment. Instead there would be a British Rail type independent organisation staffed with experienced railway people. The contradiction of privatisation is that there is more government control than ever.

  • aracataca

    The railways should be brought back into public ownership. My only issue is how much is it going to cost? This is money we will not then be able to spend on dealing with what looks likely to be a cataclysmic economic situation in 2015.

  • aracataca

    The railways should be brought back into public ownership. My only issue is how much is it going to cost? This is money we will not then be able to spend on dealing with what looks likely to be a cataclysmic economic situation in 2015.

  • aracataca

    The railways should be brought back into public ownership. My only issue is how much is it going to cost? This is money we will not then be able to spend on dealing with what looks likely to be a cataclysmic economic situation in 2015.

    • Redshift1

      Well actually, since we can just wait for each franchise to run out, there is zero cost to renationalising in itself.

      • aracataca

        What time scale are we looking at here? The West Coast line franchise is for 15 years. When it gets renewed in 18 months time that takes us too 2029.

  • Treasury Whistleblower

    A case can be made against long term franchises, but not based on the handling of the West Coast Main Line. The GDP deflator is no more complex than multiplication. The franchise process may be complex, but it could have been managed (on its own terms, however problematic) if a schoolboy error had been avoided.

  • jaime taurosangastre candelas

    The issue is surely not whether the railway is run publicly or privately, because so many other things equally as important in our national lives are run in a multiple of different ways (utilities, communications, roads, food supply, banking, and so on). The railways are not unnaturally important in our national life. No more so than the internet for e-commerce or online tracking of your parcel, for example, and that is not run by the Government.

    Once, the railways were all private. They played a great part in industrialisation by moving commodities over inter-city distances (as did the canals, now nothing more than a pleasant walk along the bank) and giving geographical mobility for many millions of people, all while privately run. Another time, the railways were run by the Government, and most of the first few pages of a Google search on the old British Railways are a series of complaints about how poor it was, or the impact of the Sir Richard Beeching report, in which Government presided upon the dismantling of lots of railway services.

    The issue should be that the railways are run well. This episode indicates that Government decisions have been poorly made (both in choosing to de-nationalise along “curiously inefficient” lines, splitting train and track operations), and in the micro-nonsense of failing to have an mathematically rigorous Excel spreadsheet to measure different bids for franchises. Why this devotion to wanting continuing levels of poor management? Civil servants can foul up most things, if you let them think they are in charge.

    Just as a thought, why are the railways not allowed to run on the old basis, of regional lines of both trains and track? Then if one regional operator was failing to attract enough customers by good services or charging high prices, the share price would fall and a competitor would buy them out to offer better services, get more customers and make their money that way. Prices would be naturally regulated by demand-side dissatisfaction. Arguments against that on the grounds that unprofitable lines would be cut have already shown that the Government equally makes those sort of decisions, as the Sir Richard Beeching did. If that is not a palatable riposte, it is still open to Government to choose to subsidise specific regional lines, which is surely better than Government subsidising every line, irrespective of which companies are making a profit and which not, and the cost of the subsidy placed into the fare upfront, paid in arrears by the Government, and not ever refunded to the passenger to balance the equation.

  • ricp

    This is a viable solution, so amply demonstrated by the East Coast Main Line management arrangements since both GNER and then National Express walked away from the franchise. First Group also walked away from the last 3 years of their Franchise, having made profits on the first part of their ‘Deal’ but then realising that any profits in the last 3 years would go to the Treasury / Regulator, some £800m+ that, would be to big a drain on profits, so they threw in the towell. More profit to First Group. It does not stack up, the railways cost too much because of a structure that has to many players, each private company wanting their cut!

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