Rail 449: Who’ll dare tell the emperor that he’s wearing no clothes?

Richard Bowker has done a sterling job in pulling the Strategic Rail Authority together, but he remains rooted in the contract culture of the 1990s – which, argues CHRISTIAN WOLMAR, is being discredited by evidence both from within Britain and across Europe.

We are so often bogged down in the depressing details of our dysfunctional railway that it is sometimes essential to take a step back and look at the recent history of the network from a distance. It is not a pretty sight and it leads to an inevitable conclusion – that the difficulties of the railway are not soluble within the existing structure.

I’m sorry to risk boring you, dear reader, about the issue of structure but a series of events forces me back to looking at first principles. The first of these was a recently published interview with Graham Eccles; in charge of rail for Stagecoach. Eccles, a career railwayman, is one of the few managers to have the guts to put his head above the parapet and say fragmentation remains a problem that will not be addressed by the recent move to Rail Privatisation model 2.0.

Eccles says that under the current system, “we have lost the ability to act quickly to correct things that are wrong.” He continues: “We are too disparate, there are too many component parts, and management and talent is more diluted than it was because of natural wastage and retirement of senior people.” He goes on to cite, in a remarkably honest admission, that there was a train breakdown outside Waterloo in the summer in the peak hour that took two hours to clear and “was not well managed”.

At the second event which prompted this article, the launch of the SRA’s new franchising strategy, Richard Bowker, the chairman, said he had met all the current franchisees and they had agreed that the strategy was the right way forward. “What about Graham Eccles?” I said. He was not at the meeting, and everyone there agreed with the way forward, I was told.

But Eccles got wind of this exchange and, forthright fellow that he is, e-mailed me to say that despite the tieless one’s inference, “I can assure you that my boss [Brian Souter] and I still believe in vertical integration as passionately today as we have ever done.” Eccles added that he recognised that, under the current circumstances, there is little alternative to Bowker’s strategy of turning the train operators into service delivery units which will take little of the risk and be much more tightly controlled than they were before.

The real alternative would be a complete reversal of the failed franchising policy, but we know that is not going to happen because you only have to look at Bowker’s background to realise he is not the man to attempt such a radical move. There is no doubt that Bowker has done a great job in pulling together the SRA and beginning to impose some discipline on the rail industry. There is a lot of common sense in the strategy document and he has launched other initiatives, such as the Capacity Utilisation Plan and the quasi-consultation on the West Coast modernisation which are highly commendable.

Bowker is, therefore, a great asset to the railway but he is a young man thoroughly imbued in the contract culture of the 1990s. He is a deal-maker who has never run or built anything and he is convinced not just that the fragmented structure of the railway can be made to work, but that it is the right one for the industry.

In that, he is just plain wrong. The evidence for the failure of franchising is in contained in the very Franchising Policy Statement which he launched at that press conference. It lists in bullet points three successes and five failures of franchising. The successes – growth, high levels of investment in rolling stock and stronger marketing of passenger rail services – have nothing to do with franchising. Indeed, the short-term nature of franchising actually poses a threat to investment in stock, and growth is little more than would be expected given the behaviour of the economy since 1996.

In contrast, the failures – performance, the failure to incentivise a universal improvement in quality of service, the financial failure of several operators in the face of ‘external factors’, the demands for extra subsidy and the ‘exhaustion of the supply of high quality managers’ – are all a direct result of the franchising and are not really addressed by the proposed changes.

What Bowker cannot answer, therefore, is the question, posed many times before in this column: “What is franchising for?” None of the original aims – customer service, reduction in subsidy, private sector expertise, efficiency, passing over the risk – can be said to have been achieved. The truth is, Richard, that the emperor has no clothes but no one dares to say it because the industry has suffered so much from reorganisation over the past decade and the conventional line is, “we are where we are”.

It is not just the testimony of people like Eccles and – more quietly but equally strongly – Chris Green which convinces me that the separation of infrastructure from operations will continue to bedevil the railway and wreck any attempt to rein in costs and improve performance, but evidence from across Europe. A report published recently – the third event which prompted this article – by a Swiss organisation* on the issue of separation is essential reading for all policymakers who have a genuine interest in the future of the railways despite the rather ropey translation.

The researcher, Carlo Pfund, spent time in seven countries – Sweden, Norway (which is not a member of the European Union), Denmark, Finland, Portugal, France and Holland, but not the UK – looking at the implementation of the European directives which have encouraged the separation of operations from infrastructure on the railways. The research reveals a consistent pattern of increased costs, poor performance, failure to achieve the objectives and administrative chaos, even though the way that every country has gone about the separation has been different.

The report shows very strongly that competition and open access, the supposed purpose of the EU’s insistence on separation, have not materialised. Even in Sweden, which was the first country to embark on separation in the late 1980s, only 3% of freight is not operated by Swedish railways (except for a separate iron ore line in the north). Attempts to bring in competition on passenger operation have either collapsed, such as in Holland, or been artificially stimulated (Denmark) or simply foundered in the basic truth, discovered by John MacGregor, the Transport Secretary, that on-rail competition is a daft concept.

Secondly, separation has led to disputes between the two organisations and, as Pfund puts it, a “tendency for these new organisations to extend their territory”. In other words, turf wars which offer no benefit to passengers or taxpayers.

Moreover, the whole situation is characterised by uncertainty and instability, the enemy of running a good railway service. Every country has adopted a different model in regard to key issues such as debt, subsidies, competition, timetable, regulation, information and so on, and none of them is entirely satisfactory, which leads to further reorganisations and change. And everywhere, far from transparency and cost reduction, there is a lack of clarity and extra expense with the creation of new organisations and extra bureaucracy. In other words, no-one quite plays by the rules in the way that we have because no-one knows what the rules are.

The individual nonsenses of separation would be funny if they were not so damaging to the interest of the railways. In Sweden, no new rolling stock has been bought because of fears that train operator, SJ, would not have long-term contracts. In Denmark, two cleaning teams cover each station, each operating on the patch covered by their company, and the ‘do not cross tracks’ signs are owned by the Railtrack equivalent, while the operator owns the station name signs. It makes you weep.

But isn’t separation a requirement of the EU directives? Well, not really, as demonstrated in France, where the two organisations, RFF and SNCF, are so bound in with each other that there has been no proper separation. Moreover, in Holland there is talk of reintegration and, universally throughout Europe, there is dissatisfaction in the railway community about the enforced changes which were originally inspired by the EU’s dislike of the large state-controlled railways.

As for the UK, it might seem that integration is off the agenda but it would only take a further bout of railway upheaval to get it back on again. Do not be deceived by how quiet it has been on the railways over the past few months. Alistair Darling has been masterful at doing what Blair appointed him for – keeping a lid on the issue. Darling has been lucky in that the Tories are in a permanent coma and the news agenda has been dominated by terrorism and Iraq.

Yet even Darling may be moved if no progress is seen on the railways and the bill for them continues to soar. The crunch point will be 2004, when the next Government spending review will take place. Bowker is consciously working to that date when he knows he will have to make ‘the case for rail’ to the money mandarins. He has even produced a cute little pamphlet – ‘The value of rail: route map to 2004’ – to emphasise the importance of that date to the industry by which he hopes for reduced costs, better performance and faster delivery of improvements.

But will he get there without an intervening crisis? Network Rail is absorbing such huge amounts of money – a staggering £4.6bn of which £3.5bn is probably subsidy, some three times more than BR ever got – that the Treasury is already not amused. At some point it may dawn on the Government that the high costs are partly a result of the structure of the railway. Until then, we all have to struggle on. I will try not to raise this issue again until … well, until the New Year.

But in the meantime, it would be healthy for the rail industry to take up Eccles’s points and have a debate. If he’s wrong, he should be shouted down. Unfortunately, I suspect they cannot do so because they know he is right but are too scared to admit it. As Eccles says, integration has been shelved for political reasons, and the industry should be brave enough to point that out.

* Separation Philosophy of the European Union – Blessing or Curse, LITRA, Spitalgasse 30, PO Box 7123, 3001 Bern, Switzerland; tel: 00 31 328 3232

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