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Wednesday, 8 December 2010

Is the Future Brightening for Britain's Railways?

I’m not a fan of privatisation, never have been, never will be. The idea of it for any vital service, for example hospitals, schools, or social services, having private business involved actually makes my skin crawl. Once there is profit involved, many companies try to minimise costs and maximise profit by stripping bare their services, to the detriment of the quality of service.

Indeed, this was what happened in 1997 when Railtrack took over the maintenance of the infrastructure of Britain’s railways. They stripped back the service, lost many of the knowledgeable staff they inherited from British Rail and sold off large parts of its assets to maintenance and renewal companies. As such, this resulted in an shortfall of engineering knowledge within the organisation, and as a result people sadly died. Thus, Railtrack was doomed after the Hatfield accident in 2000, in which there were 4 fatalities, as it couldn't tell anyone out exactly how many more accidents were waiting to happen. Subsequently, the state-owned, not-for-profit and largely unaccountable Network Rail took over the maintenance of Britain's railway infrastructure.

However, the private system remained in place above the tracks. This wasn’t a totally terrible situation, as the privatised railway companies cannot act as other industries do because of the nature of the industry. If you were to buy a car, companies would compete to produce the best products and use marketing to entice you to buy their model. Yet, ultimately, you’d be the one choosing which car to buy. Yet, the railway industry cannot really work in that way. For example, I’m live near Hampton Court station, thus, I am forced to use South West Trains and have no option about who I travel with as they are the franchise holder. Thus, because of this situation, the Department for Transport has to ensure that the services are put on by SWT to suit the needs of the passengers, so that they don’t just run the profitable peak-time services. Thus, private companies cannot act as they do elsewhere as they correctly forced by government to provide a certain level of service, which means I am guaranteed the ability to travel.

However, under the system that emerged after 2002 unnecessary things happened to both Network Rail (NR) and the Train Operating Companies (TOC). Firstly, Network Rail’s costs have skyrocketed because of bad management, institutionalised mind-sets and a lack of accountability to anyone. The best estimate is that currently NR is 30 to 50% more expensive per mile than the best European operators. This is because NR, in light of the accidents its predecessor caused, became overly focussed on safety as being its primary role. Indeed, money is spent on works whatever, even if the risk of a failure of a piece of railway infrastructure is less than 5%.

This sounds like I am advocating lax safety, I’m not, and there some elements of railway infrastructure that should receive these levels of investment. But think about it; if you attempted to make every workplace in the world 100% risk free it would be impractical, costly and time consuming. Further, on the roads there are 100s of deaths a year. But if we spent money on fitting them out with every device imaginable to stop accidents, the costs would be horrendous. Yet, on the railways that is what is done and it is simply unsustainable.

In addition, the added cost of this absolute focus on safety, is that NR has forgotten that part of its remit is to cooperate with the TOCs to deliver the best service to customers. Of course, many of the problems of cooperation between the organisations is the result of the Conservative government of 1992 separating the maintenance of the track from the operation of trains when privatising the industry. Some of the arrangements are pure lunacy. For example, if NR closes a line to make improvements that will benefit the TOC who operates it, it still has to pay compensation to the TOC. In addition there are a myriad of contracts between NR and the TOCs that foster contractual, rather than operational working relationships. Lastly, where in the days of British Rail the train drivers and station staff would know the the signalmen and track crews, now they do not cooperate. Thus, NR, while working in the same industry as the TOCs, very rarely acts like it has an interest in providing the best service to customers because their organisational mind-sets have separated.

The second thing that happened was that the DfT has increasingly micromanaged the Train Operating Companies to the point where literally nothing that they do is of their own making. The DfT’s control over the franchises, which was originally in place to ensure that passengers would receive a good service, has gone over the top. The effect has been that the innovation that private companies can bring to the table, and which is sometimes lacking in nationalised companies, has withered and almost died. Therefore, instead of the DfT specifying how many trains a company should run per hour, it now specifies how many there should be and when they should run. It also tells the TOCs how long their trains should be and what types of rolling stock they should use, diminishing their incentive to buy new carriages themselves. Thus, the DfT have effectively stifled any innovation that the private companies had.

Thus, because of these and other problems, that I simply do not have the space and time to go into, organisations that should have been dynamic and innovative simply stagnated. The result was that costs soared, and whereas in the early 1990s Britain’s taxpayers contributed around 40% to the running of the railways, currently the contribution is around 50%. As such, in February 2010 the former Secretary of State for Transport, Andrew Adonis, appointed Roy McNulty to head a review of the structure and costs of Britain’s railways. Yesterday, McNulty published his interim findings. Firstly, they explained the current problems with the industry. However, they also spelled out proposals that might actually make the railways more cost-effective, innovative and provide better services to customers.

Firstly, and this is something that I have banged on about before, he suggested that there should be a more focussed definition of what the railways are actually for, with ‘greater clarity and better alignment of objectives.’ The long-term goals should be to facilitate the efficient movement of goods and passengers, while ensuring the industry’s long term value for money for both the taxpayer and the passenger. While naturally people will scream and shout about fares, and I will shout with them too, reducing the cost of NR is absolutely necessary and in the long-term may actually help to bring fare prices down. But, crucially, it will also bring the contribution of the taxpayer down.

Secondly, he wants the ‘Government [to be] involved in less detail, and the rail industry accepting greater responsibility for delivering the broad objectives set by Government.’ The report also recommends longer franchises of 15 years or upwards. These are excellent recommendations. Of course, the DfT has to ensure that passengers have a minimum level of service, but if the TOCs have more freedom to innovate, buy their own rolling stock and have longer franchises, they may invest in a better service to tempt you away from other forms of transport, as this will increase their long-term revenue generation.

Third, he suggests more cooperation, coordination and goal-alignment between NR and the TOCs that will focus both on both cost reduction and the provision of good services. Indeed, while he recognised that some technical functions have to be managed nationally and can only be done by a single organisation, he argued that regional alliances should be formed and closer working initiated between local NR mangers and the TOCs. This will allow both the organisations to operate more harmoniously, plan future operations better, have improved leadership and focus on the needs of the service in a local area. Ultimately, with such an approach, costs can be driven down. This will be accompanied by a reorganisation of NR, which is sorely needed and better overall leadership of the industry from the DfT.

I will always support renationalisation, but I accept that this reality won’t come soon. As such, my philosophy is that we should try and make the private system work as well as it can. There will always be issues, and I feel that the imminent fare hikes are a mistake. Yet, this said, I am very pleased with the initial findings of the McNulty report as he has echoed what many in the railway press and industry have been saying for years. Hopefully his recommendations, the implementation of which will be overseen by a high level group chaired by the Secretary of State for Transport, Philip Hammond (a man I am begrudgingly starting to not dislike), will usher in an era when the private system finally starts to work as efficiently as it can. We still have a government which I dislike intensely and I will always remain cautious about any proposals that emanate from it, but I always try and remain positive, and as such I think that the future is brightening for Britain’s railways.


  1. Some good ideas there, without carrying out too much organisational change which would be disruptive and slow down any new investment. I'm actually just about old enough to remember BR and so am not enthusiastic for re-nationalization. I've believed for a long time now that we must accept that our train companies must be allowed to make reasonable profits, as this is the only way they will be incentivised to make investments in the future of the industry. However, I still think the 'premium payment escalator' arrangement in franchising needs to be re-thought, or else we could see even more severe fare rises in future. Reducing NR's costs, which are unrealistic as you say, would be an excellent way to make this possible, as the treasury would not need to make money out of rail as much since it wouldn't be funding rail as much!

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