Why is franchising falling over?

IF YOU could find a time machine and set its dial for spring 1997, you would arrive at a time when the first round of rail franchising had just been completed.

The Conservatives were determined to complete railway privatisation before the General Election (because they had a gloomy presentiment that Labour would win, as indeed it did), but it was a close-run thing. The last franchise (ScotRail) began on 31 March 1997, even as the election was already under way. When the vote was held on 1 May, Tony Blair’s Labour Party romped home.

But in spite of a great deal of huffing and puffing from the opposition benches before the election, nothing was done by the new Labour Government to reverse a process which had begun with the 1993 Railways Act.

In its Annual Report for 1996-97, the Office of Passenger Rail Franchising wrote that ‘on the whole, the signs are encouraging’.

The same report also provides details of every franchise, and its premium/subsidy profile. In fact, in the early years at least, there were almost no premiums. Only Gatwick Express was profitable from the word go — all the other TOCs received subsidies.

The idea, of course, was that Railtrack (which had also been hastily launched on the choppy seas of the private sector by the Tories while there was still time, and we know what came of THAT) would earn enough in track access charges to keep afloat, and therefore TACs were higher than they are now.

Since then the rules have changed again and again. Operators now pay less in TACs, but more (theoretically) in premiums to the Government, which in turn pays grants to Railtrack’s successor Network Rail.

This might be all fine and dandy up to a point, but this process (which could be called money-laundering by uncharitable people) has been accompanied by an almost insatiable hunger by the DfT and HM Treasury for higher and higher premiums. In other words, the system which worked (more or less) in the mid-1990s has been so distorted that the whole thing may now (to continue the metaphor) be dangerously unseaworthy.

Even worse, by the time the West Coast bids were being assessed, the DfT was getting so excited about its voyage to Treasure Island that it failed to notice (in spite of warnings from Cap’n Branson) that it had lost the charts and dropped the oars overboard.

Thus, in the grip of the tide and under a looming lee shore, on the rocks it went. The only remaining questions now are who the survivors might be, and what can possibly be salvaged.

Some people (Lord Bill Bradshaw is one) are arguing that the present franchise system has been wrecked irretrievably, although the Government declines to be so gloomy.

But this is the same Government which still maintained, even in the teeth of a rising gale of doubt, that all the West Coast calculations were ‘robust’, having apparently overlooked the foundering of the SS National Express East Coast and her proud predecessor SS Great North Eastern Railway.

At least SS West Coast was never launched, but it remains be seen what can possibly be devised as a replacement. We might, indeed, have quite a long wait on the quay, and when the alleged solution eventually does come alongside, prudent passengers will count the lifebelts before stepping aboard.

9 thoughts on “Why is franchising falling over?

  1. Whenever the National Audit Office or Public Accounts Committee report on Network Rail, we are told how much more of our money it spends than comparable organisations abroad, for the same services. It was set up to replace accident-prone Railtrack, and its policy seems to be ‘safety at any price’. Yet the laxity in its finances seems to infect the operational side too, as we saw at Grayrigg.
    Wasn’t DfT’s bungling of the franchise a product of their desperation to screw more cash out of TOC’s, and wouldn’t they do better to put the screws on NR?

  2. As far as the WCML crisis is concerned, I’m not a fan of the franchising cocept anyway. I’d prefer open-access operation wherever effective competition is feasible, with subsidies/ premiums payable on a performance-related basis rather than via fixed contract. Perhaps the WCML could be the first to be de-franchised, with Virgin and Firstgroup competing on an ongoing basis?

    As for infrasructure,Sim Harris outlines the history of difficulties in constituting what is a natural monopoly. Since the Beeching reforms, most centres have only one line between them with previous duplicatory routes having been “rationalised”, meaning we can’t have both effective competition and”vertical integration” ; if we want TOC’s to compete, they need shared infrastructure..The current”not for profit/ limited by guarantee” NR constitution must lack benign incentives for cost-effectiveness. For such a natural monopoly it is difficult to see the best constitution but it may be useful to look at Sweden, where rail, road and waterway infrastructure comes under a unified management. In this country we might think of a national body managing motorways, trunk roads and main rail lines, whilst local/ regional bodies administer local roads and rail lines.

  3. Railtrack was certainly NOT accident-prone; Railtrack was grossly negligent, over-bloated, conceited and once again, a legal license to steal for those in government, and those close to their golden hearts. That’s all the entire privatisation process was, another way to sell the public down the river and steal from taxpayers’ assets. Yes, British Rail had to be replaced, as Health and Safety law alone would have seen costs spiral, at least in the short term. But Sim Harris’ point is pertinent – there’s too little capacity to allow plausible competition, as the aforementioned Railtrack never really increased it anywhere. Anyone who mooted a good business plan was slammed down, with the echoes of ‘we are running this railway, not the Europeans or Americans’ ringing in their ears. Anyone remember Ed Burkhardt, the ‘champion of freight’? Government has never really ‘got it right’ with the railways, apart from to ensure that certain well-connected individuals walk away with large amounts of cash. They are never going to give that up, no matter what happens!

  4. Motoring pioneer SF Edge proposed that all rails be torn up and replaced by roads – might well have happened if the only consideration were transport. It did not, because rail does transport with much less environmental damage. Thanks to rails, our cities have more in them than roads and car-parks. The whole country pays railways a subsidy, and in return gets the environment.
    The value of transport no government can judge better than the market. It’s worth whatever people will pay. But the reason why, as Steve says, government has never ‘got it right’, is how do we value the environment?
    Franchising is an attempt to create a market. As DC Smith points out competition for passengers is mostly impossible, so we have competition for franchises. The DfT chooses a TOC based on a balance of taxpayers’ and rail users’ interests, matched against the merits and credibility of the various sales pitches. Not surprising things go wrong, DfT has given itself mission impossible.
    Our system is untried anywhere in the world. To experiment on such a grand scale is obvious folly, but results have not been all bad: the TOC’s carry more passengers than BR ever did, and investments such as Crossrail, talked about for decades, are now going ahead. More large-scale change would risk losing such benefits: we need change, but will be wise to hasten slowly.

  5. No, I don’t thinkI inter – TOC operating compeitition is largely impossible. Wherever it is feasible( most intercity,eg.) I’d like to see it happening, instead of competition for franchises. which just gives us a series of inflexible government-controlled private monopolies, unable to properly exercise enterprise, innovation or investment.

    Yes, there are several” hidden” costs and benefits that make rail services desirable( environmental, health & safety, land-usage, long-termist, human& social,etc.). A role of government should perhaps be to try and “inject” suitable performance-related subsidies / charges into the marketplace to represent these.

    Also, competition isn’t always feasible. Some operations( most commuter, eg,) are natural monopolies with captive markets, Here we need an alternative – perhaps some form of local consumer cooperatives ?

    • As a commuter (now retired) on the Brighton line, though it is shared by two TOC’s I saw little competition, certainly not on speed. Trains run on short headings and can go no faster than the one in front. Our Connex conductor’s stock excuse for late running was following a “slow-running Thameslink”; though strangely, whenever we got to see the offending train marooned at some station while we cruised by, it always bore Connex livery. Maybe on inter-city routes there are more ways to compete besides the blame game.

  6. Yes Bob, I’m also a retiree ( though not from commuting on the Brighton line) and agree with you that the Brighton line is interedting in being predominently a commuter operation, with an element of Intercity ( Brighton is now a city?) and also Gatwick express,

    Competition on such a line can only be quite marginal,, giving an example of one that needs an alternative approach. A consumer cooperative, involving management directly elected by the local users and taxpayers may be a way forward for services “internal” to such lines, but there may be other possible models where effective inter-TOC competition isn’t feasible.

    • Nearest I know to that idea is Sweden, where county councils hire operators to run their mostly unprofitable local services. I guess local government is taken more seriously there. As for direct election, if it works for police chiefs, it ought to work for rail managers too.

  7. When the Tories privatised the Railways they were rotten. Certainly ballast was missing from tracks all around Reading, buildings were rotting, there were speed restrictions everywhere and track was being ‘singled’ to avoid maintenance. When British Airways was privatised they could borrow money on the open market for new aircraft and not be subject to Government borrowing problems which always resulted in cuts to transport budgets such as roads, trains and aircraft. The general hope was that the privatised railways could borrow money in a similar fashion and put right everything that was needed. Certainly the Government had no money to do it, and more line closures looked on the cards. In a way they were successful. Network Rail has made the network safe, – and paid for all the upgrading necessary. The money they now owe is 27,000,000,000 (yes 27 billion) and they are lucky that interest rates are so low at the moment. The Government is also slipping them 5 billion every year to keep the Network in that state and build new lines. But the franchise bit ? Well it works OK for most lines in particular Chiltern Railways so its not all a ‘busted flush’. But where do we go from here ? There is absolutely no way anyone can predict railway passenger numbers next year or 10 years time let alone 25. And therefore any bid from an Operating Company has to be speculative. A new way probably has to found but in the meantime we are left with the problem of how we run the franchises legally until a new franchise can be awarded.

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