Railways face the perfect storm

“So, Mum/Dad, what are the railways for?” That is the question the UK rail industry will be dreading hearing in a post-pandemic world.

This is not quite the existential crisis rail faced in the aftermath of the extensive Beeching cuts to the network in the mid-1960s, but that’s cold comfort. There is a considerable risk that services are going to deteriorate massively in 2022, sending the sector into the kind of downward spiral that was last experienced in the 1970s and 1980s.

By the financial year’s end, passengers may well be paying higher fares for a service of fewer and more crowded trains, departing from stations stripped of staff. And the result of that will be to push more people into using cars, but also to critically undermine the government’s “levelling up” promise, since poorer people are far more dependent on public transport.

It’s a perfect storm. Unsurprisingly given the restrictions on travel and the instruction to work from home, revenue from rail fares dropped to a fifth of pre-pandemic levels during the 2020-21 financial year. The need to keep services running for key workers throughout lockdowns meant government subsidy rose from about £5bn to a very generous £17bn to prevent the network from collapsing. While this figure does include some modest investment to improve the network, that level of support will not be sustainable for long.

The pandemic already led to significant change in the funding of the railways, when in September 2020, the franchise system created during privatisation in the mid-1990s was scrapped. Under franchises, private operators kept the fares, giving them an incentive to generate income through price increases and extra passenger numbers. Now the industry is being run through management contracts, which means the government effectively keeps all the fares but bears the risk if fewer people use the railways.

The end of franchising was initially a temporary fix but has now become a permanent change as recommended by last year’s Williams-Shapps review of the industry. That review was already under way at the start of the pandemic – triggered by the chaotic May 2018 timetable change which resulted in widespread disruption because of the lack of coordination between operators and Network Rail. In light of the pandemic, its recommendations have led to the Treasury now demanding operators cut costs by 10% over the next year and a 3.8% fare rise in March, while the Department for Transport is looking at reductions to the timetable.

But these cuts will have a severe impact on the level of service because the biggest spending areas for rail operators are on fixed costs such as station buildings, rolling stock and track maintenance, which are the same regardless of how many people use services. Other costs, such as fuel, electricity, platform staff and drivers are relatively low.

The only way to save money is to dramatically reduce staff or to make severe inroads into the timetable, which will in turn impact revenue, creating a vicious circle. The unions are already preparing industrial action to combat these cuts, which will further disrupt services.

At the same time, £500m is being spent on schemes to reverse some of the Beeching cuts. While that is welcome, reopening lightly used lines with an infrequent service seems an odd priority. Meanwhile, about £98bn may be spent over the next few years on HS2.

This apparently contradictory position of building new services while existing ones are being cut reflects the Treasury’s view that capital expenditure is a “good thing” while operating expenditure, which by its nature recurs every year, is inherently “bad”.

But this largesse in favour of HS2 is also putting the squeeze on other more modest enhancements and will result in a poorer service as temporary speed restrictions are imposed on dodgy sections of track.

Escape from this perfect storm is possible. The Williams-Shapps report recommended the creation of a strategic body to oversee the railways, to be called, in a flourish of boosterism, “Great British Railways”. It will take over Network Rail, which is already state-owned, and provide a long-term plan for the railways. But as ever, the devil is in the detail.

A government with a sense of history and an open mind would look to the British Rail of the past for a blueprint of how to run a successful railway. In its final decade before privatisation, it created three sectors – InterCity, Network SouthEast and Regional Railways – that had considerable independence in the areas of investment and timetabling. Allowing British Rail this freedom resulted in a blend of business imperatives backed by a strong public sector ethos that was successful. It became Europe’s most efficient railway.

Sadly, all that was lost to privatisation, and while the collapse of the franchising system could provide an opportunity to recreate it, a continuing ideological obsession with private-sector involvement means that the increased costs and complexity that have characterised the railways in the past quarter of a century will remain.

This matters for our transport system, but it matters more than that – because a good rail connection is a passport to prosperity. Look, for example, at how Margate has been transformed thanks to the half-hour reduction in journey time to London. As a corollary, look at how decline has been hastened in towns cut off from the rail network by Beeching.

Railways have always been a catalyst of economic growth and prosperity, but politicians throughout history have often failed to recognise this. Some are commercially successful, some aren’t. So what? No one ever asks why the B-road to Nether Hopping should be kept open even though few cars use it on a daily basis.

A properly funded, properly configured railway would cost a lot of money over the next few years until passenger numbers recovered, but railways are more than trains and tracks: they are an essential part of the fabric of the country.

There is a moral case here, and politically there is the opportunity to make a popular case for a publicly owned, integrated railway – run independently of state interference. Labour should take it.

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