Renationalise the railways? But they were
never privatised in the first place, Andy!

Andy Burnham, who was originally considered the favourite to take the Labour leadership, has seen his appeal diminish as Corbynmania sweeps the nation. And that has made him desperate – how is he to make himself heard?

Last week, Burnham’s answer was to revive that mundane populist policy of renationalising the railways; of course Corbyn has already announced this as a flag ship policy – surprise surprise – but having a second candidate for the Labour leadership announcing such a policy pushes it much further up the political agenda.

I foresee one problem here: the premise of politicians pretending they understand how railways work financially and operationally. One of the biggest lies ever told to the British public is that since 1993 we have had a privatised rail network. The persistent headache for the industry is the vague and fragmented make-up of the railways which is largely to blame for its perceived failings, and trying to get politicians or the public to understand how the railways are run is an age old problem.

The Railway Act of 1993, set up by John Major’s government, went about privatising the railways splitting British Rail into various operational sections. The different sections include ‘Train Operating Companies’ who contractually run passenger services through a franchise agreement, ‘Railtrack the Infrastructure Company’ who owned and maintained the entire British Rail network, and lastly the ‘Rolling Stock Companies’ who own all the locomotives and carriages and lease them to operators.

‘Railtrack’ was the initial attempt to privatise the infrastructure of the railways but it was an utter catastrophe from the start. They were encouraged to contract engineering works from competing engineering companies who had very little previous experience of maintaining major railway projects. Corners were cut and these failures were compounded by numerous high profile crashes at Southall and Hatfield. These accidents cost the company hundreds of millions of pounds along with overrunning engineering works on the vast ‘West Coast Main Line’ (WCML) project which was costing over ten billion pounds.

The company couldn’t cope with the lack of experience and phenomenal capital expenditure. The ‘Department for Transport’ (DFT) would not provide any more money to Railtrack to complete these projects and this, along with being unable to raise their track access charges to fund it due to fixed franchise agreements, meant the company went bankrupt. The Blair government bought out the shares in 2002 and created ‘Network Rail’. Interestingly, as Network Rail became the nationalised infrastructure provider, the funding to complete projects suddenly appeared from the Treasury.

Private train operating companies have remarkably little control over their rail networks, as the train timetables are dictated by Network Rail based on what track space is available. The rolling stock is procured by a Privatised Rolling Stock Company and leased to the operator with a sizeable input from the DFT. All of the track, infrastructure and stations are owned and maintained by Network Rail and, unless they voluntarily or by agreement invest their own capital in the railways, they are powerless. They really only create a brand, employ the staff and deal with marketing, so when things go wrong it quite often has nothing to do with the private train operator.

The biggest problem of our current rail network is franchising. Franchise agreements are generally 7 to 15 years long, and the DFT will specify to bidders what area they will serve and the level of service. The rail operator then pays the DFT a premium for operating that service after passenger revenue and subsidy.

The first problem with this is the inadequate length of a franchise. For a business to invest it requires long term financial planning to ensure it sees a return. Companies would be looking for more than a 20 year deal due to the high capital cost that railway investment requires. Why would a business invest if after 7 years they lose the franchise and therefore any return on investment? Private rail operators don’t own anything, no trains and no stake in the infrastructure, so the current make up does not encourage business to invest in the railways. Surely a private operator wants some form of ownership to develop and grow a market?

Chiltern Railways managed to negotiate a long term franchise of 20 years to operate on the Chiltern Main Line between London Marylebone and Birmingham. It achieved a longer franchise period than standard rail operators on the proviso that they would invest in the railways. They have successfully achieved this and the highly regarded ‘Evergreen Project’ is in the process of being completed. A large sum of investment came from Chiltern Railways, the private rail operator, as they would see a return over the longer franchise period.

Chiltern Railways intended for the ‘Evergreen Project’ to go even further but unfortunately the nationalised rail infrastructure provider Network Rail denied their request for further upgrades based on competition. It was felt that upgrading the Chiltern line too much would increase competition on the London to Birmingham corridor with the WCML. In 2004 the WCML was going through a multi billion pound upgrade and Network Rail needed to maintain passenger numbers and revenue.

If the Chiltern line upgrade took passengers away from the WCML the result would reduce premiums paid to the DFT, and consequently prevent the WCML upgrade being affordable to Network Rail and the DFT. Once again this demonstrates that centralised and regulated planning denies passengers enhanced services and the choice of how to travel between destinations, all in the name of ideological central planning and funding.

At the start of the ‘Virgin West Coast’ franchise Richard Branson asked the DFT for a 25 to 30 year franchise in order to upgrade the WCML. This was to provide a long enough period of operation in which they would see a return on their investment. Part of the plan was to upgrade the line to Birmingham and allow 60 minute journey times from London, not too much off the current ‘High Speed 2’ (HS2) plan of 49 minutes. Should Richard Branson have achieved his plans, the upgrades would have been financed by private investment, however, with the proposed HS2 promising marginally better outcomes, the upgrades will be entirely funded by the taxpayer.

There is a clear interest from private business to invest in the UK rail network yet the one thing standing in its way is the state. The railways have had a huge amount of investment in recent times but the network was chronically under invested during British Rail times and now needs more financial support. Surely by allowing all the positives of private enterprise the network will benefit and provide a much better service to passengers?

‘Fragmentation’ is a term any politician who attempts to understand the railway will throw about. It is defined by the separation of the track owners and the train operating companies who, due to the system, fail to communicate and always work against each other to shift blame for poor service.

Remember the big problems over Christmas 2014 at Finsbury Park? MPs demanded accountability from the rail operators to accept whose fault it was and why communication and planning had been so poor. They blamed the fragmented network. That particular incident was initially caused by overrunning engineering works by the nationalised infrastructure operator Network Rail and their subsequent lack of communication with the rail operator East Coast (at that time a Directly Operated Railway, by the state). So as you can see, this is clearly a real failure of our privatised, profiteering and fragmented rail network.

I would always argue that fragmentation doesn’t work, and champion a privately owned railway, where the railway lines are owned and operated by individual private companies, rather than one massive state operator, but that is for another article.

But what is Andy Burnham actually proposing to do? He says ‘renationalise the railway’ but he doesn’t mean it in the way most people would understand. He is proposing to take over each franchise as it expires and allow a state operator to bid for said franchises. He hopes that by using a state owned not for profit organisation to operate the franchise it will result in huge savings for the railways and allow fares to be reduced. However, train operators profit is in the region of 3% on average and is reinvested in training, facilities and railway infrastructure, with only part of the 3% going to shareholders in dividends.

What Burnham has failed to consider is that over the next five years of this Conservative government, most franchises will expire and be refranchised to new operators for a period of seven to fifteen years. Even if he gets close to Downing Street in 2020, very few franchises will have expired in time for Burnham’s new state operator to take over. Thus defeating the purpose of his policy!

Don’t believe that our privatised railways are to blame for poor service and high fares; if anything it’s a lack of long term investment and competition that keeps the cost of the railways high and the quality of service stagnant. So we ask ourselves, why? And who is to blame?

It’s not the private train operating companies for they control very little of the day to day operation; rather, it is caused by Network Rail and the Department for Transport – our nationalised railway in disguise.

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