Rail 465: Disconnection of Connex brings ‘British Rail Mk 2’

With the removal of Connex from the South Eastern franchise, the ‘softly softly’ renationalisation of the railway continues. But why, asks Christian Wolmar, are Richard Bowker and Alistair Darling so afraid of admitting it?

The past fortnight has been a heady one in the railways. As predicted in this column, there is a crisis in the railways unfolding before our eyes and the year 2003 will go down as a watershed in railway history, almost as important as the original privatisation date.

There are, of course, two related financial issues over the funding of, respectively, the franchises and Network Rail, and in the last few days of June we saw manifestations of both of them. First, there was the unexpected move of the Strategic Rail Authority to remove Connex from its remaining franchise, sending the company back to France with a smarting bottom. (Unless, of course, it wins the Transpennine Express franchise, which is about as likely as Leeds winning the Premiership next year.)

There are two ways of looking at the momentous decision by the Strategic Rail Authority to take back the Connex franchise. On the one hand, it could be argued that this is part of the healthy franchising process. A company messes up, is warned, and then has its operating contract abruptly terminated. Or alternatively, it could be viewed as a debacle, yet further confirmation that the franchise process is not delivering a better railway.

Let’s give first proposition a whirl. The Connex franchise has always been troublesome which is partly down to history. The rivalry between the London and Chatham, and the South Eastern during the second part of the 19th century meant that both railways were built on the cheap with lots of flat junctions, creating an operational nightmare. Franchising was supposed to deliver new trains and a new consumer focussed ethos but that seems never to have happened, though when Olivier Brousse took over a couple of years ago, he did seem to provide more of a focus, improving everything from staff relations to depot arrangements. Indeed, his lecture to the Railway Studies Association last year was an impressively detailed account of how a series of small changes can improve performance. Indeed, the franchise has been a middling performer in the past year and this was not given as the reason for the loss of its contract.

The stated reason, which was clearly been constrained with concerns imposed by M’learned friends, is that the company, is that Connex had failed to comply with a previous agreement given last year when the company was granted £58m extra subsidy that it provide a detailed action programme of improvements. Can this story conceivably be used to argue that this is a healthy development of the franchise system? We have a company which got a big slab of extra subsidy, continues, apparently, to fail to meet basic requirements and therefore has the ultimate punishment meted out. It is not, insist the SRA, a matter of ‘pour encourager les autres’ but a simple failure by Connex to be financially transparent.

I give up. I can’t even begin to argue the case that this is an effective way to run a railway. There is no doubt that this whole series of events is bad for passengers, bad for the railway, bad for the taxpayer and demonstrates that the whole franchise process serves no purpose other than allowing the government and Richard Bowker to say that the railway has not been renationalised.

What explains, otherwise, that Bowker, in an extraordinary speech to the Railway Forum just four days after his intervention on Connex, said that he intends to drive ‘a stake into the heart of the renationalisation debate’. This is a bizarre statement, which seems to suggest that Bowker is not a civil servant seeking to find the best way to run a railway but an Ayatollah Khomeini type figure eager to show that the privatisation faith is the Holy Grail – to mix a few religious metaphors.

It shows, too, that he is living in a world where he is beginning to believe his own spin, rather like his ultimate political master, Tony Blair. The facts are these. Network Rail has effectively been renationalised, nearly half the train operators are under state control and part of the maintenance has been brought in house. Virtually all the risk of running and maintaining the rail network is, as I have stressed before, with the public sector.

There was, indeed, an enlightening answer at the Railway Forum question by Dominic Booth, Divisional Director (south) of National Express Group, who said that the company was no longer seeking a 7 per cent rate of return in the franchising bidding process, which it had previously said it needed, because the revenue risks were now being shared with the SRA – in effect, renationalised. Franchise contracts are becoming more and more tightly defined as shown by the fact that bidders for the Greater Anglia franchise are being asked to price in the fact that there will be 17 annual 54 hour possessions of the main line each year.

And now we have the sight of South Eastern being run, albeit, temporarily, by the SRA, joining the half dozen other operators currently being controlled through management contracts including Virgin which was the recent happy beneficiary of £280m extra in subsidy, rather more than the £200m over three years naughty Connex was seeking.

Bowker has to say things like that because he is on a City charm offensive, trying to reassure the potential private investors sector that the railway is still being controlled privately. But the City people are not fooled like Jeremy Warner the city editor of The Independent are not fooled: He wrote: ‘Mr Bowker appears inexorably to be tightening his stranglehold on the railways, leaving an industry which is only notionally privatised. He might as well just recreate British Rail, make himself chairman and be done with it.’

Why is Bowker so obsessed with closing down a debate which reflects the reality of a changing industry? The railways are changing and evolving the whole time. Dominic Booth took a much more sanguine view at the conference: ‘Constant change is a feature of all business’, he said, we should not be scared of it. There is inevitable debate about this process of change Bowker should not get so hot under the collar about it virtually every time he speaks in public. The interface between the public and private, and what exactly renationalisation means is a grey area and very much part of the wider debate on the government’s reform of the public services.

The South Eastern decision undoubtedly highlights the issue of the role of the state in the new privatised structure. However, one could ask the question of what exactly is the difference between having the SRA run the franchise temporarily and its role in the numerous franchises currently being run under management contracts. In effect, the SRA has granted a management contract to First Class Partnerships, a kind of vulture organisation waiting to take over deceased franchises. Sure two SRA directors, Nick Newton and Doug Sutherland, are on the board, but do they really have time from their other duties to run trains? Of course not – so the SRA will effectively sub contract out South Eastern in much the same way that many of the other franchises are operating.

It was noticeable that Alistair Darling, at the same conference, also referred several times to the fact that structural change in the railway would cause a drop in performance and therefore should be avoided. Yet, the theme of his speech was that there was only ‘one railway’ and that the ‘priority is for everyone in the industry to focus on improving performance’. The point he misses is that under the current structure many players in the industry do not view the industry as a whole but merely concentrate on making a profit for their little bit. And that’s the source of many of the problems.

Indeed, Darling’s repeated reiteration of the fact that no structural change was being contemplated had several people suggesting afterwards that something must be in the offing. It was a bit like Tory ministers defending the poll tax just as plans were being drawn up to scrap it and, indeed, topple its creator, Mrs Thatcher.

The narrative being constructed by Bowker and Darling to justify the continuation of the existing structure is becoming clear. They are singing off the same hymn sheet, the sort of ‘line to take’ document you get in government press offices. It is that BR was underinvested for 30-40 years and that the money now being spent is essential to bring the infrastructure into a reasonable state. In particular, rail replacement levels had fallen below the required level, having dropped to 300 miles under BR, instead of the 500 needed, and now are running at over 700.

But overall there is a flaw in this story. BR investment was reasonably steady and relatively high for long periods. Sure, it was never enough, but it was mostly adequate. At privatisation, for example, the West Coast was handed over without any temporary speed restrictions. It is too simplistic for Bowker and Darling to blame the past and the decades of underinvestment and it is a cover for the other problems of the railways. The fragmentation of the industry, together with the insistence on unrealistic safety requirements and the host of regulators now interfering with the industry, have driven up the costs by as much as a factor of two or three. That deserves a bit of debate, does it not?

Railway madness (5)

Announcement by driver on train as a Thames train crawled from Slough to Paddington on the morning of 17June: ’Sorry for the delay but we are following the all stations which they let out of Slough 30 seconds before us. We’ll be crawling at this speed all the way to Paddington!’. And they did.

  • Dan

    Now that the NXEC story has played out a bit it is interesting to reflect on the way this is being seen in wider political and media circles – where the ‘N’ word is to the fore. Of course this is because of the changed context globally – following the banking crisis and their nationalisations, has got the chattering classes very excited (and no doubt Bob Crow and comrades too)!

    But in the great scheme of things I thought – well – we’ve been here before – Connex South Eastern – have we not. Although I confess I could not recall exactly what they had done wrong – since all I could recall was there generally poor performance made it a relief to the passenger when they were shown the door. Are things different with NXEC? Some comparative analysis would be good.

    So to refresh my memory. Christian, your article archive is invaluable – and a quick serch takes me back to here. It’s worth re reading – if only for some classic quotes like this one:

    “that Bowker, in an extraordinary speech to the Railway Forum just four days after his intervention on Connex, said that he intends to drive ‘a stake into the heart of the renationalisation debate’. This is a bizarre statement, which seems to suggest that Bowker is not a civil servant seeking to find the best way to run a railway but an Ayatollah Khomeini type figure eager to show that the privatisation faith is the Holy Grail – to mix a few religious metaphors”

    In the light of subsequent events – superb stuff!

    So – regular readers of this site – this column is worth a re read – and hopefully this comment will flag it.

    Christian – I think it is time you got blogging – or are you on holiday missing the action?

  • Amir

    Well you think with this big story he would have least acknolwledged that fact that its been nationalised. But its not nationalisation or privatisation that is the problem it simply is the constant changing of the structure! Is RBS any better now its 70% owned by the govt. than barclays i think not. I don’t like people that say the previous private companies never made a profit. How did they last 100 years then. They might have not made much on passenger traffic but they owned hotels and they made money from freight.

    Privatisation works in Japan! Because simply they are vertical integrated real companies and not franchises. Maybe thats what should happen here. It worked before with the big four they were only nationalised and bankcrupt because of WWII and free use by the govt. The government should have never nationalised just recapitilised like with the banks. I.E London & North Eastern Railway (LNER) 60% owned by govt.

    Nothing is perfect and railways never will be because of the open nature. But if you have one company like Great Western that ownes infrastructure and the operation it should work.

    And all the nationalisation buddies now that Southeastern is in the private sector and running well no one seems to say anything now! Just don’t keep changing woth a rebranding exercise every 5 years.

  • Kevin

    My take on that one is that one of the main purposes of the franchising structure was to sweep under the carpet the fundamental fact that railways are a loss making industry and by therefore insulating the operators from the loss making infrastructure business was the only way of making them artificially profitable. This is why they didn’t just create a British Rail plc.

    Restoring vertical integration would only expose this again (look at how much cash is pumped down the Network Rail black hole), meaning that private enterprise would turn on its heel and walk away. That’s the conundrum that the privatised railway has always faced.

    As I’ve said before, it doesn’t matter how much you cut and slice it, the railway will never be profitable, and politicians’ futile attempts to make it such over God knows how many decades is at the root of everything that’s wrong with the railways.

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