Impact of the privatisation of British Rail

Rail Passengers in Great Britain from 1829–2014

UK rail subsidy per passenger journey 1982– 2014 in terms of pounds in 2014 prices, showing the initial decline in subsidy after privatisation, followed by a steep rise following the aftermath of the Hatfield crash in 2000 and finally a decrease

The impact of the privatisation of British Rail in the 1990s has been the subject of much debate, which has continued to the present day.

Development of British rail since privatisation

Customer service

Since privatisation, customer service has improved and many rail lines have seen enhancements in this field with better on-board and station services. Passenger satisfaction according to the National Rail Passenger survey has risen from 76% in 1999 (when the survey started) to 83% in 2013 and the number of passengers not satisfied with their journey dropped from 10% to 6%.^[1] However, the impact of the Hatfield rail accident in 2000 left services seriously affected for many months after.^[2]

According to a Eurobarometer poll, satisfaction with rail of UK respondents is the second highest in the EU, behind Finland. The poll found that average UK satisfaction over four different areas was 78%, ahead of France (74%), Germany (51%) and Italy (39%).^[3]

Level of traffic

Rail modal share (rail's share of total travel) 1952–2014^[4]

Since privatisation, the number of national rail journeys had increased by 117% by 2014 (see graph in the introduction)^[5] and the number of passenger-km had more than doubled.^[6][7] There is controversy as to how much of this is due to privatisation, and how much is due to other factors such as rising fuel prices, road congestion, low unemployment, and in particular, GDP growth. Critics of privatisation such as the RMT union have pointed out that passenger numbers started rising 18 months before the privatisation process began, as the economy started recovering from the recession of the early 1990s.^[8] However this increase has kept going during the entire duration of privatisation, with passenger numbers growing much faster than comparable European countries such as France or Germany.^[1]

Fares and timetable

Real terms rail fares per passenger-km (1986–2012)

In an attempt to protect passengers' interests, certain fares (mostly commuter season fares) and basic elements of the timetable were regulated. However, the TOCs still had quite a bit of latitude in changing unregulated fares and could change the number of trains run within certain regulatory and practical limitations. Overall, fare increases have been at a slower rate than under British Rail.^[9] So far as the timetable is concerned, many more trains are being run each day than under BR as operators have tried to run more frequent, but usually shorter, trains on many routes to attract more customers.

20 years after the privatisation the increase in fares hasn't been uniform: standard single fares have increased by up to 208% whereas season ticket price rises hover just below or slightly above the rate of inflation, with an increase of between 55% and 80%,^[10] while the price of Advance tickets has decreased in real terms: the average Advance ticket in 1995 cost £9.14 (in 2014 prices) compared to £5.17 in 2014.^[11] This is to try and reduce the huge number of people travelling at peak times. For example, over half of National Rail journeys into London occur in the three hours from 7am to 10am, with half of these journeys (a quarter of the days total) occurring between 8 and 9.^[12] On average, train fares per journey cost 2.7% more in real terms in 2011–12 than in 1994-5 under British Rail.^[10][13]

Livery transition: a First Great Western HST power car in older, green livery; the Mk III coach behind in newer style mauve

New trains

The promoters of privatisation expected that the ROSCOs would compete against each other to provide the TOCs with the rolling stock they required. In practice, in most cases the individual TOCs required specific classes of trains to run their services, and often only one of the ROSCOs would have that class of train, resulting in their having to pay whatever the ROSCO concerned cared to charge for leasing the trains. Old rolling stock was extremely profitable to the ROSCOs, as they were able to charge substantial amounts for their hire even though British Rail had already written off their construction costs. As trains grow older, the cost of their lease does not decrease. This was due to the adoption of 'indifference pricing' as the method of determining lease costs by the government, which was intended to make purchasing new trains more attractive when compared to running life-expired trains. In practice, the average age of trains in the UK is only slightly different from that under the last years of BR, as average rolling-stock age fell slightly from the third quarter of 2001–2 to the fourth quarter of 2014–5, from 20.7 years old to 20.2 years old.^[14]

Rolling stock manufacture

The rolling stock manufacturers themselves suffered under privatisation; with the hiatus in new orders for new trains caused by the reorganisation and restructuring process, the former BREL York works (acquired by ABB) had been severely downsized and eventually closed.^[15] The former Metro Cammell plant in Birmingham (later owned by Alstom) followed suit in 2005, closing its doors once the last of Virgin Trains' new Pendolino units had rolled off the assembly line.^[16] Of the original manufacturers, only the former British Rail research centre and associated BREL works in Derby and Crewe survive to the present day; now owned by Canadian conglomerate Bombardier. However, Hitachi have opened a new £82 million factory in Newton Aycliffe, County Durham, creating 700 new jobs.^[17]

Punctuality and reliability

The key index used to assess passenger train performance is the Public Performance Measure, which combines figures for punctuality and reliability. From a base of 90% of trains arriving on time in 1998 (the first year this index was used), the measure dipped to 75% in mid-2001 due to stringent safety restrictions put in place after the Hatfield crash in 2000. However, in August 2016 the PPM stood at about 88% after the annual moving average peaked at around 92% in 2011^[18]

Safety

Rail fatalities per billion passenger-km in European countries

The railway can point to continued improvements in safety under privatisation; in fact the rate of improvement increased compared to that experienced in the last years of BR, according to research by Imperial College London.^[19] The research showed that 150 people have probably lived who might have been expected to die in crashes had pre-privatisation trends continued.

In 2013, according to a European Railway Agency's report, Britain has the safest railways in Europe based on the number of train safety incidents.^[20]

Several major rail crashes occurred in the early years of privatisation including the Southall rail crash (1997), Ladbroke Grove rail crash (1999), Hatfield rail crash (2000) and the Potters Bar rail crash (2002).

• List of rail accidents in the United Kingdom

Investment

Since privatisation, the amount of investment has gone up nine-fold, from £698m in 1994–95 to £6.84bn in 2013–14.^[21] There is Government investment across the network in speed improvements, electrification, in-cab signalling on the Cambrian Coast Line (paid for by the Welsh Assembly Government), the Northern Hub, the Thameslink programme, and HS2.

Due to the Hatfield accident in 2000, Railtrack undertook large-scale track relaying without sufficient planning, and much of the work was substandard and subsequently had to be re-done.^[22] Railtrack's poor project management abilities were exemplified with the West Coast Route Modernisation project, which was intended to deliver a 140 mph route in 2005 at a cost of £2 bn, but which finally delivered a 125 mph route in December 2008 at a cost of £9 bn,^[23] which was a major factor in the company's financial collapse.

Subsidies

UK total rail subsidies 1986-2015 in millions of pounds (in 2015 terms)^[24]

European rail subsidies in euros per passenger-km for 2008^[25]

After initially decreasing by over half, rail subsidies spiralled after the Hatfield rail crash in 2000. In 1994, the total government support received by British Rail was £1,627m,^[26] (£2,168m in 2005 terms, adjusted by RPI^[27]), while in 2005, government support from all sources totalled £4,593m.^[26] Once the extra safety investment after the Hatfield crash had finished, subsidies have since been brought under control. Subsidies to the rail industry have increased from £2.4bn in 1992–93 to £3.5bn in 2014–15 (in current prices), although subsidy per journey has fallen from £3.12 per journey to £2.13 per journey.^[10][28][29] However, this masks great regional variation, as in 2014–15 funding varied from "£1.66 per passenger journey in England to £6.70 per journey in Scotland and £9.14 per journey in Wales."^[28]

Efficiency

One of the principal expectations from privatisation was that the railway service could be delivered more efficiently in the private sector because of the profit motive. According to Dr David Turner, the expectation that there were considerable costs that could be slashed from the system was not fulfilled; new operators found that BR had already done much of what could be done to improve efficiency.^[30] However, the rail companies have still been able to make efficiencies, and since 1997–98 (the first full year of passenger rail franchising), day-to-day industry costs have increasingly been covered by non-government revenues, as industry-generated revenue covered 99% of industry running costs in 2013–14 compared with 72% in 1997–98. Since 1997–98, train company operating costs per passenger mile have reduced by 20% in real terms.^[31]

Expenditure can be broken down as follows:

Profitability

Journalist Aditya Chakrabortty published calculations by the Centre for Research on Socio-Cultural Change indicating that "in the financial year ending in March 2012, the train companies gained an average return of 147% on every pound they put into their business."^[33] However, fullfact.org found that in reality the amount of return made after subsidy and paying money back to the government was 3.4% for the financial year ending March 2012 (i.e. the same period).^[34]

Political control

One of the benefits promoted for privatisation is that it would remove railways from short-term political control which damaged an industry like the railways, which had long-term investment requirements. This has not happened and, with the latest changes that have been made to the railway structure, some claim that the industry is more under government control than ever before. This was consolidated in September 2013 when the borrowing needs of Network Rail were once more taken under HM Treasury control and added to the Public Sector Borrowing Requirement PSBR effectively re-nationalising the Government-owned Not For Profit company which had been created by Labour Party Transport Minister Stephen Byers.

Ownership

London Midland, a rail franchise operator part-owned by SNCF

In theory, privatisation was meant to open up railway operations to the free market and encourage competition between multiple private companies. Critics have pointed to the fact that many of the franchises have ended up in the common ownership of the few dominant transport groups: Arriva (a Deutsche Bahn Company), FirstGroup, Go-Ahead Group, National Express and Stagecoach Group, either as wholly owned subsidiaries, or as part owners of franchisees or other holding groups. Since these five groups all had their origins in the earlier deregulation and consolidation of bus services, it also meant that in some cases there was now a common private owner of both the bus and train operator on some routes.

Criticism has also arisen due to the fact many of the private companies are themselves owned by the state-owned transport concerns of other nations, including the largest freight operator. Several passenger franchises are owned either in part or in full by subsidiaries or joint ventures of Deutsche Bahn, the German state operator, SNCF (French), and Nederlandse Spoorwegen (Dutch).^[35] Critics have also pointed out that the franchise system does not encourage true competition, although supporters point out that privatisation has enabled any private company to compete, as an open access operator. In July 2015, the Competition and Markets Authority (CMA) introduced plans to increase competition for inter-city routes, laying out four possible options for reform:^[36]

1. retaining the existing market structure, but with significantly increased open access operations
2. two franchisees for each franchise
3. more overlapping franchises
4. licensing multiple operators, subject to conditions (including public service obligations)

Disputes

A necessary side-effect of splitting the railway network into various parts owned by different private companies, with their relations between each other and the government dictated by contracts, is the requirement for a system of dispute resolution, up to and including settling disputes in the courts. Critics of privatisation have argued that these systems are costly and time-consuming, and ultimately serve no real purpose when compared to dispute resolution in markets where there is genuine competition.

A major dispute arose after the Hatfield rail crash in 2000, when Railtrack imposed over 1,200 emergency speed restrictions on the network as a precautionary measure against further track failures. With political intervention stalled, eventually the passenger and freight train operators—who were losing very large sums of money as a result of the severe operational disruption which was taking place—applied to the Rail Regulator for enforcement action against Railtrack. That action was taken almost immediately and normal network performance was established a few months later.

The planned start date of December 2006 for the open access operator Grand Central Railway was delayed in part due to the franchised operator GNER taking the Rail Regulator to Court over his decision to grant access rights.

Media coverage

Positive

A study by the European Commission which looked at how the railways in Europe have progressed and improved since the 1990s found that the UK network was most improved out of all the 27 EU nations from 1997–2012. The report examined a range of 14 different factors and the UK came top in four of the factors, second and third in another two and fourth in three, coming top overall.^[37]

The Adam Smith Institute has written that while it would prefer more competition within the system, privatisation has introduced competition into the system which has meant an explosion in passenger numbers.^[38]

In 2013 The Guardian wrote that "on balance, rail privatisation has been a huge success" in terms of passenger numbers, fares and public subsidy, as well as Britain having both the safest railways in Europe and "most frequent services among eight European nations tested by a consumer group".^[39] In 2015, it released an editorial saying that again, despite some problems, privatisation has delivered many improvements. The editorial said that although privatisation 20 years ago was an ideological move, to renationalise the railways at a time when they are quickly growing would also be motivated by ideology.^[40]

In 2015, The Daily Telegraph wrote that "a state-owned railway would be a costly mistake" for three reasons. Firstly, it would be prohibitively expensive, secondly the trains are not owned by the operators but by third-party leasing companies and thirdly that EU law enshrines the right of open access operators such as Grand Central to operate free from government control.^[41]

The Independent explained that the reason for high fares was to fund the programme of investment and upgrades which are currently going on and while private companies do make large profits, they are small compared to the total cost and the private expertise means the companies are run more efficiently than if they were state-run. It also said that the reason fares are higher than in European countries is that there is less public subsidy and that lowering fares would mean increasing taxes.^[42] For example, railway subsidies in France in 2013 were €13.2 billion (£9.5 billion) compared to £4 billion in the UK.^[43]

Increase in passenger rail by sector 1994–2015,^[44] as well as a comparison with the London Underground (Tube).^[45][46]

In another article for The Independent, Simon Calder argued that the rail industry was a victim of its own success in increasing passenger numbers. This has led to overcrowding on trains and some train companies were having to run trains 2 minutes apart during the whole morning rush hour from 6am to 10am, reducing reliability until Network Rail can perform "heavy-duty reworking of Victorian infrastructure" in order to relieve the pressure.^[47]

Mark Smith, who was station manager for Charing Cross, London Bridge and Cannon Street in the early 1990s and now runs the seat61.com international rail website, said that Britain was doing better than the rest of Europe. “We have the safest and fastest-growing railway in Europe. We’re re-opening stations and branch lines whilst France and others contemplate closures and cuts. We are revitalising our Caledonian and Cornish sleeper services whilst the Germans prepare to surrender all of theirs at the end of this year. Even our on-time performance stacks up surprisingly well against the French, Germans or Italians these days, with my own local operator Chiltern Railways even giving the Swiss a run for their money.”^[47]

Lew Adams General Secretary of the Associated Society of Locomotive Engineers and Firemen (ASLEF) who vigorously opposed the privatisation of British Rail^[48] declared in 2004: “I was vehement that we wanted to stay in the public sector, and of course there were all the usual concerns trade unionists have regarding privatization, safety issues, job losses, protecting the conditions of service, and pensions. But accepting the will of Parliament, it was time to look at the arguments. So we said to management, ‘Well, if that’s what you want, this is what we want.’ Today I cannot argue against the private entrepreneur coming into the rail industry. We are running 1,700 more trains per day since it was privatized. The entrepreneurs built traffic to the extent that we are having to build more infrastructure. What is true is true: 4.2 billion pounds spent on new trains. We never saw that in all the years I’ve been in the rail industry. All the time it was in the public sector, all we got were cuts, cuts, cuts. And today there are more members in the trade union, more train drivers, and more trains running. The reality is that it worked, we’ve protected jobs, and we got more jobs. If a private company is making more money, I look at that from a union’s point of view, ‘Well, that looks like a wage increase to me.’ And we can argue that. And the more secure they are and the more productive they are in delivering train services, well, that means more jobs. I was there when the public railways had some 600,000 people and it came down to 100,000 in the time I worked in the rail industry. Now we are expanding on jobs.”.^[49]

Negative

The rail franchising system has in the past been a subject of criticism from companies, passengers, union leaders and some MPs. It has been said that the system is too complex and involves too many companies, some of which were merely sub-contractors. This has led to confusion about responsibilities, led to several safety-critical incidents and incurred high costs for companies and passengers.^[50] This is one of the reasons which led Network Rail to take back into its direct control all responsibility for infrastructure maintenance, whereas previously the company had used subcontractors.^[51] Multiple examples of problems with the DfT's original franchising model were highlighted by the East Coast franchise, when first GNER (owned by Sea Containers) and then National Express resigned the franchise when staged franchise payments to DfT became greater than the revenues that could be extracted.^[50]

Some observers—such as the rail journalist and author Christian Wolmar—argue that the whole idea of separating track from train operations in this way is fundamentally misconceived^[52] being based on the model of air transport, where the infrastructure, engineering and operational considerations are entirely different. The current subsidy of some £4 billion is at least twice as big as at the time of privatisation in the 1990s.^[53]

Two British academics, Shaw and Docherty, wrote in 2014 that, "of all the European countries that came to investigate Britain's great railway privatisation experiment, not a single one has chosen to adopt the same approach."^[53] (although a discussion paper of Spain's National Authority for Markets and Competition published later in 2014, which looked at liberalising the Spanish rail market, commented that regarding the UK experience of privatisation "there are a series of conclusions that can be drawn; i) There has been an increase in the use of the railways for passenger services; ii) employment has remained stable in the industry; and iii) there has been an increase in productivity.")^[54]

Shaw and Docherty further wrote that "the domestic railway network has, compared to mainland Europe, been "starved of investment for decades, has been considerably reduced in scope, is significantly overcrowded and in many cases is not a particularly comfortable way to travel. … [T]he system costs a fortune."^[53] The pair note that "while other [European] countries have … developed wide-ranging electrified and increasingly significant high speed railways … the UK has achieved comparatively little … What is more, at least some in the government seem to regard this approach to investment as having been a success."^[55] An estimated 30% efficiency gap in railway operations compared to the continent contributes to an overall efficiency gap in transport "equivalent to a lost Terminal 5, or HS1, or two Jubilee Line Extensions every year."^[56] However this is at least partly due to the fact that Britain has the most restrictive loading gauge (maximum width and height of trains that can fit through tunnels, bridges etc.) in the world which means that any trains must be significantly thinner and shorter than those used elsewhere.^[57] This means that British trains cannot be bought "off-the-shelf" and must be specially built to fit British standards.

Academics have criticised the privatisation arguing that BR was not actually privatised in the conventional sense, but operates under governmental control with private companies subcontracted to manage franchises, resulting in high costs to the taxpayer.^[58] However, open access operators can now compete directly for long-distance travel.

The Independent ran an article: "Foreign governments are making hundreds of million pounds a year running British public services, according to an Independent investigation highlighting how privatisation is benefiting overseas – rather than UK – taxpayers."^[59]

The Daily Telegraph in December 2008 had a headline: Train fares cost more than under British Rail.^[60]

Public opinion and campaigns

Bring Back British Rail logo

The Bring Back British Rail campaign for renationalisation was formed in 2009 by Ellie Harrison.^[61][62]

A 2012 poll showed that shows a 70% of voters want a re-nationalisation of the railways, while only 23% supported continued privatisation.^[63][64] According to a 2013 YouGov poll, 66% of the public support bringing the railways into public ownership.^[65] According to the Office of Rail and Road, as of 2016 there was 62% support for public ownership of train-operating companies.^[66]

Political positions post-privatisation

Since privatisation, both the subsequent party (or parties) of government in Britain, as well as the official opposition and other political parties, have all offered various levels of support for the post-privatisation system, as well as proposals for reform, up to and including renationalisation in various forms.

Previous government policy

The Conservative government of John Major lost the 1997 general election, replaced by Labour. The Labour government did not fulfil its earlier commitment to keep the railways in the public sector. Instead, it left the new structure in place, even completing the privatisation process with the last remaining sales.

In 2004, the Labour Party Conference voted by 2 to 1 in favour of a TSSA motion calling on the government to take the TOCs back into public ownership as franchises expired.^[67][68] The policy was however immediately ruled out by the then Transport Secretary Alastair Darling.

After 13 years in power, Labour lost the 2010 general election, which resulted in a coalition government formed by the Conservatives and Liberal Democrats.

McNulty report

The coalition government commissioned the independent McNulty report into the 'value for money' of the rail system.^[69][70] This was published in 2011, stating that "it seems unlikely that renationalisation would lead to a reduction in costs", and saying that "where Government has taken control of aspects of the rail system, costs have tended to increase rather than decline." The report concluded that "many of the arguments for renationalisation are formed from the failings of the existing system, and the Study considers that much more can be gained by improving the performance of the current system rather than embarking on a costly programme of renationalisation, which is unlikely to lead to an overall reduction in costs."^[71]

Current government view

In 2013, 20 years after rail privatisation, Secretary of State for Transport Patrick McLoughlin celebrated "20 years of rising investment" and "of extraordinary growth on our railway" and declared that the only plans of the Opposition are "opposing competition, letting union bosses call the shots and cutting off private investment". According to him: "that would mean higher fares, fewer services, more crowding, an industry once again in decline. It would be a tragedy for passengers."^[72] Government policy has focused on building a new high speed line, for which the legislation is expected to pass through Parliament by the end of 2016.^[73]

Official opposition

In 2006 the Conservative Party's shadow transport spokesman, Chris Grayling, said that the 1996 split of the rail industry into track and train components was a mistake which had increased costs: "We think, with hindsight, that the complete separation of track and train into separate businesses at the time of privatisation was not right for our railways. We think that the separation has helped push up the cost of running the railways—and hence fares—and is now slowing decisions about capacity improvements. Too many people and organisations are now involved in getting things done—so nothing happens. As a result, the industry lacks clarity about who is in charge and accountable for decisions."^[74]

In 2007 the Conservative Party were consulting upon options for the future. Several changes were proposed including a shift to regional operators owning the track and trains for their regions. In their view the separation of track ownership from the service providers had proved a failure, and "the separation has helped push up the cost of running the railways'.^[75] Such a shift would represent a return to the old British Rail model, but implemented by non-government organisations and franchise holders. However, critics say that were such a model to be applied to basic rail infrastructure, it would risk replicating the original mistake of the 1993 Railways Act – which fragmented the operation of train services among two dozen different operators. Many of these share infrastructure, and run competing services. Such a plan would be unworkable without the prior consolidation of existing franchises into just a small handful of regional operators.

In 2012 the Labour leader Ed Miliband hesitantly suggested the Party may put a promise to renationalise the railways in their 2015 general election manifesto.^[76] The policy was later dropped in favour of keeping the current system in place and creating a government-backed Intercity franchise to compete with the other train operators.^[77]

In 2015, the Labour Party elected Jeremy Corbyn as its leader. He favours bringing the railways back into public ownership.^[78] At his first party conference as leader, Corbyn proposed taking each franchise back into public ownership as they came to the natural end of their contracts (i.e. without exercising break clauses), leading to a third of the railway being publicly owned by the end of Parliament in 2025.^[79]

Other

As of 2011, the Green Party, TUSC (Trade Unionist and Socialist Coalition) and the British National Party (BNP) call for renationalisation of the network.^[80][81] The Scottish Labour Party and the Scottish Greens advocated for the renationalisation of the First ScotRail contract, which was instead awarded to Abellio by the Scottish government in 2014.^[82] SNP Transport Minister Keith Brown said "Scotland's railway has attracted a world leading contract to deliver for rail staff and passengers."^[82]

The Green Party of England and Wales committed to renationalisation in their 2015 Manifesto,^[83] reconfirming this at their Autumn conference in Birmingham in September 2014. Caroline Lucas' Private Member's Bill calls for the end of franchising altogether. Lucas argues allowing the individual franchises when they expire or when a company fails to meet its franchise conditions to fall back into public ownership will avoid expensive compensation to the rail companies, saving over £1 billion per year for the public.^[84][85]

See also

• History of rail transport in Great Britain 1995 to date
• Railway nationalization
• Rail subsidies

References