Christian Wolmar: East coast bailout shows fake capitalism of rail privatisation

The farcical nature of railways privatisation has been brought to the fore by two collapses in the first month of the year. First, we had the owners of the east coast franchise (Virgin in name but in fact 90 per controlled by Stagecoach) admitting they had got their predictions of passenger numbers badly wrong and that, effectively, they were having to throw the towel in.

Then we had the Carillion collapse which has, rather more seriously, led to work on improving the lines on several routes – notably the east coast – being halted as the workers were no longer being paid.

These failures have a lot in common. They are essentially the result of trying to pass on to the private sector a level of risk which it is ill-equipped to bear. Predicting the number of passengers who might use the railway in, say, five years’ time, is a mug’s game. Yet, the demise of Stagecoach/Virgin was precisely because they were far too optimistic about future growth of passenger numbers on the railway.

Ultimately, too, the Stagecoaches of this world know that the railways cannot go bust. They know that if they give up the ghost, the government will pick up the pieces. That is why I have long characterised rail privatisation as “faux capitalism”.

This is not the first time that a franchise has gone under and it won’t be the last. But, as Lord Adonis has stressed, instead of admitting that the contract has been broken and taking the service back in house, transport secretary Chris Grayling has allowed the company to continue running the trains while creating some sort of unspecified “alliance” between the operator and Network Rail. There are no details of how this will work in practice although, ironically, it is a better way of running the railway, in much the same way as happened in the days of British Rail and the model to which Labour should be working.

The Carillion collapse highlights the shortage of players in the engineering-contracting business as shown by the government’s desperate attempt to shore up the company by handing out contracts it was unlikely ever to be able to fulfil. A Labour government would have to try to stimulate the market by supporting medium-sized and smaller players instead of, as happens at the moment, all the best business being handed to a few corporate behemoths.

The ultimate message from this month of railway failures is that outsourcing and privatisation is the wrong way of running a railway. This goes for the companies themselves. Rather shockingly, Virgin outsources its cleaning on both the west and east coast lines. This further complicates accountability in the railways and is counter-productive. There is no career progression for staff, nor any loyalty towards their ultimate employer, Virgin. Moreover, it is probably not even cost effective since the contractors take their cut.

This all demonstrates the task ahead for a Labour government. The transport frontbench is currently working hard to develop a coherent strategy for the railways. Of course, the private sector will have to be involved in many ways, particularly on big engineering contracts. However, the franchises, the renewals work on the track and project management could all be done better in the public sector. How to bring that about will be a crucial task for the next Labour Government.

Christian Wolmar is a transport author and was Labour’s candidate in the Richmond Park by-election in 2016.