Laidlaw report suggests no answer to franchising dilemma

When ministers have digested the excellent Laidlaw report into the West Coast franchising fiasco, (at http://assets.dft.gov.uk/publications/laidlaw-report/laidlaw-report.pdf), there will be an awful grinding of teeth. It really does not seem to give a way out of the franchising dilemma and the question of ‘what the hell do we do now’ must hang in the air

Laidlaw identifies a variety of factors that led to the collapse of the deal. He cites complexity, lack of planning and shortage of resources – exacerbated by cuts in both in house and consultant numbers – as contributory factors. Crucially the problem arose because of the desire of ministers to get rid of the relatively crude cap and collar arrangements  and replace them with a more complex set of criteria designed to ensure that companies did not make super profits merely because of a buoyant economy or went bust in the event of a recession. As I have written in this week’s Rail magazine, it seems that either long term franchises are dead or passing on revenue risk is dead. It seems impossible to keep both and have a coherent franchising process. Given that the Richard Brown review will be allowed to make any suggestions apart from renationalisation, I suspect that concessions like the London Overground deal for at least some franchises will be suggested, but this will greatly displease my friends at ATOC who like the idea of possibly making unlimited profits out of their contracts.

  • RicPou

    Perhaps it is time to look at Richard Brown’s Terms of Reference, and set up group of people who could contribute a Minority Report. My Prof at Hull lecturing on C19th social change would introduce the topic, such as Workhouses, would spend 5 minutes on the Majority Report, chaired by Lord Sowanso,and then say, “now I’ll turn to the Minority Report” the group would invariably be led by one of the C19th luminaries, Rowntree, Booth or whoever and he would expond for the next hour on their more socially aware solutions. highlighting, health, housing, reliable work that offered a living wage, Little has changed in the last 150 years! ( Did your daughter do C19th Social History at Hull – Turned me into a Liberal Socialist!)
    Anyway what is needed is a series of concise papers by contributors, who have some idea of wat they are talking about, we can think of plenty of people not just ourselves who can make constuctive criticism.
    A few hard copies, and publish these learned ‘essays’ on the Web is something that cannot be ignored.
    The system is and always was crap, it is spent, so lets write and publish.
    SOMETHING HAS TO BE DONE. YOU HAVE THE MEDIA PROFILE TO TAKE A LEAD.

  • RicPou

    Perhaps it is time to look at Richard Brown’s Terms of Reference, and set up group of people who could contribute a Minority Report. My Prof at Hull lecturing on C19th social change would introduce the topic, such as Workhouses, would spend 5 minutes on the Majority Report, chaired by Lord Sowanso,and then say, “now I’ll turn to the Minority Report”. The group would invariably be led by one of the C19th luminaries, Rowntree, Booth or whoever and Prof would expound for the next hour on their more socially aware solutions. HIs concerns were highlighting, health, housing, reliable work that offered a living wage, Little has changed in the last 150 years! ( Did your daughter do C19th Social History at Hull – Turned me into a Liberal Socialist!)

    Anyway what is needed is a series of concise papers by contributors, who have some idea of wat they are talking about. We can think of plenty of people not just ourselves who can make constuctive criticism.

    Get funding for few hard copies, and publish these learned ‘essays’ on the Web. This produces papers by the Socially Aware, something that cannot be ignored by eiter the Media or the Politicians.

    The system is and always was crap, it is spent, so let’s write and publish.

    SOMETHING HAS TO BE DONE. YOU HAVE THE PROFILE TO TAKE A LEAD.

  • Adrian Roberts

    Christian – people in the media need to ask what has been going on at the DfT. It is not just the WC franchise but also the procurement of new Japanese trains against a torrent of expert advice and at huge cost to the taxpayer. Some are saying the Japanese InterCity Express train will cost almost 100% more than buying Pendelinos. The incompetence at the Dft is now getting national attention and it is time to revisit ALL the decisions taken in 2012 to show how much taxpayers money has been squandered to save the faces of certain civil servants.
    Too many in government do not seem to care about these issues, but they will come back to haunt them in time.

  • linkyjohn

    Christian omits a very important line from the report, that there were ” inconsistencies in the treatment of bidders”

  • Simon Stoddart

    Here are two letters I sent recently which cover topics raised below – one was in response to a letter in Rail magazine 707 from Alan Wilson – “What planet does Alan Wilson (Rail 707) live on? Today’s railway is a quasi privatised dog’s breakfast overseen by politicians and civil servants who haven’t a clue what they’re doing (West Coast franchise farce, Thameslink rolling stock delays etc).

    He shares, with Nigel Harris, promotion of the myth that “privatisation” has resulted in the increase in passengers of the last 15 years. We have become more mobile in general over the same period – we fly more than we did and car ownership has soared. Calculating passenger numbers is conveniently done differently from the days of BR. Give ATOC another year or two to come up with a new formula and the population of the world will be using our railways every day.

    Today’s “privatised” railway has troughed it’s way through public money that BR could only dream of. Franchises are loaded in favour of TOCs so they may walk away when it suits, the taxpayer makes up the difference when the garden isn’t so rosy, fares are sky high, the fare structure is a shambles made worse by ticket office closures, today’s railway has come up with nothing that BR wouldn’t have – the same BR that produced railcards, apex tickets, cross country trains with 7 or 8 coaches, electrification schemes, new and re-opened stations, Network days, combined deals, that didn’t rip passengers off with massive on train fines for travelling with the wrong ticket, didn’t enter into PFI like 27 year deals (IEP) on maintaining trains (not built in this country), didn’t sign up to dodgy contracts with consultants and lawyers – and the list goes on.

    A nationalised (there, I said the dirty word) railway with efficient management – a government prepared to do the long haul (like Blair’s New Labour could have done in it’s 13 wasted years) – infrastructure work taken back in house – a British train building industry – then we might really make progress at a much lower cost to the taxpayer.

    After 35 years working on the railway – just over half with BR – for all it’s faults, give me BR anytime.”

    and regarding the IEP farce – this is what I sent to Modern Railways a while ago

    “Am I the only one that sees potential similarities between a 27.5 year IEP contract, the resulting involvement of numerous lawyers, consultants and accountants – and the quite appalling early results of the PFI deals that are already crippling some of our new hospitals? I also compare this over complex shambles with how “Deeply inefficient” British Rail designed and built the iconic HST fleet nearly 40 years ago. Built by useless old BR, operated by same, maintained by same.

    And IEP has not exactly been met with universally open arms anyway! Other railways must look and learn at what we do – and not go there.”

    I’m a signalman on the railway – have done a variety of other jobs in my 35 years to date – and cannot believe there are people out there who think what we have now is the way forward.

    Simon Stoddart

    St Leonards on Sea East Sussex

  • RapidAssistant

    Here here Simon – I couldn’t have put it any better myself. The whole fallacy that “privatisation” has increased passenger numbers, and those in the pro-privatisation, pro-fragmentation lobby who cling to it as a justification for supporting the present arrangements never cease to annoy me. Nigel Harris’ editorial in Rail 707 that renationalisation “would put the entire network into the hands of the people who fouled up the WCML” (I am paraphrasing here) – really jarred me. First of all the people who did the fouling up were aided and abetted by over zealous cutbacks courtesy of the coalition, and secondly the nationalised railway that was run by BR was NOT run by “those people who fouled up”. It never was, and I’d hope that any future nationalised railway would be run by an arms-length organisation staffed by experienced railway managers. Just like BR was. And SNCF. And Deutsche Bahn.
    But I digress – they brag about the “record investment that privatisation has brought” – yet forgetting that John Major promised that most of it would come from the private sector, when in fact almost all of said investment has come from the taxpayer. I agree though with CW in that the only “good” thing that’s come out of the 1993 Act is that the levels of government support are now enshrined in law, unlike in BR days when it was at the whim of the Treasury – which did a lot of damage – railways as we all know need long term planning and financial committment, rather being slave to short term party politics.
    Yet when we suggest “renationalisation” – we get branded as firebrand lefties living in the past who just want public ownership for the sake of it out of socialist ideology, yet the pro-privatisation brigade are doing the precisely the same thing out of liberal-conservative free market ideology. Common sense goes out the window unfortunately – the reality is that there is no one size that fits all when it comes to different industries, and it’s high time those in power recognise that some things are just better suited to public ownership.

  • Simon Stoddart

    Government, Treasury, ministers, civil servants – they’re all the same at the end of the day – all micro managing (badly) what is allegedly a privatised railway. As for another myth about private sector investment – what investment do we see from the TOCs? Did I read in the latest Rail that last year saw £81 million of private sector investment of which around £60 million is in rolling stock which presumably is money spent by ROSCOs.

    If I’m right, that leaves £21 million which gets you about half a Hitchin East Coast main line flyover! And as for risk – what risk? When did a TOC last go bust? They don’t go bust – they walk away or ask for the taxpayer to make up the difference if takings aren’t so good. Are there rumours that Southern is about to ask for a taxpayer handout? Remember that dirty word “subsidy”?? How many struggling businesses out there would like to be able to go cap in hand to you and I for handouts to bale them out?

  • Simon Stoddart

    Spot on Adrian. IEP = PFI.

  • RapidAssistant

    I suppose you have to say that having a cap-and-collar arrangement could be intepreted as an admission that the railways aren’t truly privatised in the strictest sense of the word. Having said that – look at British Airways – they aren’t shy in getting the begging bowl out whenever they fall upon hard times – which makes a mockery of supposed “privatisation” also. My view on it is that you should have full privatisation, or no privatisation at all. “Hybrid” systems where you try to have the best of both public and private invariably become unstuck, and the taxpayer ends inevitably end up paying more (it is basically just hire purchase on a very grand scale, after all…). All of New Labour’s beloved PFI schemes are testament to this.

  • Stephen

    I’m wondering if we’re moving by sleath towards an old BR type structure anyway. What with the mega Southern franshise, combining of Northern and Trans Pennine. Talk of absorbing Hull Trains and Grand Central into East Coast, and East Coast taking over some of the periferal routes. Add deep alliances with network rail and you’re starting to end up with a regionalised railway.

  • Hanson

    You will never get the Conservatives to admit what a complete and utter shambles they have made of the railways. I have recently heard both Lamont and Clarke stating how inefficient BR was which derides all the good work that the BR Managers and staff were able to do not withstanding all the interference from the Treasury. Considering that BR ran the railways from one end of the country to the other, plus shipping and other ancillaries before the Conservatives hived them of for private profit, I consider they did a reasonable job. Sectorisation was beginning to work and then Major and his government without a Mandate decide what a good thing it would be to privatize the Railways with the result it has cost the taxpayer a fortune and will continue to do so till somebody sees sense.

  • Peter

    “the myth that “privatisation” has resulted in the increase in passengers of the last 15 years”. Does anyone therefore have actual figures that show this to be myth rather than fact?
    I can only speak for my own experience, which is that numbers have increased significantly, while they had been falling under BR. Whether this is down to privatisation is another matter, and is completely subjective as there is no possible way to prove or disprove it.

  • Peter

    According to Wolmar in Rail 707 one of the failed bidders said, “We did not even factor it in because it did not amount to very much” when talking about the GDP mechanism. I’m going to hazard a guess that this was Franksie, on his way out to Irish Rail.

    The issue wasn’t that it didn’t amount to very much, but rather that by the time it kicked in, under an economic downturn, you were already likely to be struggling.

    The nil band was equivalent to 4% EBIT (First bid 5% EBIT if you recall), but GDP is only one of the factors determining revenue. Local economies, especially London, are more relevant, and these can be affected by government policy. The cost of running a car, air competition (from Glasgow), the assumed level of GDP elasticity are all risks that bidders were expected to cover. Not to mention their own growth plans – what if First’s various initiatives failed to deliver their full expectations?

    So, if there was an economic downturn, somewhere within the 15 years of the franchise (as a bidder you have to assume the longer case when assessing risk), you had very little margin for error on all the other things that could go wrong before you would be thrown into a loss.

    And now a Wolmar mistake. The figures, in Rail 707, of 7% other bidders, 8% Virgin and 10.4% First were not growth but revenue CAGR. This includes price increases (around 3.5%) and increased yields (First’s was 1.7% but I would expect all bids were around 1.5%). What’s left is growth. So the growth element is 2% other bidders, 3% Virgin, 5% First. Now you can see why everyone outside First didn’t believe the numbers. To put that in context, over 15 years that is 35%, 56% and 107% growth.

  • RapidAssistant

    You often wonder what things would have been like if they had simply privatised the four BR sectors; InterCity, NSE, Regional and Railfreight. It probably would have been the only way fragmentation would have worked and gave a far more unified service, but of course nobody in the private sector would have been interested in Regional as its losses swamped the profits made elsewhere.

  • Leela Bisht
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