THE wails from Sir Richard Branson
over his company’s loss of the West
Coast franchise have highlighted the
fickle nature of the privatised rail
network and have led to renewed calls
for the structure to be re-examined,
including calls for the entire industry
to be re-nationalised.
Should this happen? The
chairwoman of the Commons Public
Accounts Committee, Margaret
Hodge, has already expressed
concern about whether the system
is delivering value for money and,
with Branson having rapidly garnered
100,000 signatures in pursuit of a
rethink. This is a row that seems set to
continue when Parliament resumes
next week.
On the face of it, Branson has a
case. Rail travel on the West Coast
Main Line, which links London with
Birmingham, Manchester, Liverpool
and Glasgow, has greatly improved
since Virgin took over services 15
years ago and the numbers travelling
have more than doubled. Indeed,
passenger growth has been much
greater than on the East Coast thanks
to the increase in the frequency of
trains and the £9bn investment spent
on upgrading the track.
However, Branson’s case begins to
look thinner under closer examination
and, in particular, if the way that the
franchise system operates is taken
into consideration.
When the franchise was first put out
to tender in 1996 as part of the radical
privatisation of the railways brought
in by John Major’s government, the
bidders all had to include plans for
new trains since those on the existing
rolling stock had become life-expired.
Therefore, whoever won would
have had to lease new trains and
Branson’s implication that it was
simply his entrepreneurial spirit
which transformed services on the
line does not hold water. Nor do
Virgin’s claims that the company
has invested hundreds of millions of
pounds in improving the service.
In fact the trains are leased from the
rolling stock company which bought
them – with the help of various tax
breaks – and will simply be passed
on to the new franchisee, FirstGroup,
when it starts operating the services in
December.
The only difference, of course, will
be that the Virgin Red will soon be
obliterated by First’s dark blue livery.
This begs a wider question. What is
the purpose of the kind of upheaval
caused by this franchise merry-goround?
The failings of the franchise system
have already been exposed on the
East Coast route when first Sea
Containers (GNER) and then
National Express threw the towel in
after having bid far too optimistically
for the contract.
And that’s where the problem lies.
The franchise system is seen as a
way of reducing the cost of the
railway to the Government and
therefore there is a great temptation
for Ministers to accept bids which
are unrealistic and ultimately
undeliverable.
This has been made worse with
the change to longer franchises,
stretching up to 15 years. No-one can
possibly know what demand for rail
services will be in two or three years
time, let alone 15, given that it will
depend on so many factors ranging
from the state of the economy and the
buoyancy of the jobs market to
oil prices and the effect of broadband
on travel patterns.
It is a guessing game and FirstGroup
has guessed big. The company has
taken a remarkably optimistic view of
the future, with a bid that will require
growth of more than 10 per cent
annually throughout the whole life of
the franchise.
Other bidders, notably Virgin,
refused to make such heroic
assumptions and therefore lost out.
Given the history of the East
Coast franchise, this suggests that
the whole process has turned into
a sophisticated game of roulette
where losers have the option of
leaving the table before their losses
mount up. Therefore, while on paper
the Government’s acceptance of
FirstGroup’s bid looks like a canny
move, in practice Ministers – or more
likely their successors – may well end
up with egg on their faces.
So why go through all this pain in a
vain attempt to save money? It’s time
to stop pretending that the railways
are ever capable of being a genuine
private industry. The railways may
be notionally privatised but in effect
they are a socially-necessary industry
highly dependent on government
subsidy.
Last year, the railways received just
under £4bn in taxpayers’ money,
despite the massive growth in
passengers during the past decade.
Although this has been reduced from
a peak of £6bn five years ago, this still
represents far more than British Rail
ever received from the Government.
The truth is that the railways will
never be free of the involvement of the
state. Indeed, all the major decisions
on investment such as new trains,
refurbished lines, reopened stations
and High Speed Two remain in the
hands of politicians, not the private
companies who operate the services.
Network Rail, the infrastructure
company responsible for the track
and signalling, grew out of the
ashes of the failed private company
Railtrack which could not deliver on
its investment promises and suffered
a virtual breakdown following the
2000 Hatfield crash, which was caused
by a broken rail. Network Rail is,
therefore, effectively already staterun
as it no longer has shareholders
and most of its income comes from
taxpayers or borrowing backed by
government.
This quasi-privatised system
imposes huge costs on the industry
because operations, in the hands of
private companies, are run separately
from the track and infrastructure
which they use.
Bringing them back together again
would save vast amounts in terms of
the cost of lawyers, consultants and
engineers.
While no-one would want to see
Ministers take over the running of
services directly, the re-creation of
an overall state-owned railway body,
like the old British Rail, is the logical
step given the failings of the franchise
system.
It would get rid of the pretend
capitalism that has dogged this
heavily subsidised and socially vital
industry for the past 15 years and
result in a cheaper and more efficient
system. And, most importantly of all,
passengers might benefit too