Rail 748: Labour’s dither over renationalisation


Ed Milliband is all a dither over the rail franchising system. In a letter to The Observer published on May 4, a group of Labour prospective Parliamentary candidates argued that the Labour leader should follow his initiatives on energy prices and private rents by taking the bold step of announcing that he would end the franchising system when the present contracts run their course.

The group said that renationalisation would ‘secure a better deal for passengers’ and stop the train companies from ‘walk[ing]‘away with millions of pounds every year, despite running monopoly services and benefitting from £4bn of public investment in the rail network’.

In fact, Labour’s policy on franchising has made Waiting for Godot seem like a momentary lapse. For the past three years we have been told that Labour’s thinking on the future of the railways will be announced in the next few months, but nothing has emerged. Now, though, with the election less than a year away, a decision will have to be made.

Certainly, radicalism and the public mood are at one over this issue. There is little public support for the rail companies and polls generally show strong support for renationalisation, even among Tory voters. The public has sussed that train operators are strange beasts in the capitalist firmament. Normally, capitalism rewards business either for taking risks or for investing, but the operators do neither. If they start to lose money, they simply throw the towel in, as happened with National Express on the East Coast in 2009. And they invest very little since they are only in it for the short term.

However, the nitty gritty of taking back the franchises is bound to be contentious. There are effectively three options. Labour could either leave things as they are and continue with the refranchising process; allow Directly Operated Railways or some other state controlled organisation to bid for franchises; or merely allow the franchises to run out and pass them on to a new government franchise organisation. A fourth possibility, though probably too radical to contemplate, would be the re-creation of an integrated railway along the lines of British Rail.

While the middle option might be presented as a sensible compromise between the two others, it is actually unworkable. Funding an organisation to prepare the enormously detailed bids required these days and with a mere one in four chance of winning would be impossible. Moreover, there would be few advantages. One of the key points to allowing the franchises run their course and not to relet them is to save the enormous cost and uncertainty created by the bidding process.

Politically, overseeing the more radical option, overseeing the gradual demise of the franchising system has a lot going for it. Ed Miliband has taken on both the energy companies and, more recently, extortionate private landlords and both times has rather put the Tories on the back foot. Remember how in the wake of the energy prices announcement at the Labour party conference, the Tories warned of power cuts only to broadly support the policy later. Andrew Rawnsley in the Observer put it rather well when he wrote, in the aftermath of the announcement on housing, ‘we will have a few days of Tories…denouncing Mr Miliband as a crazed red who cribs his policies from Hugo Chavez, then a few days of panic at No 10 when his pollsters inform David Cameron that the Labour promise is rather popular with their focus groups, and then the coalition will paly me-too catch up and try to scrabble together their own offer.’

I reckon the same process would take place on a policy of ending franchising. The train companies are unpopular in the public’s estimation and seem to do little more than sticking their logos on trains and insisting their names are used in announcements. (My favourite is the possibly apocryphal announcement at Cambridge when the trains were run by First and One, and the announcer would say ‘The first train from platform 2 is the One train….and the second train is the First train…’.)

I will not rehearse my arguments about ‘what are franchises for?’ but it is quite wrong of the private operators to claim the credit for rising passenger numbers during the past couple of decades. There are innumerable reasons for the increase such as higher employment levels in London, increase in student numbers, lots of development around stations, population rise, reductions in company car tax allowances, fuel price rises and so on. No rail company has introduced radical incentives to increase passenger numbers. Indeed, some of them have staff trained in the Ryanair school of customer relations while others have much friendlier staff. Just as under British Rail, standards vary from excellent to awful, even sometimes within the same company.

There are, though, risks for Miliband if he goes ahead. First, he will be roundly criticised in parts of the media and within the industry. Already the Rail Delivery Group (aka the Association of Train Operating Companies) has come out fighting, with its chairman, Martin Griffiths of Stagecoach telling the Financial Times ‘Whether it is full renationalisation, a public sector comparator bidder or allowing services to be effectively renationalised as contracts expire, there is one common outcome. It would add more cost, complexity and risk to the taxpayer.’ Miliband will have to refute accusations that the decision is a return to Old Labour statist policies and he risks endless jokes which British Rail endured about curly sandwiches and the wrong kind of snow.

Secondly, one of the reasons for the original privatisation was to ensure that politicians were no longer blamed for every mishap on the railways. This has not been entirely successful since ministers still end up carrying the can but there is no doubt that renationalisation would increase the pressure on politicians to account for what happens on the railways.

Thirdly, renationalisation is no panacea. It may well not lead to a dramatically changed railway with a ‘better deal for the passenger’. Yes, there may well be some savings. The train operators make around £250m profit out of franchises and, indeed, that figure may well be considerably more as there are hidden transfer payments between the owning companies and the operators. It may well, too, be easier to control fares rises and the way the railways are run may well be more flexible. However, inside sources tell me there is already a £350m gap in this year’s rail finances and this may well grow over time as the reductions in spending set out in the McNulty report published three years ago have not been realised. Being directly in charge of the railways may well be a poisoned chalice.

However, remember, this is politics. The realities of whether this is a good idea or not – and broadly I think it is despite the risks – are irrelevant to the final decision. Miliband will want to be sure that the two audiences – rail passengers and the wider public – will see this as a positive and therefore vote winning measure. Most of all, the decision will hinge on whether Miliband is feeling brave and whether he is prepared to make enemies in the rail industry. My instinct is that he will go for it, even though some future Labour transport secretary may well regret having to stand at the despatch box defending the latest railway mishap.



Network Rail’s brilliant about turn on bonuses


When Network Rail remained obdurate in the face of hostility from ministers over its bonus system, I warned that this was ill-advised since the government is ultimately its main paymaster and the politicians could exact revenge. Now Network Rail, by limiting bonuses to a mere 20 per cent rather than 160 per cent of salary, has not only lanced this particular boil, but gone much further by restating what a public sector ethos should be.

In a statement that should be pinned in the boardroom of every company, public or private, Network Rail’s chairman, has gone to the top of the chart of ethical business people: ‘We are confident at the unique challenge of having the executive responsibility to decide how to most effectively run Britain’s railway infrastructure is a huge motivation in itself for the kind of leaders that we need’. At a stroke he has reinvented a public sector ethos, though it might well apply elsewhere – why do people need bonuses to do the job for which they are paid in the first place. Does Nigel Harris pay me more when I write a column he likes (hint, Nigel?) Or less when he doesn’t like them (more often!). At a stroke, this puts an end to the one of the ways that the media used to beat up the railways (sadly not a few remain!).

The decision may well be connected with the forced renationalisation of Network Rail whose debt, from this autumn, is now going to be included in the public accounts. Indeed, the supporters of renationalising the franchises will be heartened by what will be seen by the public as a sensible and measured decision.

Scroll to Top