Is UK Rail Privatisation Just a Fake?

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As I’m sure we all know, back in the early 1990s, the EU attempted to increase competition in the rail industry through a directive, which was, designed to separate train operations from infrastructure support and maintenance. Not an unreasonable idea we might think, especially as all of our rail networks in Europe started out as private businesses, which owned and operated the trains as well as the track.

Most countries opted to “privatise” by simply creating two separate companies – one to run the trains, the other to manage the physical infrastructure. In Britain, we carried this much further and created that simple, single entity managing the track, but created many separate train operating companies. Not only that, but the rolling stock and motive power was transferred to another group of private businesses – the rolling stock companies – that leased these back to the train operators.

Things were equally complex when it came to fixing track, and general repairs and upkeep of the infrastructure, where various subcontractors in the supply chain offered civil and mechanical engineering services, and often with more than one company competing for a contract. I imagine in any business, when multiple suppliers and multiple contracts are involved for either the same, or ongoing maintenance work, managing those suppliers can be a heavy cost burden on the business.

The overall idea that the degree of fragmentation applied to a single business – i.e. running a train on a piece of track from ‘A’ to ‘B’ – could reduce operating costs, through increased competition to provide goods and services is clearly false.

Passenger Rail Operations in the UK Today

In 2017/2018, there were 23 – well 24, but one of these lost their licence to run trains in the summer of 2018 – train operating companies (TOCs) across the UK rail network. Some passenger services were transferred to the devolved governments in Scotland, Wales and Northern Ireland, and then there were the old PTE style operations for metropolitan areas like London and Manchester.   All of these train operating companies received some form of subsidy from central government, part of which is the network charge, to cover their share of costs relating to the fixed infrastructure, with the rest a payment to run services. In the majority of cases the income charged through ticketing, whether regulated, off peak, peak, or any other form, does not cover the costs of franchising.

Some of the operators’ do not of course get franchises awarded, or are contracted to provide services by franchise from central government. These are either ‘open access’ operators – who run trains on specific routes if and when timetable paths permit – whilst others simply run from one station stop to another, such as the Heathrow Express or Gatwick Express. On top of this there are of course the cross channel Eurostar services, which do not have a franchise agreement with the UK government, and is owned and operated by its French, Belgian and Hermes Investment Co owners.

Of course we still subsidise the railways – and not just the state owned arms length business of Network Rail – but it is interesting to compare just how much taxpayers have contributed, both before and after privatisation. The graph below simply shows direct government grants to support the passenger rail business, and it does not include some aspects of the Railtrack/Network Rail, or project funding:

central gov grants

It looks as though the government managed to stop subsidising passenger rail operations in 2010/11 – but then, there is more to operating a rail network than just running a few trains from A to B. The total government support also has to include support for major projects – Crossrail, HS1, HS2, etc., and the graph below shows just how much has been centrally funded over the same time period. As before, starting from a low base in the 1980s:

total gov support

The list below is just an example of how much some of the current TOCs received in 2017/18 to run services, both with and without the “Network Support Grant” that is due to Network Rail:

table 1

Looking at the above, there is a 50:50 split between profitable and loss-making operations. But only if you leave out the subsidy paid to each operator to cover the infrastructure (network) support and maintenance where they run their trains. If you include the network support grant element, none of the operators in the list above generates positive figures. So, do we accept that separating infrastructure from operations has not really improved either cost of services or performance, but simply shown that some regional rail services are just more expensive to run than others? No real change from the 1960s, 70s, or even in the 1980s when investment levels were really poor.

includes network support

excluding net support

The past couple of years has seen a lot of controvwersy over extending, cancelling or re-bidding for various franchises, and some of the existing franchises will not end for another 6 years. Subsidies for the TOCs look set to continue for some time according to the Dept. For Transport’s Franchise Schedule.

Is this still the right way to run our railways?

-oOo-

 

 

 

 

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