Rail 537: How the railway has gone from dynamic to dysfunctional

Three current controversies demonstrate how the privatised railway is far less flexible and adaptable to change than BR was, CHRISTIAN WOLMAR maintains.

Historically, the railways have been a dynamic system. Lines have closed and opened with regularity as markets and mores have changed. But either expanding the railway or taking out redundant capacity is now almost impossible, as illustrated by a series of interesting recent events – the review into the Northern Rail franchise, the Office of Rail Regulation’s decision over the Grand Central Sunderland-London trains and the fuss over the cuts to Cornish branch lines.

On the face of it, the result of the Northern Rail review, carried out by consultant Steer Davies Gleave for the Department for Transport, seems like excellent news. The consultants were originally commissioned last year but the work was postponed when some bright spark realised it would not be a good idea to consider rail cuts at election time.

But, in fact, there was nothing to worry about. The consultants found that money would not be saved by reductions in services, fares rises or reprofiling Network Rail’s maintenance expenditure.

This is not the view of a former BR manager who used to work for Regional Railways. In the early 1990s there was a similar review involving the whole of Regional Railways – which was actually all the passenger railway that was not InterCity or Network SouthEast – and the findings were pretty stark. Many lines did not even pay for their operating costs, let alone their share of the infrastructure, and it was very difficult to justify them even in the wider terms of social benefit. And that was in more rational days when BR did a lot of patch-and-repair rather than the total upgrades of minor lines which NR often favours, such as the recent very expensive relaying of the little-used Middlesbrough-Whitby and Windermere lines.

Had BR survived, there may well have been a new round of small-scale closures because of the pressures of the organisation’s ever-stretched finances. BR operated to a single Treasury-given figure and had to make decisions within that budget – balancing, for example, providing extra commuter services on a busy line in, say, Manchester or Leeds with keeping open a branch line. Of course, BR made mistakes and occasionally shut the wrong line, but even the most fervent rail campaigner would recognise that sometimes it is pointless keeping each and every line open.

The 1990s Regional Railways review found that half its services did not even cover costs such as traincrew and rolling stock, and none made any financial contribution to the infrastructure.

My pal mentioned the Carnforth-Settle Junction line which, interestingly, is a case study in the Northern Rail review. In a rather cursory analysis, the consultants conclude that it would be more of a hassle to close the line than to keep it open, arguing that it is used for steam specials and that not much maintenance will be required over the next three years. So an unspecified amount of public money is spent on keeping open a 26-mile long double track railway used by five lightly loaded trains per day so that it can keep on having chuffer trains at weekends.Would closure leading to transformation into a heritage line not be an option worth considering?

Crucially, though, under the present system it is impossible to look at such marginal lines rationally and make such decisions. The concluding paragraph of the Northern Rail review says it all: “The key issue with respect to Network Rail renewal costs is the (lack of) immediate processes for either the franchisee or the DfT to capture any savings made. Network Rail’s expenditure is regulated by the ORR and any changes in output are addressed through the regulatory process (the five-yearly periodic reviews). There is no direct mechanism for using renewal cost savings made by Network Rail to reduce the subsidy for Northern Rail or any other TOC.”

In other words, irrespective of whether a line is worthwhile in terms of the ratio of passengers to grant (remember the average subsidy on regional services is £3.50 per journey), there is no point saving it because NR is funded by this daft mechanism of five-year reviews, and it’s pointless bothering with the trifle of a few million here or there as it will simply disappear somewhere in that massive organisation’s budget. One could ask why, if there are no savings to be made by cutting the service, does it need to be subsidised? While little money may be saved in the short term, what about when the large amount of track laid in the 1950s and 1960s needs replacing?

Moreover, short-term savings by the TOC would not go towards saving taxpayers’ money but, rather, to the shareholders. That was exposed by the dispute over the Cornish branches between FirstGroup and the government, which has now been resolved.

To recap, FirstGroup issued a draft timetable for the new Great Western franchise which sharply cut some of the services built up on branch lines, arguing it was the department which had specified the service level. “Why should we run any more if they are not commercially viable?” Dean Finch, the company’s finance director, asked me recently. This shows that such savings can only be made at the outset of a franchise by civil servants, rather than rail operators, who are not only determining frequencies but setting them in stone for a decade.

The third issue, the decision to allow Grand Central to run three trains a day on the Sunderland-London route, highlights how difficult it is for the railway to accommodate innovation. BR often tested the market on InterCity routes and sometimes got it wrong, promptly scrapping the service. Now we have an enormous hoo-hah over just three trains which, according to GNER, will make most of their money from abstracting its revenue. Indeed, the issue threatens to blow apart the department’s whole franchising policy, as GNER claims its ability to pay the huge premiums under its franchise agreement will be compromised by this decision and the failure to grant its extra London-Leeds paths.

This demonstrates the extent to which the railway is being micro-managed by civil servants and the regulator, who are making decisions that seem to be sub-optimal both in terms of passenger services and the call on the public purse. In other words, in the privatised railway, there is little relation between the ability to improve revenue through greater patronage and investing in added facilities.

We have a fundamentally dysfunctional railway which is far less flexible and dynamic than its state-owned predecessor, and in which it is impossible to allocate available resources in a rational way because the taxpayers’ contribution is divvied up between various stakeholders who are not going to pass it on to each other. Therefore we have a minister who is happy to veto tram schemes around the country that could be used by millions of people instead of their cars but allows a lot of fresh air to be carried around on little-used services that may not pass any reasonable test of value for money.

In an ideal world, there would not be such a dichotomy but in the real world such hard choices have to be made. It is clear the railway is not in the real world.

There is no one to make rational decisions using available resources. Now it might be argued this is better than in the bad days of BR when the Treasury laid down budgets set, ridiculously, annually for the railway, but can we honestly say the railways are worth subsidising by three times the amount they were then because no one can make these balanced assessments?

This crazy system suits the private companies, as they get a lot of money for little risk, and it suits ministers because they can pretend these decisions are out of their hands as the railways are privatised. As my pal put it: “The conclusions of the Northern Rail consultants’ report shows there is no point in reducing or eliminating Network Rail renewal costs on any route while the taxpayer continues to pay and the government fails to put a system in place to encourage anyone to do so.”

NR therefore only has to reduce costs to the level of the regulatory settlement and has no responsibility for adjusting what infrastructure needs to be provided. That will be determined by the High Level Output Specification which will be published next July, covering 2009-14.

Moreover, since this is a rolling process, it will never be worthwhile making these decisions except in one huge lump every five years when the HLOS will be issued. As my pal concludes: “My bet is that there will be only minor investment and enhancements to the network which forms the basis of the 21st-century railway, and that the taxpayer will continue to pay ever-increasing sums for the underutilised part of the system simply because every minor change to the network brings about massive publicity.”

Ironically, ministers are becoming more bullish about the railway, arguing that the 30-year strategy announced recently should be based on a scenario of high growth and high environmental concern. However, they should note that unless they create a structure for the railway that is more flexible and efficient, the Treasury will never allow them to implement it.

“Although the Northern Rail review has concluded that services should run unchanged, Christian Wolmar argues that there could be savings to be had from the franchise and from Network Rail’s maintenance of its lines. Here 156469 passes Whitchester with the 1624 Newcastle-Whitehaven on March 22. The loop on the right was built to serve a now-demolished coal loading point and is now not used.” DAVE MCALONE.

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