When it was decided to set up an enquiry on the scandal over the suicide of the scientist, David Kelly, in 2003, I happened to be on holiday near where a couple of members of the Labour government were staying. When the name of Lord Hutton, the judge appointed to hold the enquiry emerged in the conversation around the pool, the ministers smiled benignly: ‘He’s a great appointment’, one of them confided.
When Hutton’s disgraceful whitewash of a report was published, I realised what she had meant. Rule one of ‘independent’ inquiries is make sure they are nothing of the sort. It is in this context that one has to examine the report by Richard Brown into the West Coast franchising shambles. Richard Brown was given the wider brief of the two investigations into the franchising fiasco but it was obvious from his appointment that this would be a report which would not result in any upturned boats.
Richard Brown is a charming man, an experienced railway operator and a very thorough individual, but as a former head of Midland Main Line and National Express rail division, he is, as it were, a company loyalist, who believes fundamentally in the current structure. The headline reporting the publication on the Department for Transport’s website, ‘Government’s rail strategy receives independent endorsement’ confirms the whole exercise was rather like asking Prince Charles to review whether the monarchy is a good idea.
For a moment, though, reading the report I got excited. In the introduction it says that Chapter Two would cover ‘why franchising’ and I thought that at last the Wolmar question, ‘What is franchising for?’ would be addressed. Indeed, as I keep on saying, we are the only country in the world that operates its railways on this basis and, to say the least, it does not seem very efficient and alternatives would be worth addressing, even if not eventually adopted.
But, no, I was to be disappointed. Either something happened between the writing of the introduction and the rest of the report, or the question was never going to be addressed. However, there is at least the best summary of what franchising is supposed to achieve set out in that chapter. He says the franchising systems is supposed to
- ensure value for money for Government in the delivery of
passenger rail services through regular competition for the market
- harness private sector skills and innovation, to deliver value
for money for taxpayers and improved services
- ensure stability of services for passengers and communities
served
- secure franchisees who will work in partnership with the
Department and other rail industry parties to ensure continuing growth in passenger numbers, and reduce both their own and Network Rail’s costs
- facilitate further devolution of decision-making and
responsibility for specifying passenger rail services to regional
authorities
- ensure passenger rail services are delivered and managed by
organisations which are more closely attuned to local market needs,
by designing franchises which cover well defined routes or
geographic markets
I won’t go through the counter arguments – though watch this space in future columns – on why not much of this has been achieved as a result of franchising, except to say that the value for money argument has had a hole the size of the Titanic’s after its encounter with the iceberg, as the McNulty report into the efficiency of the industry found (enough maritime metaphors – ed) . Indeed, overall, while the report is, as expected, limited in its scope, it is a blueprint for getting the best out of the franchise system. But in doing so, it unwittingly exposes the contradictions within the process.
Take longer franchises. The report argues that longer franchises are simply not viable. Yet, extending franchise periods was at the heart of Tory support for the current structure of the industry. The whole idea was that they would attract investment but, as many of my sources in the business explained to me, that was never going to happen because there seemed to be no mechanism to make investment pay for itself. Now, however, Brown suggests we go back to 7 – 10 year deals. Indeed, much of what Brown recommends seems to take us back to what he sees the heyday of franchising, the first set of franchises.
This seems particularly relevant to his suggestion that new entrants should be encouraged. This too, harks back to days of management buy out bids, Prism Rail and MTL. Brown would like to see new entrants but the truth of the matter is that no one much is interested. The difficulty of getting up to speed in a complex industry is the first barrier. Then the Department insists on experienced bidders and I suspect, with all the recent mishaps, that is not about to change. Brown wants the process to be attractive to outside bidders, which involves ensuring the capital requirement is kept low but I doubt whether that is the main barrier which, I reckon, is the sheer headache of the whole process, together with the risk of damaging a company image in the rail industry.
Or take the issue of bigger franchises. Ever since the days of Richard Bowker at the Strategic Rail Authority, there has been a move towards consolidation with the aim of having one franchise out of each mainline London station. Now, however, Brown, questions this and wants smaller deals. But this means not only added work for the Department, but also a loss of economies of scale.
Indeed, here Brown’s logic somewhat falls apart. He says the Department should phase the franchise renewals so that there are not more than three per year, but if there were smaller franchises –say 25 again – and they are to be for 7 – 10 years, then working out a perfect timetable of three per year is almost impossible.
In terms of risk, Brown emphasises that franchisees should only bid in terms of the passengers they gain or lose through their own efforts. In other words, the GDP risk should remain with the Department, but creating the right formula for this is one of the factors that got us into this fine mess in the first place.
This document, therefore, is the ideal franchising structure, very much from the point of view of the operators, and future performance of the system should be measured against it. Can the structure cope with the sort of improvements Brown would like to see?
However, I doubt this will result in a definitive model for the franchising process being created. The very structure is unstable and there is one point on which I think that Brown gets it utterly wrong, the notion that it is OK for franchises to fail. The rail industry is not some fly by night business where passenger numbers may suddenly plummet. It is a long term industry that is largely risk free and requires strategic thinking and stability. As I have said before, failure of a franchise causes uncertainty, investment gaps and is highly disruptive, even if the trains keep running. Inevitably, too, the cost falls on taxpayers, not on the private companies that have collapsed. It’s bad for passengers and bad for taxpayers, to paraphrase the favourite justification for franchising.
This, yet again, is an opportunity missed. Why did the government not, at least, have the courage to look at other ways of running the industry, most notably concessions which are even supported by people within the Tory party like ex transport minister Steve Norris? Concessions would take away the ridiculous transfer of revenue risk which, in turn, leads to much of the complexity that was at the root of the West Coast problem. Instead, we now await the next franchise fiasco to have a reappraisal of the system.
One aspect dodged by the report is the need to have a separate rail agency. Apparently, Brown wanted to write this in but since it requires primary legislation – or at least a statutory instrument – and the Parliamentary time is not available, that was ruled out. However, watch this space. A new SRA will undoubtedly re-emerge, even if it takes a few years before it will happen.
West Coast overcrowding on worst trains could be solved
When the Department for Transport recently released its list of the country’s most overcrowded trains, it included three London Midland commuter services out of Euston to Birmingham New Street. The Department’s inclusion of these trains in the most crowded list is obviously intended to help back the case for HS2 by suggesting that the West Coast Main Line is approaching breaking point.
However, it does nothing of the sort. As the HS2 sceptic Chris Stokes, the former rail manager and board member of the Office of Rail Regulation, has pointed out, there is an obvious short term solution. Following information released, reluctantly, by the Department, it is now known that Virgin’s average evening peak load factor is only just over 50 per cent ranging between 34 per cent and 59 per cent. However, several departures between 1610 and 1820 all stop at Milton Keynes only to pick up in the evening peak, preventing commuters from using them. Just to make matters worse, these counts were taken before any 11 car trains were introduced, which provide 150 additional standard class seats, further reducing the load factor. One wonders, of course, if there is some secret deal between London Midland and Virgin as there would be revenue loss for the former if the policy changed.
The solution is obvious: allow the MK passengers to use these trains relieving the overcrowding. I’m sure there are excuses about how this would delay trains and irritate the long distance travellers. However, this restriction is unique. Great Western InterCity trains all have open stops at Reading, similarly East Midlands trains carry commuters to Luton Airport Parkway, Luton, and Bedford, and East Coast trains carry commuters to Peterborough.
So essentially, hundreds of passengers stand for half an hour or more on crush loaded commuter trains while Virgin run trains less than half full which already stop at Milton Keynes, but they are not allowed to use them. Did Norman Baker know this when he released the information on these overcrowded services? Perhaps he should be told.
In any case, HS2 will do nothing to solve the overcrowding problem on these London Midland services until at least 2026 whereas the cheaper and easier measures, such as the proposed grade separated junction south of Leighton Buzzard and the use of faster commuter trains would relieve much of the problem far quicker. Perhaps Virgin does not like Network Rail, which, of course, has just moved a large number of its staff to Milton Keynes…