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

11th December, 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

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