It is easy to make heroic statements at the beginning of a new year about this being a momentous time and an exceptional period ahead, with the expectation that by the end of the year these predictions will all be forgotten. However, this time, it really is true. The year 2011 is bound to down as an epoch-making one, with probably the most radical changes to the structure of the industry since privatisation. The railways are going to be in the news a lot this year, and as well as structure, their cost, the new high speed line and other investment plans and, inevitably, fares will all attract attention.
We’ve had the Tory-led coalition for two thirds of a year now, and yet it is still impossible to discern any pattern about their thinking on the railways. The fundamental question, really, is do ministers want the railways to continue carrying rising numbers of passengers year on year and to be used more and more, or are they worried about the consequences of such untrammelled growth in terms of cost and the need for investment in extra capacity.
On the face of it, the answer seems obvious. Transport ministers talk enthusiastically about the growing railway and their investment plans such as Crossrail and Thameslink. The new high speed line is presented as the centrepiece of their plans to modernise Britain and they boast about investment in the London Underground which, of course, was mainly down to decisions by their predecessors. They even tentatively point to privatisation as the stimulus to that growth, though they are careful to emphasise that the ride has been rather bumpy since the railways were sold off in the mid nineties.
However, when it comes down to the nitty gritty of today’s railway, their policies seem to run counter to the notion of growth being an unequivocally good thing. Most obviously, this is apparent from their fares policy. The recent rises of 6 per cent went down very badly with the public, not least because the way they were presented by the Association of Train Operating Companies, with no details of how individual train operators were affected, antagonised many journalists.
However, as I mentioned in the last column, this is the start of a three year period of very high fares rises, with the formula changing from inflation (the Retail Price Index) plus one per cent, to inflation plus 3 per cent. Given that economists reckon that with world commodity prices on an upward curve and the cost of oil likely to rise steeply, inflation is likely to be in the order of 3-4 per cent, giving average fare rises of 6-7 per cent, or, including this year, nearly 30 per cent over the term of this government.
In the old days when British Rail used to do this sort of thing, it was accused of deliberately damping down demand in order to avoid having to make the investment needed to accommodate the extra passengers pouring onto the network in the good times. Yet, the government claims instead that the fare increases are necessary to pay for the investment in the railway.
This is not true. The extra money will not go on investment, but rather on reducing the subsidy to the railway. The government has simply continued the policy of its predecessor to try to shift the burden of the cost of the railways from taxpayers to farepayers. The target is that taxpayers should foot only a third of the cost of the railway rather than, as at present, half. This is one of those nonsensical and meaningless targets so beloved of Labour ministers and now adopted unthinkingly by the Coalition. There is no particular reason why the railways should have a fixed proportion of subsidy, especially as a big chunk of the money, £1bn per year out of an industry turnover of around £12bn, goes towards paying interest charges on Network Rail’s debt. The railway creates all kinds of benefits for society as a whole and that is why it is subsidised.
The other example where government policy seems to be constraining growth is in its rolling stock policy. Here, too, there is an element of duplicity. In a letter to The Times in December, the rail minister Theresa Villiers wrote that it was up to train operators to procure extra trains if existing services became overcrowded, saying ‘[any operator] is free to introduce extra carriages and has an incentive to do so since it is free to keep the profits generated by this additional capacity’.
But again that is patently not true. Quite apart from the fact that there are no extra profits when people previously standing simply get seats, any request by operators for new rolling stock has to be agreed with the Department for Transport for the simple reason that it will undoubtedly require extra subsidy. That’s because it costs £1m to run a two car diesel multiple unit for a year, taking into account leasing, maintenance, track charges and operating. As Steve Broadbent pointed out in an excellent recent article in Rail (December 15 – 29) requests by operators for even modest amounts of rolling stock, such Virgin’s request to lengthen all its Pendolinos or East Midlands Trains’ bid to lengthen its very overcrowded Liverpool – Norwich trains which has been knocked back eight times.
So, as ever, the government’s policy is very much constrained by money. What is impossible to discern, though, is whether the Coalition really wants to boost rail use, or whether it is so concerned about the cost that covertly it is trying to reduce demand. The real test of the government’s commitment to rail will come later this year when the government responds to the final version of the McNulty review into railway finances. The review is bound to come up with some unpalatable suggestions, such as, quite possibly, closing branch lines or giving operators a free hand to reduce loss making services. It is the response to that will be the acid test of the government’s commitment to rail.