The battle for the future of the UK’s railway starts now

The transport-shy general election campaign may be over, but attempts by ministers to cut rail costs by reducing services are only just beginning, warns CHRISTIAN WOLMAR.

With the election safely out of the way and, as predicted, nary a mention of transport or rail on the hustings, ministers can now turn to the question of how to cut the huge rail budget. Rather than tackling the structural flaws which have caused the huge cost increases, there is no doubt that they will be looking to service cuts, as well as massively reduced franchise payments (or rather, in many cases, increased premiums).

Any lingering doubts about the agenda to which Labour ministers are working can be dispelled by a quick look at an obscure document nestling on the Office of Rail Regulation website. In the Regulatory Impact Assessment of the Railways Act, there is a lengthy section on bustitution relating to the Passenger Transport Executive areas. The legislation, remember, removed the right of PTEs to be co-signatories to franchises, but gave them more power over their budgets to transfer money between different modes of transport.

The reason why these assessments are particularly useful is that they are written by ministers in order to explain the thinking behind the legislation, and not by unaccountable civil servants. And the one on bustitution, written by the bruiser in the Department for Transport, Tony McNulty, is very clear about the intentions of the government to encourage the cutting back of train services.

There is no suggestion, of course, that bus services might be cut back in order to run more trains. Quite the opposite. McNulty makes clear that “the objective is to give Passenger Transport Authorities (PTAs) the ability to choose whether to channel subsidy towards rail or other forms of public transport, whilst meeting the needs of those who use the service, and those who live and work in the surrounding area. Specifically, we aim to enable PTAs to decide which rail routes are best value and which will be more efficiently replaced by bus services.” That is pretty unequivocal.

And just so that the PTEs get the message, McNulty provides some statistics which are designed to be a pretty heavy hint. Net funding per passenger journey in the PTE areas was, he says, £2.38 in 2002/03 but reached £4.71 in South Yorkshire and £8.40 in Tyne and Wear. In contrast, the bus journeys in London receive a subsidy of less than 50p and, more relevantly, between 60p and £1.60 in PTE areas. He then argues that the amount of money saved is “determined by the unit cost of existing rail support (net of revenues) and the contracting cost of the bus alternative (again net of revenues).” Well, yes and no, Tony.

The trouble is that the economics of the railways have been totally distorted by privatisation. Before that, the PTE services were relatively cheap, often using older rolling stock that had been cascaded down and they did not have to pay track access charges. Now PTEs have to lease expensive stock and pay charges, which has completely changed the economics, though not necessarily providing an accurate representation of what the real costs are. Moreover, there are other wider considerations.

Many people will use a train but not a bus, and therefore the roads will get more clogged, causing costs (externalities) to other motorists. There are, of course, the environmental advantages of rail and the regenerative effects of having a station. The latter are often neglected in these considerations, but many studies on the subject show that having a rail connection with the inner city has a very valuable economic effect on an area but which is hard to quantify and does not show up on the government’s accounts as a direct benefit. So in the black-and-white McNulty world, the environment and other externalities just do not figure.

There is one paragraph in theassessment on the environment which just says baldly that there may, indeed, be some damaging effects. Well, that’s OK then. This is not to debunk the idea of cuts to rail services. I have argued before that the point about privatisation is that it has not made the system more flexible and responsive to changing circumstances but far less so. Cuts in services or even line closures may well make perfect sense.

You only have to look at the Route Utilisation Studies to find stations which get a handful of people per day and which clearly serve no useful purpose. For example, the Great Western study lists Pilning which had just 210 journeys in a year, and St Budeaux Ferry Road, served by six trains daily, has fewer than one passenger per train. Dockyard, (22 trains a day) is the same. And why does Midgham get 37 trains a day if only three passengers get on or off each one? There are similar stations in every area.

These are nonsenses that need addressing but only in the context of a government that is committed to rail travel and boosting usage of the network. That duty, which had been set out in previous legislation, is not contained in the new Railways Act, an omission that may well be deliberate and significant, and one which suggests that the railways are not necessarily safe in Labour’s hands.

In a rational world, bustitution would be sensible if it were genuinely part of an integrated service, as it is in Switzerland. The train company would run both bus and rail services, and on some lines the bus may eventually take over from the train if that were the best option and passenger numbers were simply too low. Moreover, by adding new integrated bus routes running from stations, the number of towns that were, effectively, on the railway – as changes would be seamless and guaranteed – would increase.

This idea is being developed by Mike Horne of Fifth Dimension Associates, but the problem is who would take up the concept. As he points out, it was bad enough that the Strategic Rail Authority had no role in relation to bus transport, but with its abolition, it hardly seems likely that there is anyone to work up such a simple but effective scheme. That would certainly give some meaning to the word integrated which has been rather lacking so far.

On the question of franchise payments, the application under the Freedom of Information Act to obtain the annual premium payments for the East Coast franchise was successful, but only after the figures had been leaked to The Daily Telegraph ( RAIL 512). (As an aside, a despairing Strategic Rail Authority asked me why the organisation had worked out a policy not to release the figures only to find that the DfT leaked them to the press and, in any case, the position of withholding the numbers was not sustainable under the Freedom of Information Act, all of which makes one wonder about these people’s ability to run a railway.)

The revelation that Sea Containers has committed itself to paying a staggering £396m in franchise premium for the year ending March 2015 compared with £35m in the year to March 2007 suggests there are some fantasists in the company and especially in the department and the SRA. It is reminiscent of when Virgin won the West Coast franchise in 1997 on the basis that it would be paying a premium payment of £200m by the end of the 15-year franchise.

I, together with anyone else who knew anything about railway economics, wrote at the time that it would never happen and, given that the franchise has long been run as a management contract with a payment of £332m to Virgin in 2003/04, it will be rather fortunate if taxpayers are not shelling out that type of sum rather than receiving it in seven years’ time. Unless there is a terrible recession or another Hatfield-type collapse in rail, things are unlikely to be that bad at the end of GNER’s ten-year term, but the £396m figure has just been put in there to make the bid look good. Given that the pain is shared after four years – with the government taking 80% of most of the extra losses – and the last three years are conditional on performance, there is, as one insider put it to me, “absolutely no chance that Sea Containers will ever be paying that amount over to the government in ten years’ time.”

As this column has stressed often before, predicting revenue beyond the next couple of years is a mug’s game and Sea Containers will cash in during the first four years when premiums are relatively modest, and then, if necessary, walk away at the end. If that is the case, there will be greater pressure on making the type of service cuts outlined above. You read it here first: the battles over the future of the railway start now.

Health warning

This column has been written before the election result and on the assumption of a Labour victory or a Labour-dominated coalition in a hung Parliament. If Mystic Wolmar has got it badly wrong, then my apologies and, as The Sun once sort of suggested, will the last person out please turn down the current because there will be lots fewer trains running.

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