Rail 724: so what would a Labour government do?

It is time to start thinking about what a Labour government – or a Labour dominated administration – might do in terms of rail, and particular, franchising, policy if elected in 2015. It is of course by no means certain that Labour will be the biggest party, but Mystic Wolmar puts the chances at around 70 per cent which means that it is definitely worth examining what might happen.

The issue of rail renationalisation has dogged the Labour party ever since privatisation. It is popular in the grassroots, but regarded as taboo by the leadership. When in opposition, Tony Blair once foolishly and disingenuously committed the party to seeking ‘a publicly-owned railway, publicly accountable’, a commitment that he never intended to fulfil.

Alistair Darling, as transport secretary, was rather more honest in his opposition. He spoke against a 2004 conference motion to renationalise the railways by arguing it would cost billions of pounds when the resolution made clear it was only suggesting that franchises be taken in house when they ran out, something that would not cost anything. The motion was passed by an almost two thirds majority, but the days when Labour conference resolutions determined party policy are long gone.

Therefore as Labour governments came and went, the privatised structure remained intact. When Labour ministers were asked why they were continuing with the franchising process, they argued that it had delivered improvements to the railway and implied that taking them back in house would run counter to EU rules. Even when East Coast was taken back following the successive failures of Sea Containers and National Express, Lord Adonis, the then Transport Secretary, said that this would only be a temporary since otherwise EU rules would be breached. I checked this out at the time and found that it would be quite easy for Labour to simply remove the franchise from the contracting out process, and therefore legally it could keep Directly Operated Railways running the line indefinitely.

So something more was afoot. There were other reasons for Labour’s hesitancy. I have probed senior party figures about this and there are vague concerns such Labour being seen to be taking a step backwards and doubts about whether a public organisation would be good at marketing. This seems to forget the wonderful ‘Age of the Train’ InterCity ads (though the celebrity who featured in them I best not mentioned!). The Labour leaders dare not say it, but I suspect they are worried about bolshy unions, too.

The same reluctance to see state-run enterprise applied to Network Rail, too. When Railtrack was taken out of administration in 2002, the obvious solution would have been to simply renationalise it, especially as so much government money was paid as a grant to the organisation. But oh no, the neo-liberal ethic of the Labour government and, in particular, of the Chancellor Gordon Brown meant that despite much support on the Labour benches for renationalisation, the complicated structure of a ‘company limited by guarantee’ was created instead. The reality, of course, as everyone in the industry admits privately, is that the company is effectively state owned, which is pretty obvious given its debt of £28bn and growing.

The good performance of Directly Operated Railways, the government company, in running East Coast railways has further muddied the waters. Quietly and effectively, East Coast has improved its product, especially first class, developed far better industrial relations (ask any of its conductors on board), increased passenger numbers (at times faster than West Coast whatever self-interested Mr Beardie has to say) and returned vast amounts of cash to the Exchequer without the need for any to be hived off for profits.

Indeed, so successful has East Coast being, that the Coalition government, terrified of the example being set, has put the franchise at the top of the list for refranchising, which, as I have said before, was a blatantly political move given the fact that so many other franchises, where the need is far more urgent, have been pushed back in the queue.

Therefore Labour’s rethink is coming at an interesting time, Labour policy is currently being redrafted and, supposedly, all options are open. This has been a long process. Within weeks of the last election, there was talk of a Labour party policy on railways being prepared for the ‘next’ party conference, but now three annual gatherings have gone by since the election and there is no sign of any firm commitment. Certainly Maria Eagle, the now well-established transport spokeswoman (Mystic Wolmar warning – that probably has put paid to her prospects of retaining the post) is thought to be sympathetic to the idea of renationalising railway operations but cannot say so publicly with such because of the policy review. Ed Miliband is cautious but debate is raging within the party and options remain open

There are several possible alternatives. No one, of course, is suggesting terminating franchise contracts. However, the most radical option on the table is to simply allow the franchises to die out, with Directly Operated Railways taking them on. Given that the West Coast Fiasco (it deserves a capital F) means that this government in all its five years will have let at most 3-4 franchises, there will be an awful lot on short term contracts which means that within a term of government, most of the railway could be back in public hands.

It is an appealing prospect to Labour activists but the Daily Mail test may prove insuperable – Labour are terrified of angering the right wing tabloid, even though few of its readers ever put their cross anywhere else in the Tories’ box (or possibly UKIP, now).

A compromise, therefore, would be to allow DOR to bid for franchises. This was actually allowed under the original legislation, but was ruled out by the first franchising director as running counter to the desire to privatised the railway. However, it remains on the statute book. Indeed, currently DOR is drawing up dummy bids for all the franchise extensions in order to ensure there is some competition for the incumbent. It would have the added benefit of ensuring the Department really knew the industry’s cost base.

Thirdly, since it is the requirement for operators to take the revenue risk (i.e. the fares income) that has caused much of the trouble, there could be a change to a concession system where the risk remains with government. Operators currently have to make guesses about what the state of the economy and the transport market up to 15 years time will be and while the cap and collar regime whereby limits the risk, it has created a very convoluted process with perverse incentives i.e. if revenue falls below expectations, most of the loss is taken by government, and yet if operators cut costs, then that saving stays with them. Concessions would solve this problem with the Department paying a fixed fee for the management of the franchise. This is the normal practice in Europe and and is the very successful model used for the London Overground where the contractor receives 10 per cent of extra fares revenue as an incentive. But the Association of Train Operating Companies do not like it as it limits the private role and makes them vulnerable to the logic that there is nothing to stop the franchise being reversed entirely.

Or as a fourth option, there could be a mixed railway with some franchises being kept in house and others being let. For example, during the huge changes to Thameslink and Great Western being made, the operations could be run by DOR for a set period. Alternatively, it could be policy to simply allocate some franchises for retention.

Expect a big fightback by the ATOC against any Labour proposal to change the system. ATOC does not like concessions because its members feel that this would limit the potential for profit, though this is not a universal feeling among some of the owning groups. Moreover, ever since it was elected to government in 1997 the Labour party has been extremely timorous in making any move towards renationalisation. Mystic’s prediction, therefore, is perhaps a trial on a franchise or two, but carried out very tentatively, almost apologetically.

 

 

HS2 in Euston

 

I visited the campaigners against HS2 in Euston recently and it is amazing that their plight has received so much less attention than their counterparts in the Chilterns. They certainly have a more dramatic case, as a whole swathe of lower Camden will be destroyed, with 600 homes being lost.

And it may well be unnecessary. They have put forward a plan for Euston to be redeveloped within its existing envelope, creating a two tier station. HS2 say this is impractical and would delay the whole project, but clearly this deserves proper detailed consideration before being dismissed out of hand.

My view is that if the project were really worthwhile, then of course local people in the Chilterns, north London and elsewhere may have to pay a heavy price and should be compensated. But it is the fact that the case for HS2 is so unconvincing which brings me to the conclusion that all this disruption and destruction is unnecessary.

  • IsambardBrunel

    “complicated structure of a company limited by guarantee”

    Nothing complicated about a Ltd company, I could set one up in my garden shed this afternoon if I chose to do so.

    Sorry, but if you find the concept of Ltd companies complicated, what hope do you have of running the City of London as Mayor?

  • Jublet

    Southeastern would be an ideal candidate to hand back to DOR. It was run considerably better when they had it before and this would be a very popular move with the captive audience. Sorry, passengers.

  • Greg Tingey

    Euston
    As a fervent HS2 supporter, I nevertheless support a sensible rebuild of the station, not the botched cock-up presently proposed – the issues are separate, after all.
    Let’s do it PROPERLY, huh?

    Labour guvmint?
    They will do exactly what they did in 1964 & 1997 – make lots of promises & screw up totally, leaving the railways wrecked, because they are stupid politicians, I’m afraid.

  • RapidAssistant

    Renationalisation will not happen under a Labour led government as the Blairites that are still largely in charge are too tied to free market ideology. The sheer vindictiveness of the current moves to reprivatise East Coast tells me we have a long way to go before the politicians give up on the current system. Lets face it – BR was only created in 1948 as it was the last chance saloon; the industry was shattered and bankrupt after the war and there really was no other option.

    I guess it will take another catastrophic event like that before the government’s hand is forced on the matter. A ‘perfect storm’ may yet happen when the creditors call time on NR’s debt combined with a few more embarrassing franchise collapses.

  • Greg Tingey

    There IS the wriggle-out, though:
    Concessions, TfL-style.
    Except the serial incompetents @ DafT have set their faces against that, too!

  • Keith

    The fear that marketing would suffer in the Public sector is laughable – most franchise publicity now is very amateurish. Everyone forgets that BR was up with London Transport in its corporate image and branding – the clean back on white (helvetica?) seems obvious but was in fact well thought out – and has now been lost. (A very similar style was used by the NHS; for no apparent reason they seem to have phased it out as well.)

    Would another option be a BT/British Airways style large integrated PLC? It seems to be in vogue for the Royal Mail now.

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