Rail 901: Reaching into the unknown unknowns

Harold Macmillan used to say that what he was most worried about when Prime Minister were ‘events’ or, as Donald Rumsfeld, the one time American Secretary of Defense put it, ‘unknown unknowns’.

Well Coronavirus is certainly both those things, an absolutely unprecedented health crisis with untold huge long term effects to the economy in general and the transport sector in particular. This is a game changer in many ways, not just for the short term but, I suspect, the crisis will transform the pattern of work, accelerating trends that were already coming to the fore.

The industry faces an unprecedented and immediate crisis. As more and more people shift to working at home, events such as sporting fixtures and conferences are cancelled and business folk take to Skype and videoconferencing rather than train travel, the numbers using the railways are bound to plummet.  My best guess they may well reduce by up to 50 per cent given that there are already reports of 20 per cent falls. This is only going to get much worse. I suspect there will not be a single franchise that will remain in the black if, as has been suggested, the peak of this crisis will not be reached for a further 10 – 14 weeks. In fact, I wonder if there are any today. The 2008 financial crisis will seem like a Thomas the Tank Christmas outing compared with what’s about to hit the industry.

Personally, I am not going to take a train unless I really have to. Half a dozen of my planned business and leisure trips have already been cancelled and more will follow. I am avoiding the Tube and sticking to my bicycle whenever possible.

It took a while for the industry to react but it seems that there are now ongoing negotiations with government. Indeed, this column, written on Monday March 16, may well be out of date when published but it seems that negotiations are taking place and Grant Shapps indicated on the Today programme (funny how ministers now go on the programme!) that this was very much an unprecedented situation.

Frankly, it is difficult to see how any bail out will work, and therefore a whole restructuring of the industry will be needed. My perennial question of ‘what is franchising for?’ will finally be made redundant.

The airlines have asked for the same sort of help as the railways and Virgin Atlantic is seeking a staggering  £7.5bn though others were not necessarily behind that request. It is clear that a couple of weeks of travel bans will push them over the edge given their huge fixed costs but is it acceptable for the likes of Virgin Atlantic, British Airways and Ryanair to be rescued by us, the taxpayers? Remember none of these are wholly British companies and therefore it would have to take multi-national negotiations to sort out any bail out arrangements. And why should this burden fall on the state?

There are measures such as not requesting tax and rate payments that will help both airlines and railways in the short term but it is difficult to see how governments can go further without a major and permanent shift in the nature of the way the economy is run. If the airlines are bailed out, surely that would be in return for a stake in the ownership, as happened with the banks in 2008.  The more this crisis intensifies, the more it feels like we are on a war footing and that the only relevant and relatively recent comparator is the Second World War.

For the railways, the obvious answer is simply to turn the franchises instantly into management contracts with the government taking the financial risk for both revenue and cost. In other words, de facto state ownership. The government wants the railways to keep running, not least because so many people rely on them to get to work and they are recognised as a fundamental service. However, Shapps intimated that it might well be necessary to cut back the number of services, and that would only be possible by scrapping the existing contracts. The very continued existence of the railways is at stake and it is difficult to see how franchising will ever be reinstated. This will make it easier to create the new structure, which is contained in the long delayed Williams Review, as effectively there will be a clean slate on which to base any new structure.

Ironically, the collapse of the system may well be helpful in pushing through changes on ticketing. According to a report in The Times on March 14, the delay to the publication of the White Paper based around the Williams review was over concerns by the Treasury that a more rational and sometimes cheaper ticketing system would lead to an increase in subsidy even though many in the industry think that this might actually lead to an increase in revenue. One rail industry insider quoted said: ‘Typical risk-aversion on the part of the Treasury risks the railway being left behind by other industries that are utilising technology to transform how they sell their services’. So the good news is that if the whole burden is falling on the state, then the government may as well sanction changes that could well reduce overall subsidy.

Given the depth of this crisis, Williams may become an irrelevance. In any case, the long term changes resulting from this crisis are likely to be profound. Already in recent years we have seen a decline in season tickets and the way that Friday has become the only day when regular commuters can find a seat on a train that is crowded on other weekdays. These are both trends that are set to become more entrenched given the emphasis on working from home due to the virus. Once people have realised that they can work at home some or most of the time, and employers have begun to establish monitoring procedures and assess the results of what is an experiment on a grand scale, this will result in a permanent shift.  One crucial aspect is that the IT systems designed to enable them to do so have been put in place at thousands of work places and these will not be removed.

Therefore, the railways face both a short term crisis and a long term reappraisal of their role. Add in the uncertainties caused by Brexit and by the structural issues which have been addressed by the Williams Review and 2020 is all set up to be an annus horribilis for the railways but, putting on my optimist’s hat,  in the long term a more rational and sensible structure may emerge.

 

Budget fudged

 

Normally, I would have written my main article about the Budget but we do not live in normal times. Indeed, this will not be the last time that coronavirus dominates this column. The Budget was presented as both a path out of austerity and a response to the Coronavirus when in fact it was neither.

The transport aspects are deeply disappointing both for the railways and for transport in general.

It is one of the tasks of my work as a columnist to interpret documents and reports put out by the government and other agencies. I am used to the dissembling and the misuse of statistics which such documents invariably contain but frankly I am shocked at how little of substance there is in this cocument.

Let meet start with saying a few nice words about Rishi Sunak. The poor chap only had less than a month to prepare the Budget and clearly he shifted away the emphasis away from austerity to spend, spend, spend. Moreover, he came across really well both at the despatch box and in subsequent interviews. If he manages to stay in the job for a couple of years, and there is no crisis – big ifs – he must be a key contender to be the next leader of the Tory party.

However, the increase in spending is in fact not that impressive. The amount of extra money is relatively small, approximately an additional £30bn each year which represents around 3 per cent, but as that is in cash terms, the real increase will depend on the level of inflation. Even this relatively modest increase does show that the Tories have abandoned their emphasis on reducing the deficit.

So far, OK, but then trying to decipher anything intelligible about transport is an uphill task. In the summary press release, the section of infrastructure says that over the next five years the government will invest £640 billion – or, as the release says, is more than half a trillion, which is £500,000,000,000. Very little of this is in fact new money – it is merely adding up a lot of existing commitments, some of which is maintenance rather than investment. And none of the additional money seems to be going to the railways except perhaps the trivial amount of £500m for ‘reversing Beeching’. The Chancellor made great fuss about £27bn for the roads but this is over 5 years and again was merely repeating past pledges. Worse, though, it confirmed several very expensive and unnecessary road schemes like the Stonehenge tunnel that are precisely the sort of projects that should be scrapped in this age of concerns about climate change.

Most oddly, there was no mention in the whole 125 page Budget report of HS2, by far the most expensive single commitment. That seems an incredible omission if, as the government has now stated, it is a definitive commitment. Nor is Heathrow mentioned, which suggests a lack of commitment to reviving the third runway plan. Yet, in the ridiculous attempt to show that the government is doing things for the north, there report includes various commitments for relatively small sums such as £20m to complete the Midlands Rail Hub and, most ridiculously, the report actually mentions a new tram stop at Magna on the tram train line between Sheffield and Rotherham.  There’s also mention of new cycleways in Bournemouth, Christchurch and Poole. The serious point here is that this is a demonstration of the way that transport planning and spending remains so centralised despite the supposed trend towards devolution. It really should not be up to the Chancellor of the Exchequer to be boasting about tram stops and cycle paths.

 

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