Railways have cause to celebrate over investment plans and Olympics

There is much cause to celebrate in the rail industry. The Olympics were an amazing triumph for public transport and the rail industry in particular. They were advertised as the public transport games and that is exactly what they turned out to be. Fears about transport chaos, got up by the media, proved to be groundless (as I had predicted).

There is a wider message to be drawn from this. Public transport is the key to moving large numbers of people around cities. I am sure readers of TSSA Journal knew that already, but the message seems to be getting through to policy makers. The fact that large chunks of the London road network had – unnecessarily as it turned out – been taken out of action to allow the so-called Games family to travel in lanes reserved for them in the manner of old Soviet dictators without causing chaos showed that reorganising our cities around buses, trams and rail would be a far better option than the continued emphasis on building and widening roads for cars mostly occupied by a single person but taking up large amounts of road space.

Politicians do seem to have begun to understand this. The announcement of the investment plans – officially known as the High Level Output Specification, a term understood by very few people! – in July with the emphasis on electrification was a fantastic endorsement of the rail industry. Sure, on closer examination, the details were not quite as good as spun by the Department’s press people, as it was not the ‘biggest rail investment plans since Victorian times’ and nor did it represent a massive increase in what had gone before. Moreover, there is a convoluted process to be gone through with the Office of Rail Regulation having to assess the plans in the light of the money allocated by the government (the SOFA  – Statement of Funds Available) to see whether the schemes are affordable before they can get the absolute go ahead.

There are other concerns: we are always at the mercy of this crazy coalition’s emphasis on austerity and the way that these plans dovetail in with the McNulty proposals is not explained anywhere. A big proportion of the McNulty savings are supposed to come from the franchisees but with so many big contracts coming up for renewal – Thameslink, Great Western, East Coast etc – the amounts that the bidders will commit themselves to pay (premiums are the order of the day, since the £3bn plus annual subsidy to Network Rail means that the franchises theoretically are ‘profitable’) are not known. It could well be that franchise bidders will not offer these big premiums, and then the government will be in a quandary – either cutting back investment plans like in the old days of boom or bust, or finding extra cash to pay for it.

Therefore a lot of this investment relies on a wing and a prayer, and in particular continued growth. It is, indeed, one of the mysteries of the industry that passenger numbers have continued to rise despite the recession. Part of this is down to the buyoancy of the London economy compared with the rest of the country and rising fuel prices have also contributed to the modal shift. Trains have got more comfortable – though not when people are straphanging – and reliable, as well, but nevertheless, it is difficult to explain why passenger numbers have grown so sharply. So, conversely, the growth may well tail off for no clear reason and that would put the whole economics of the industry at risk. The fact that the government plans for investment and its franchising programme are dependent on the assumption of maintaining rising numbers is a major worry. The fact that the success of the FirstGroup bid for West Coast which ousted Virgin relies on maintaining an annual rise in passenger numbers of around 8 per cent throughout the 14 year franchise is rather like betting that Manchester United will win the Premiership most years during that period.

To me, this expectation of growth does not seem realistic. The doubling of passenger numbers on the West Coast has been a result of the investment both in trains and the refurbishment of the track and infratructure (at a cost of £9bn) and surely that effect will eventually soon start to run out of steam. Nevertheless, FirstGroup has risked its whole future in the industry on this bid since it would not dare walk away if the numbers don’t materialise as it would lose its other franchises under cross-default rules.

Since the growth has been partly dependent on the relative cost of motoring and rail use, the big worry is that Justine Greening will not, this time, be able to stop the RPI plus 3 per cent fares rises, while on the other hand George Osborne will keep on postponing tax rises for motorists. Moreover, oil prices may not rise much further given the worldwide recession and the fact that the big potential increase in supply from the highly environmentally damaging shale oil becomes economical once prices of around $100 per barrel are maintained. That may well become the new norm – nothing enough to deter motorists but enough to ensure a continuouos supply of oil.

Despite all these warnings, I do not wish to be seen as being negative. In many respects, the railways are in a better state than they have ever been in their history. Sure, the semi-privatised structure which is fundamentally dysfunctional and leads to much extra cost remains and there are no plans to change it, though the experiment with integration through an alliance on South West Trains is a welcome development that may lead to reduced costs.

However, the key point is that the railways are now widely recognised as a key part of the nation’s infrastructure. They are seen as a growth industry, attracting more and more passengers and, with investment, becoming more reliable and thus achieving higher passenger satisfaction scores. Who would have foreseen this success and the widespread recognition of the railways importance in the dark days of the early period of rail privatisation, when the industry was seen as a financial basket case that was simply being allowed to wither away? Now with electrication, HS2, new trains (albeit ridiculously expensive) to replace HSTs, and, at least on the face of it, plenty of money for Network Rail, there is cause to be more optimistic than almost at any time in the railways’ history. .




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