Rail 656: Rail escapes the axeman

Rail 656

 

Back in 1995, I had a conversation with Bob Horton, the first chairman of Railtrack which seems particularly pertinent today. At the time the Tory government’s privatisation plans envisaged Railtrack staying in the public sector at least until the end of that Parliament in 1997 and possibly even longer.

  Horton, however, lobbied hard and ultimately successfully to get this changed, as he wanted Railtrack to be privatised as soon as possible. He invited me to his office, which at the time was a rather spartan affair in what is now the headquarters of the Association of Train Operating Companies in Barnard Street, to explain his reasoning: ‘If we remain publicly-owned, we will always be subject to the whims of government. On the other hand, if we are in the private sector, the government will have to honour any contracts with us and we will be able to have a long term investment programme safe from interference.’

 The Comprehensive Spending Review has proved him right. I need not reiterate here my views on the mess that privatisation created for the railways and the billions that it has cost taxpayers unnecessarily, but on this one point supporters of privatisation were right. Horton, of course, could not have predicted the events of the past 15 years and the fact that the private equity backed Railtrack, briefly a member of the Footsie 100, would be replaced by the bizarre construct of Network Rail, still notionally in the private sector, but largely taxpayer funded and with its income determined by a hugely complex process involving even stranger constructs such as HLOS (High Output Level Specifications) and SOFA (Statements of Funding Available).

 Nevertheless, he was dead right in pointing out that it was always going to be difficult for a government to cut back on rail investment because it was protected by a regulatory process. Rail’s good showing in the Comprehensive Spending Review owes a lot to Horton’s insistence on selling off Railtrack, but that does not mean there is no bad news and there are certainly plenty of pitfalls ahead.

 For the railway industry, the Comprehensive Spending Review has not been quite comprehensive enough. There are huge unanswered questions about the McNulty review – which is bound to throw a huge spanner in the works – various programmes such as the InterCity Express Programme,  Electrification, Thameslink (silence may not be golden) and so on but it is remarkable the extent to which ‘war on the motorist’ Hammond has somehow been won over to the idea that rail investment must be maintained even during a time of such austerity.

 Moreover, Hammond even, unexpectedly, postponed the increase in rail fares so that the RPI plus 1 per cent  formula is maintained for an extra year. While it is bad news that fares will rise by inflation plus 3 per cent in the following three years, the very welcome postponement of this widely-trailed move suggests either political naivety on the part of Philip Hammond, the Transport Secretary since the extra rises will continue into election year or a political compromise– perhaps it was the influence of Norman Baker, the Libdem junior transport minister, whose party had suggested in its manifesto a return to the minus one formula of the early days of the Labour government. As an aside, I wonder just how many LibDem pledges have already gone down the swanny and how many have actually resulted in a change in the Tories’ intentions.

 British Rail, of course, used to impose above inflation fares increases for two reasons –  raising revenue, Mr Hammond’s intent, but also to choke off demand. Slapping an extra 10 per cent* on fares over a three year period is bound to have an impact, which actually weakens the case for investment in the railway since higher prices mean fewer users.

 This affects the case for HS2. The announcement, of course, confirms that work will continue on the scheme but the rises change the calculations underpinning the case for the scheme.

Setting aside the argument that the Treasury is in any case bound to demand premium rates for travel on HS2 as it has on HS1, the ‘business case’ should be recalculated because it was original drawn up on the basis of an assumption of RPI plus one for the next thirty years.

If fewer people are likely to travel on HS2 this reduces the benefit cost ratio. Readers will be aware of my scepticism about such calculations, but I do not set the rules.

 Already, even before the fares announcement, my spies close to the development of the scheme were suggesting that the Department is already concerned about the weakness of the business case in terms of travel time savings and that is why there is a new emphasis on the regeneration aspects of the line – the ‘words clutching at straws’ come to mind, but I will leave that analysis to a future article.

 The investment plans of the railway have been left remarkably intact. While the difficulty of cutting back on such spending, in line with Horton’s views, is part of the reason, pressure from business and Boris has clearly saved Crossrail. Presumably giving the go ahead to three tram lines was to offer something the provinces.

 On the negative side, the clever bit of juggling by Lord Adonis to help pay for the electrification of the Great Western line is certainly at risk and so is the purchase of new rolling stock. This is infuriating. Spending £1bn –  the amount given in an answer to a Freedom of Information request, although it says £750m in the spending review press release  – on HS2, a project that is at best marginal instead of a complete ‘no brainer’ like this electrification only reinforces my opposition to the HS2.

  While the loss of electrification would be bad news, make no mistake. Rail has done jolly well. Just look at what is happening to other modes. If one was looking at this impartially, one could even say that war on the motorist has been declared. The roads budget has been axed, far more comprehensively than John Prescott, the many car warrior (although we all remember that 200 yard drive along the sea front to preserve Pauline’s hair). A whole host of schemes has been jettisoned, road maintenance is being cut, motorists using the Dartford tunnel are to be fleeced and even something as basic as the National Traffic Control Centre is being replaced by a cheaper option.

 In many respects, though, the statement does not add up. The cuts are for the most part meaningless or theoretical, and the extra brought in by the fares seems a way of pulling the wool over the eyes of George Osborne, rather than bringing in much revenue. The small reduction to Network Rail funding – £100m was in fact previously– of £185m is really meaningless in terms of a £5bn annual budget and refers to spending outside the Control Period 4 (2014-9) settlement. Certainly, insiders I talk to fear about what is going to happen to CP5, the next five year period,  and it is noteworthy that the process to start this has been postponed.

 The savings from franchises are unlikely to materialise, either. Longer franchises involve more risk and companies saw what happened on the East Coast line. Moreover, higher fares mean fewer passengers. So where are the cuts coming from? Louise Ellman, the chairwoman of the Transport Select Committee has certainly noticed that the statement leaves many questions unanswered and has summoned Philip Hammond to appear before her, saying: ‘the Chancellor’s announcements on the CSR made some positive commitments to a limited number of projects. However, I remain concerned that his statement today failed to disclose where the cuts will fall except to confirm that there are bound to be increases in bus and train fares’. She wants to know how we will be affected by the 21 per cent reduction in the transport budget. I think we all do.

 

*Pedant’s corner: The governments press release says that rail fares will go up by 10 per cent in the next four years – they have simply added 1 to 3×3 and say 10. In fact, compounded, as it should be, the real figure is 10.36 per cent, which may not be that significant but does suggest a general innumeracy in the Department.

 

Riding the US rails

I am writing this column from the USA which I am touring by rail to help research my next book, a history of US railroads. The American railways could not be more different from British ones. There are barely 25 million journeys on the network run by Amtrak, the national rail carrier, annually, less than ten days’ worth of use of the railways in Britain, but freight retains a third of the market and is a massive business. We passed a coal train coming from the huge mines in the Powder Valley in Wyoming, and it was 130 wagons long. And of course, the loading gauge in the States is so much bigger; I am sitting comfortably on the second floor of a huge sleeper coach, though the compartment, supposedly made for two is the size of the bed and perhaps six inches wider.

 While the freight is operated by private companies who own all track, the passenger services are a nationalised industry run by Amtrak. That’s because when the freight companies got into difficulties in the 1960s and 1970s,  partly due to the fact they were still heavily regulated, they passed on all the passenger services to the government and the politicians were too scared of public opinion to close them down. As a result, Amtrak is obligated to run all kinds of heavily loss-making services but in return, usually after a struggle, is allocated funds to run them. Of course, as ever with railway economics, it is difficult to discern precisely what those losses are as they include payments to the freight companies for track use.

 Amtrak finds it very difficult to buy new stock, even when there is a strong financial case for it as the government holds the purse strings. As a result, Amtrak has very much the feel of British Rail in the 1970s and just like old BR is good in parts.

 The staff are friendly and clearly dedicated, but somehow the service seems to be operated for them rather than us. Dinner times, for example, are set precisely and people venturing one minute early into the dining room are told to wait; the food is reasonable, but the main course arrives irrespective of whether you have finished your first one; and arriving in Chicago, they turned the train round with passengers on it, causing a 20 minute delay rather than entering the station first. And so on.

 The bureaucracy and security concerns are crazy as you have to sign your ticket, carry photo ID– though in fairness I have not been asked for any but a friend says he saw people being thrown off a train for not having it – and you are not allowed onto the platform until a few minutes before departure, rather like with Eurostar.

  • Ian Raymond

    Rail certainly seems to have escaped the axe (thus far). Elsewhere the public transport setor seems not to be so lucky; I have read that amongst North Yorkshire council’s budget savings is a proposal to axe almost all tendered bus services after 6pm and on Sundays / Bank Holidays – an astonishingly retrograde step. Let’s hope that this only goes as far as the ‘proposal’ stage.

    Ian.

  • Richard Crompton

    With some dismay this morning I hear that the government is fully commited to HS2, Thameslink and the Northwest Triangle electrification. However, there is no mention of GW electrification because ‘it depends upon the outcome of the IEP review’. What utter tosh.

    We must assume that it has simply been kicked into some very long grass because the aforementioned projects and HS2 is already swallowing all available cash and there’s none left for GW electrification. Another decline in the classic railway that has been sacrificed on the altar of HS2. What a bunch of idiots.

  • RapidAssistant

    I’m pretty sure CW will blog on this issue very shortly, but in the light of this morning’s announcement – what struck me (and I’ve said this on the BBBR group on Facebook) is that most of this so-called “investment” is actually stuff that was all more or less committed to under the previous administration – there is nothing really new as such. What it boiled down to is that Thameslink is going ahead, the new coaches are going ahead, HS2 remains an ambition, GWML electrification is on hold until the outcome of the IEP review is held – again nothing really new there either. As for the figures – £8bn by 2019 works out at less than a billion a year, that’s even less than the interest payments on Network Rail’s debt!!

  • Peter Hooper

    Let’s get our facts right as the GWR electrification is to proceed to Didcot, Oxford and Newbury.

    This will tie in nicely with the extension of Crossrail to Reading; also whatever may be planned for a GWR / Heathrow station at either OOC or the Arup hub proposal.

    According to the timetable on the No10 website, the HS1 / Hs2 / Heatrow proposals are to be published before Christmas.

  • RapidAssistant

    Facts Peter?….I am only going by what I heard on the radio this morning, and it was worded as if the whole GWML scheme had been shelved.

    Mind you I don’t believe anything is safe from cancellation until I see them workers on the track, and the steel and concrete is going in.

  • Peter Hooper

    Because of Stock Exchange rules on price sensitive information, there was a DfT announcement posted early this morning by the LSE, that GWR electrification would proceed as far as Didcot, Oxford and Newbury.

    I found the announcement as a link on the RailNews site :-
    http://www.railnews.co.uk/news/general/2010/11/25-gw-electrification-and-thameslink-fleet.html

    You can also find it in Hammond’s Commons statement today :-
    http://www.dft.gov.uk/press/speechesstatements/statements/hammond20101125a

    The way I understand it, this is an interim announcement, with a further announcement re GWR electrification (to Bristol / South Wales) and ICE trains due after Christmas.

  • Peter Hooper

    For anyone interested Hammond made a statement in the Commons today on the Government’s plans for investment in rail infrastructure and rolling stock.

    You can find the statement plus an hour of questions from MPs on the Parliament Hansard site. He commenced at 12.20 and finished answering questions at 13.30

    http://www.publications.parliament.uk/pa/cm/cmtoday/cmdebate/04.htm#d2e2582

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