PRIVATISATION

 

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22 August 2009

Brussels Directive

It is being claimed that the railways had to be fragmented due to Directive 91/440. An examination of the privatisation debates recorded in Hansard reveal no reference to a requirement from Brussels to fragment railways. All that was required was that the accounts for the infrastructure be separated from those for train operations. A simple split such as will be found under any Holding Company would have met that requirement. The justifications for privatisation have all been exposed as unreal by events.

 

Hindsight

Ex-ministers are now saying that fragmentation was an error, but it can only be seen with the benefit of hindsight. There was foresight in abundance if Ministers had heeded it : the Tory chairman of the Transport Select Committee (Robert Adley), numerous backbench MPs of both major parties, several Tory Peers, together with Opposition speakers warned of the consequences which have come to pass.

Railway experts warned against the form of privatisation envisaged. There were also lessons to be learned by looking at available hindsight.

 

Performance

The DoT was instructed to prepare a plan for measuring and publishing [BR] standards of per­formance". (John Major: "The Autobiography", Page 252). Regrettably, similar action has not been initiated for industry or the UK might still be a major supplier to the world, instead of a minor supplier in its own backyard, and towns would have no empty shops. BR data had been published for decades in the Reports of the Consul­tative Committees created in the 1947 Act, and picked up by the media. Conveniently, figures for BR's competitors and industry were shrouded in mystery.

If the DfT had measured and published BR performance standards, it would have been invaluable in establishing a meaningful objective comparison between BR and privatised railways. Prudently, if they did measure, they did not publish. The reality is that BR Accounts were awash with data. As there was no published data, I remedied that deficiency in Britains Railways – the Reality.(see Appendix E)

 

Table 1                                                                       Punctuality

Train Operating

Company [TOC]

BR Business Sector

% within target

trains pa

trains within target

 

 

TOC

BR

 

TOC

BR

Anglia - inter city

InterCity

77.3

90.6

 23321

 18027

 21129

Anglia - local

Regional Rlys

85.7

90.3

 70076

 60055

 63279

Central

Regional Rlys

74.2

90.3

 404114

 299853

 364915

Chiltern

NSE

89.4

92.0

 90654

 81045

 83402

Cross Country

InterCity

62.5

90.6

 44742

 27964

 40536

GNER

InterCity

70.0

90.6

 39065

 27346

 35393

Gatwick Express

InterCity

81.1

90.6

 54035

 43822

 48956

Great Eastern

NSE

85.2

92.0

 257937

 219762

 237302

Great Western 

InterCity

71.6

90.6

 63994

 45820

 57979

Island

NSE

96.7

92.0

 23734

 22951

 21835

LTS

NSE

82.1

92.0

 99518

 81704

 91557

Merseyrail

Regional Rlys

81.3

90.3

 204157

 165980

 184354

Midland Mainline

InterCity

74.2

90.6

 44771

 33220

 40563

Northern Spirit

Regional Rlys

75.7

90.3

 452033

 342189

 408186

North Western

Regional Rlys

78.6

90.3

 474776

 373174

 428723

Scotrail

Regional Rlys

82.2

90.3

 602449

 495213

 544011

Silverlink

NSE

82.9

92.0

 202961

 168255

 186724

South Central

NSE

77.6

92.0

 575226

 446375

 529208

South East

NSE

80.2

92.0

 558866

 448211

 514157

South West

NSE

69.9

92.0

 546583

 382062

 502856

Thameslink

NSE

71.8

92.0

 156308

 112229

 143803

Thames Trains

NSE

80.2

92.0

 267686

 214684

 246271

Wales & Borders

Regional Rlys

78.6

90.3

 83494

 65626

 75395

WAGN

NSE

74.8

92.0

 328148

 245455

 301896

West Coast

InterCity

68.7

90.6

 59237

 40696

 53669

Totals

 

 5727885

 4461718

 5226099

% punctuality

 

 

77.9

91.2

Punctuality targets are on the same basis. Inter City within ten minutes, the rest within five.

The number of trains pa are those shown for the companies in the SRA Report

The targets and actual percentage of trains within target are from the BRB & SRA Reports

Sources: BRB 1993/4 Report (BR’s last year as an entity) & SRA 2001/2 Report

 

Statistics for privatised railways would be even worse had they held a similar proportion of connections as BR did.

 

"In most of our Region, competition does not exist. Some are reluctant to hold a train for a few minutes so pas­sengers from a late running connection can make it. Missing out stops to avoid a train being late at destination is not unknown. Who is going to pay for big investment suggested by train companies? Are they prepared to gamble on there not being a downturn in the economy in the next 20 years? Not one of the toilets was working - they stank to high heaven, and are a health risk. In some cases, companies are adamant that they would not compensate. Off peak fares are not regu­lated and have been raised by Connex to double the inflation rate. There is a trend for smaller seats in new rolling stock, even though people are getting fatter. (RUCC South 1998/9 Report, Page 39). Given the policy of breaking connections, lengthening journey times, missing calls to recover delays and not making extra calls to replace a can­celled train, punc­tuality should eclipse BR's.

Operators said, we are entitled to miss calls to make up time! (Sunday Telegraph 13.1.02). The phone would have been hot from Whitehall had BR done that.

In October, 1995, the "Today" newspaper quoted an MP, who rejected criticisms of con­nections broken in the new era, saying that trains held for connections multiply delay. It showed how little politicians knew about railways. BR managers had known of the potential for delay since "Adam was a lad", which they addressed by specifying "Connectional margins" - the maximum - say five minutes - which selected trains can be held for a delayed arrival, but only if it is known an incoming train will arrive, connection be made and the train leave within the margin. If it is forecast that connection cannot be made within that margin, the forward train must depart without waiting. Some trains were held, but for good reasons some had no margin and had to depart without waiting for delayed arrivals. Margins were determined so as to ensure that a delayed con­nection would not cause delay to other trains into which it was required to make connection en route. This avoided the snowball effect which the MP appeared to assume was overlooked by experi­enced BR managers.

From 1948, BR had punctuality targets for passenger services, and for fast freight services. They were progressively lifted. Originally, they were for internal use only. District Officers had to explain delays on daily telephone conferences, and were required to take action to avoid repetition. Targets and achievements were set out in Annual Reports that were supplied to Watchdogs and the media. Watchdogs and politicians thought it would be useful for BR to set an example to other businesses and industry that did not publish any per­formance nor complaints data. It led to the Citi­zens Charter, which focused on rail travel - the micro area of public expenditure - instead of the macro areas - such as mortgages, cars, insurance, etc. These far more important areas - not to mention, BR's competi­tors: air, sea, and road - have still to respond to political vision by following BR's exam­ple.

 

Complaints

In 1983, BR complaints totalled 63,000 - a staggering figure - until related to total passengers, when it became apparent, that 99.991% were not complaining. Watchdogs never made this calculation - until privatised railways were praised for having 99.885% passengers not complaining. (North East RUCC 1997/8). This is worse than BR. Since 1997/8, complaints increased to 1% or more.As it seemed likely that some of the 0.009% who complained had been given redress, I decided to examine complaints files to ascer­tain to what extent BR had redressed complaints, and found that staff were categorising as com­plaints, letters that were not complaints about BR services, representing 33% of total "complaints". (see Britains Railways – the Reality, Table 6). Files revealed that 55% of the balance were given refunds; and others an apology or explanation - all deemed to redress a private sector complaint. Some 9% of letters of complaint to BR also included praise or thanks for some particular act. TUCC files revealed that, in 1983, only 1,800 [2.8%] were dissatisfied with BR's reply, and took up their complaint with TUCCs, which had been publicising their complaints role.

 

Subsidies

The new boys & Government have ignored the old adage that: “turnover is vanity, profit is sanity”. In BR, we tried to achieve this against all the odds: political interference in pricing, closures, investment and day-to-day operations. The new boys – actively encouraged by Government - & given a virtually free rein, have made a mad dash for turnover & find they cannot manage without massive doses of subsidy.

 

Subsidies to the private sector are unjustified. They were supposed to show how to manage with­out a subsidy and keep fares below inflation! BR fares were below inflation for 39 years, (see Fares). In April 1996, the Minister of Transport stated that "two thirds of services were franchised for one third of the subsidy paid to BR". Unable to get a reply from the Dept of Transport, inquiries of Tory Central Office estab­lished that "two thirds was calculated on the basis of passenger revenue". OPRAF data showed, that as at October 1996, on that basis, one-half had by then been franchised. The subsidy to franchisees of £567m was 4.9% more than the net subsidy BR was paid in 1994/5, after deducting the unwar­ranted administrative profit of 20.3%, which had never been paid before, see Table 2 below. (The introduction of a "profit" element was revealed in letters from OPRAF and the BRB).  The aver­age BR fare was 12p per mile, franchised fares aver­aged 12.5p per mile - 9.6% higher than un­franchised at 11.4p per mile, see Table 2. This higher fare level called for initial subsidies to be 10% less than BR! Attractive services were hived off first rather than the challenging rural areas. Eleven of the thirteen services, which received 84% of the total subsidy, were profitable under BR! When all services were franchised, the total subsidy was double that paid to BR in 1993/4:

"Railtrack plc was created 1st April 1994. Within BR, 70 business units were created with re­sponsibility for train operations, rolling stock, and other services. Each business unit charges prices calculated to enable it to be a self sustaining commercial enterprise, earning profits to fund investment and a return for shareholders. This led to much higher charges attributed to them than while BR was a single entity. Most notable was the price paid by operators to Rail­track for access to the infrastructure and rolling stock companies for leasing trains. As a result, Govern­ment paid much higher grants. Previously, the PSO was paid for the statutory obligation to provide loss-making services for social reasons. In 1994/5, the payment was £1,748m in place of the former PSO of £930m. In addition, grants from PTEs increased to £342m, more than double the previous year's payments. (BRB Report, 1994/5, Page 5).

"The industry starts off with a much greater level of funding than provided to BR in the final years of the previous financial system. Government has specified much more clearly than ever before what non commercial services it requires the industry to provide". (BRB 1995/6 Report, Page 6).

 

Had BR not been about to be privatised, Government would not have doubled the PSO to facili­tate a split into 70, even had BR argued that it would improve services and increase traffic. The 1994/5 subsidy would have fallen below that of 1993/4. The theory was that the average for the franchise period would be less than the hugely increased and artificial subsidy to BR. £1 paid now is worth more than £1 paid in 15 years time! There was an assumption that anyone bidding for a lapsed franchise would make a bargain bid, when they would want to start back at "GO", and collect their £200m. In 1993, I forecast ("Blueprints for Bankruptcy"), that, if franchi­sees cannot operate profitably with a reduced sub­sidy, or are wound up, the state will be called on to run trains, or a higher subsidy paid. This has happened - Arriva had an increase of £60m in the subsidy; ScotRail [1] and Central got an extra £56m between them; Connex SouthEast was given an extra £58m to stave off bank­ruptcy for one year. GB Railways received an extra £24m subsidy in 2002 to keep it afloat until the franchise ends in 2004. Other companies seek "re-nego­tiation of subsidies". "Railtrack received £732m in Grants from Gov­ernment, in the first year of its funding cycle with four more to go. Its profit for the year was £292m. It cannot survive without Government handouts". (Times 19.12.01). Prior to privatisation, it was stated that Railtrack would receive no subsidy, but would be financed by access charges paid by train companies. (Select Commit­tee on Transport, 4th Report, March 1995). "The new railway has had to receive twice the subsidy of the old one, despite business rising by more than a third". (Times 16.1.02). "All former Regional Railways franchises have now received extra funding compared to the original deal". ("Modern Railways", April 2002, Page 5).

As if the bigger subsidy was not enough, rolling stock and infrastructure were sold for less than their value. The sale of rolling stock was completed in early 1996 for £1.8bn. Some was re-sold for a 56% profit within eight months. By the end of 1997, all had been re-sold for £2.7bn - a 50% profit on a depreciated asset, as no new stock had been acquired, proving that stock was not "decrepit" as some operators claimed to explain away their worsening performance. Some media reports claimed that assets were under priced due to fear of re-nationalisation, which pre-supposes that the Tories expected to lose an election in four years' time, of which the media carried no forecast. The flotation of Railtrack cost the taxpayer £6bn. A Select Committee criticised the last Tory Government and its civil servants. The Treasury raised £2bn from the sale. Railtrack's share value quadrupled to £8bn. Government made the mistake of selling 100% of the shares in one sale, instead of testing the market value by selling them in stages. Advisors said that it was the first time a Government had sold a company dependent on a subsidy of around £1.8bn a year. (Public Accounts Committee Report No 24, 1999). 

Government claimed it cut the subsidy paid to BR, by offsetting against subsidies, capital from the sale of rolling stock companies. This seems to be the classic error of mixing capital and revenue. They had stopped BR from leasing stock in 1971, or there would have been less stock to sell.

The Institute of Directors said that "3,000 miles of branch lines should be closed, diverting sub­sidies to main lines". Audited BR Accounts show that InterCity received no subsidy from 1988, and NSE none in the year before privatisation. Only rural and provincial commuter routes had sub­sidies. Had 3,000 miles of branch lines not existed, BR would have had no subsidy. In the last year under BR, Government - without precedent - changed the basis and doubled the subsidy. No main lines should have had a subsidy! The SRA said some [subsidised] services are of "dubious economic value", (Policy Statement, Page 9), signalling an intention to close them. Clearly the goalposts have been moved. BR, with a lower subsidy, was directed not to reduce the system.

 

Table 2                 Comparison of BR & Franchisees' subsidies - October 1996

Franchisee/

Data supplied by OPRAF

BR subsidy 1995/6

BR Business Sector

revenue

passenger miles

subsidy

Total

"Profit"

 

£m 1

(millions) 1

£m

£m

£m 2

Anglia

34.0

300.0

 

 

 

Cross Country

102.0

1,128.0

 

 

 

East Coast *

217.0

1,900.0

64.6

66.2

18.4

Gatwick Express

27.0

96.0

-4.6

-3.1

3.1

Great Western *

156.0

1,200.0

53.2

61.8

14.5

Midland Mainline *

58.0

442.0

16.5

14.5

5.9

West Coast

216.0

1,815.0

 

 

 

InterCity 3 

810.0

6,881.0

129.7

139.4

41.9

Chiltern

22.0

161.0

16.5

17.3

2.3

Great Eastern

109.0

855.0

 

 

 

Island

0.8

4.0

2.0

2.5

0.1

LTS *

53.0

423.0

29.5

32.1

4.1

Network South Cen *

158.0

1,300.0

85.3

94.5

13.7

North London

55.0

439.0

 

 

 

South East

215.0

1,548.0

125.4

142.9

18.0

South West

221.0

1,800.0

54.7

83.4

19.9

Thameslink

65.0

455.0

 

 

 

Thames Trains

46.0

376.0

33.2

42.0

4.7

West Anglia

107.0

729.0

 

 

 

Network SouthEast3 

1,051.8

8,090.0

346.6

414.7

62.8

Cardiff

5.7

52.0

19.9

21.4

0.7

Central

60.0

601.0

 

 

 

Merseyrail

19.0

147.0

 

 

 

North East

61.0

692.0

 

 

 

North West

44.0

377.0

 

 

 

Scotrail

86.0

851.0

 

 

 

Wales & West

40.0

412.0

70.9

74.9

4.4

Regional Railways

315.7

3,132.0

90.8

96.3

5.1

Totals

2,177.5

18,103.0

567.1

650.4

109.8

Less "Profit"

 

 

 

-109.8

 

Net

 

 

567.1

540.6

 

Franchised

1,219.5

9,714.0

 

 

 

% franchised

56.0

53.7

 

 

 

 This is the halfway house - with about half of the train companies privatised.

1  Revenue & passenger miles are 1994/5 except where shown * which were 1993-4

2  A "profit" was  new. Hitherto, a subsidy was the forecast deficit. Before  privatisation the subsidy to BR was doubled as a result of fragmentation.

3  Inter City received no subsidy after 1988. NSE received no subsidy in 1993/4

 

[1] They won the franchise in 1997 with a subsidy of £288m pa, to fall to £202m by the end of the contract. They said the franchise is not a commercial operation, unless you strip out a whole lot of routes. They cannot operate on the present subsidy if the current service is to be maintained. (Sunday Times 20.1.02).The subsidy covered all services.

 

Many more points will be added soon

 

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