Monthly Archives: January 2018

Rail privatisation

The FT’s Gill Plimmer and Jonathan Ford make the points summarised below in the latest of a series on public services.

There is a growing consensus among both executives and industry experts as well as the public that Britain’s unique attempt to create competition on Britain’s rail network has not delivered.

Two decades on, passenger numbers have more than doubled since the last year under British Rail but how much of this is due to the benefits of privatisation, rather than the shift to the suburbs, increasing urban congestion and a rising population?

Privatisation has led to more services, and encouraged more users to pay higher prices, but it has not led to the productivity improvement needed to upgrade the network and stabilise the network’s finances.

Over the same period, London’s state-owned metro network, Transport for London, has grown just as quickly and delivered more state-of-the-art investment.

“It’s very hard for people to travel around and not suffer from the cracks in the system,” says Christian Wolmar, a train historian. “It’s everything, from knowing who to buy a ticket from to the signalling failure that delays the train to the lack of information when your train is cancelled.

  • Journeys are often uncomfortable: 23% of customers commuting into London at peak hours have to stand.
  • According to the consumer group Which?, delays of at least 30 minutes afflicted more than 7m journeys last year.
  • Ticket prices have risen: they are now 25% higher in real terms than in 1995 and 30% higher than in France, Holland, Sweden and Switzerland.
  • The latest average rise in fares of 3.4 %, announced on New Year’s Day, was greeted with outrage.

Wolmar adds: “It’s hard to know which is worse — fragmentation or privatisation — but I’d probably say fragmentation.” The government broke British Rail into three: track, rolling stock and train operators, and sold it in 100 sections between 1995 and 1997.

Fragmentation has encouraged each part of the system to prioritise its own profits rather than collaborating to improve the system.

“The train you catch is owned by a bank, leased to a private company, which has a franchise from the Department for Transport to run it on this track owned by Network Rail, all regulated by another office, and all paid for by taxpayers or passengers,” says John Stittle, a professor of accounting at Essex university. “The complexity is expensive.”

  • The contribution from the state has almost doubled from £2.3bn in 1996 to £4.2bn in real terms in 2016-17,
  • The cost of running the UK’s railways is 40% higher than it is in the rest of Europe, according to a 2011 government report by Sir Roy McNulty, who has long experience in transport regulation.
  • According to the 2011 report, unit costs per passenger kilometre were roughly 20p in 2010, much the same as they were in 1996.
  • In 2009 the Competition Commission said the owners of the trains could have cost the taxpayer as much as £100m a year by overcharging operators.
  • It cost £4.1bn to provide maintenance and renewals work on the system in 2016-17, but the train operators paid only £1.5bn to access the nation’s tracks – half of what they paid at privatisation.
  • The Competition Commission concluded in 2009 that the rolling stock companies could have cost the taxpayer as much as £100m a year by overcharging operators on leasing rates.
  • The train operators have paid dividends of £654m between 2012-13 and 2015-16, compared with total operating profits of £868m.
  • The Virgin bailout, National Express failure, early withdrawal of Stagecoach and the collapse of Railtrack have damaged the case for private rail ownership.

When National Express handed back the keys to the East Coast line franchise in 2009, it was renationalised under an arm’s-length government body called Directly Operated Railways. During the following five years under state control, it increased ticket sales, returned about £1bn to the taxpayer and delivered record levels of customer satisfaction.

Railway rolling stock — which is leased to the train operators for about £1.5bn a year — is still largely owned by three companies:

  • Eversholt is owned by a Hong Kong company with a Cayman Islands subsidiary;
  • Angel mostly by Luxembourg-based investors;
  • and Porterbrook by another consortium of international investors, ‘Parent organization’, Deutsche Bank.

Some argue that track and train should be reunited and returned to public ownership. Jeremy Corbyn, the opposition Labour leader, has proposed putting the franchises back under state control as they expire and commissioning trains directly from manufacturers. An October poll by the conservative think-tank Legatum found nearly three-quarters of the UK population agreed with him.