Railways being restructured piecemeal


The Hatfield train crash, whose tenth anniversary is on October 17th, and its aftermath caused one of the biggest upheavals in the history of the rail industry. It wrecked the privatisation model created by the Tories a few years previously, led to the establishment of Network Rail out of the ashes of Railtrack, and resulted in the exponential increase in costs from which the industry is still suffering.  The performance of the operating companies, in terms of punctuality and reliability has taken most of the intervening period to recover and is only now reaching the levels expected by the paying public, brought up in an age of consumerism.

 The anniversary coincides with another period of upheaval and uncertainty that in many ways is yet another legacy of Hatfield. The failure of Network Rail and the regulator to tackle the ever rising costs, recognised by the Office of Rail Regulation to be 40 per cent above European levels, is set to result in the most fundamental changes to the industry since the demise of Railtrack.

 There is a series of separate but necessarily interrelated processes that will lead to what has been characterised by the government as evolution but is, in fact, a revolution. The most important – and worrying – of these is the McNulty review into the costs of the industry which has already published a scoping report and is now due to feed into the spending review process to be announced. Make no mistake – McNulty is going to publish a thorough analysis of the costs of the rail industry and his findings are likely to be radical and are likely to support the idea of more privatisation and competition.

 Then there is the franchise review process initiated by Theresa Villiers, the rail minister. She has found this to be harder than expected. In opposition, she had talked about longer term franchises and giving much more freedom to the train operators. However, clearly counselled to be cautious by her civil servants, her franchise review paper is a rather damp squib. The review suggests three reasons for reforming the franchise system – better quality services, value for money and the rather vague ‘creating the right conditions for a successful and sustainable rail industry’ – but she does not address the fundamental conundrum of franchising: if you let the operators have longer franchises, how do you then police them to ensure they deliver a good service. And if you give them too much freedom, such as over timetabling or catering, what happens if they start making deeply unpopular decisions. Ms Villiers accused Lord Adonis of micromanagement, but, as she seems to have realised, you can’t just allow operators total freedom – remember the threat by Richard Bowker, the then boss of National Express, to remove all catering from East Coast trains if Lord Adonis did not agree to renegotiate the franchise.

 Despite these difficult issues, the review process is bound to lead to changes. Already, the franchises coming up for renewal have been extended – presumably on terms generous to the operators since they have the Department over a barrel – while decisions are made over their structure and length.

 To add to this complex mix, there are major changes afoot with Network Rail which has committed a kind of collective suicide. Network Rail’s structure had attracted the attention of the Tories when they were in opposition as they spotted, quite rightly, that there was little or no accountability. However, given the difficulties of making radical changes, the organisation might have survived with a couple of minor adjustments – say a beefed up group of members – had its bosses not so antagonised ministers over the bonus issue that major changes are now inevitable.

 As soon as the coalition government came into being, ministers were expressing both privately and in public doubts about the generous bonus system for top managers at Network Rail and yet they took no heed. Lesson one of surviving the arrival of a new government is not to make enemies of ministers but that is precisely what happened.

 So now there is talk of breaking up Network Rail, perhaps with a regional structure based on cost centres, and perhaps a move towards vertical integration in some areas, an idea that had actually been shelved when Theresa Villiers took over from Chris Grayling as opposition transport. If, ultimately, the government decided not to break up Network Rail, other changes are bound to be made. Don’t be fooled by the idea that this is impossible because it is a Tory dominated government. In a speech to the Rail Freight Group in July Ms Villiers made clear that nationalisation was a possibility when, referring to the future of Network Rail, she said:’ We will not be driven by tortuous attempts to keep Network Rail off the nation’s balance sheet’.

 The rail industry is, therefore, in the midst of a revolution. If the result is the beginnings of vertical integration, a tighter control over costs and a better system of regulation, then that is fine. However, the risk is that the whole process is being driven by short term considerations about high costs, rather than the need to ensure a long term stable future for the industry. Moreover, the process of change is bitty and uncertain. Add in the Foster enquiry into the InterCity Express Programme, and of course the whole comprehensive spending review, and there are at least five separate strands to the changes taking place in the industry.

 This is crazy. A much more sensible idea would have been to initiate a proper inquiry into the funding and structure of the industry, carried out quickly and ensuring that the lessons of the past 15 years were properly assimilated. Instead, there is a real risk that what we are going to get out of this revolution will be worse than what we have now.

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