Feature Railway Reforms in Europe

Britain’s Railways—5 Years after the Completion of Their Privatization Ian Smith

passenger train operating companies testament to the political skills of that Introduction (TOCs); the devolving of ’s administration. However, the maintenance and renewal responsibilities Conservative government lost the 1997 This article sets out to evaluate the state to separate, regional General Election and the incoming of Britain’s railways after 5 eventful years Infrastructure Companies (BRISCOs) with Labour government was forced to alter since the completion of their break-up exclusive contracts with the infrastructure its stance from one of opposition (while and privatization. In the normal course authority; the flotation of Railtrack’s in opposition) to the rail privatization to of events, 5 years might not be a sufficient shares on the Stock Exchange; one of having to make it work. period of time over which to judge the and the granting of 25 franchises to the It might have been expected that the success or otherwise of the UK railway TOCs to operate passenger rail services, incoming Labour government would privatization. (I thought it necessary to each franchisee having an access have adopted radical alternatives to leave a 10-year gap before judging the agreement with Railtrack for the use of transport policy from its Conservative success of the JNR privatization described track, stations and other operating predecessors. Initial impressions in JRTR 13, pp. 39–45.) However, these facilities. supported this view with particular 5 years (1997–2002) have seen The BR privatization was completed in (Deputy Prime Minister) quickly being several significant events such as the early 1997, leaving the UK railway put in charge of a new super-ministry placing of the infrastructure company, system consisting of the separate encompassing transport, the regions, and Railtrack, into financial administration, elements of Railtrack, the ROSCOs, the the environment. However, this outward the occurrence of a number of fatal BRISCOs and the TOCs, the extent of show of enthusiasm for dealing with accidents on the railway network, and whose services varied widely but in all transport issues was not reflected in any the bailing out by the UK government of cases was effectively, regional in scope. immediate new policy initiatives and it several of the franchise operators who While these elements were separate, they took virtually all of Labour’s first 4-year have also been in financial difficulty. In all shared one common factor—private term in office to legislate the proposals view of this lack of ‘normality,’ it seems ownership. Railtrack shares were sold from its first White Paper on transport. reasonable to take the opportunity of the to private investors in May 1996 shortly Moreover, these years saw a decline in recent 5th anniversary to make a after the ROSCOs had been acquired by the level of public investment in the rail judgement regarding the impact of the private sector bidders. Ownership of the network. Bound by Gordon Brown’s privatization policy on the state of the BRISCOs also passed to private hands (Chancellor of the Exchequer) stringent British railway network. (now mostly private engineering financial constraints, the Labour companies). Finally, the TOC franchisees government committed itself to leave the are private enterprises (many being previous government’s spending plans The British Rail Privatization subsidiaries of UK and European unaltered, resulting in a significant transport companies) for whom profits are reduction in the level of subsidy available The central tenet of the railway the first priority. to the TOCs (falling until the end of the privatization proposal in the UK 4-year term by some £200–300 million embodied in the Conservative Political Background per annum from £1.8 billion in 1996–97 government’s July 1992 White Paper to BR Privatization (£1 = $1.40)). New Opportunities for the Railways was There were also major rail accidents the principle of separating track and train The UK Conservative government during Labour’s first administration with operations to be implemented by the proposed BR privatization in 1990; this 31 people killed at Ladbroke Grove in creation of a new track authority named policy initiative marked the culmination October 1999, and four more in the Railtrack. The White Paper’s proposals of a long privatization programme Hatfield derailment, 1 year later. Both were incorporated into a new initiated by Prime Minister Margaret accidents raised serious questions about Parliamentary Bill, which became law in Thatcher in the early 1980s. That the safety standards on Britain’s railways in November 1993 as the Railways Act. Conservative government concluded the the post-privatization environment. In The next few years saw the sale of the highly complex BR privatization in a the public’s mind, the drop in public former British Rail (BR) rolling stock assets relatively short period of time (less than sector funding for the railways was seen packaged into Rolling Stock Companies 5 years from the 1993 Railways Act to as a contributing factor to the accidents (ROSCOs) with lease agreements with the issuing of the last franchises) is a and declining levels of service. To quote

12 Japan Railway & Transport Review 34 • March 2003 Copyright © 2003 EJRCF. All rights reserved. optimistic that the new framework for railway investment was sustainable. However, this optimism took insufficient account of the severity of the impact of the Hatfield crash and its aftermath on Railtrack’s finances. The combination of the post-Hatfield speed restrictions, chaos caused to the travelling public, and subsequent compensation claims by the TOCs inflicted a terminal blow to Railtrack’s balance sheet. The crisis in Railtrack’s financial position became clear in July 2001 when it asked the government to indemnify its borrowings. After considering a number of alternative solutions to Railtrack’s financial problems and declining to provide unlimited guarantees for the company’s debts, in Intercity trains passing each other on non-electrified in 1980s (EJRCF) October 2001, the government decided to appoint administrators (Ernst & Young) from , ‘As people’s 2001 (having existed in ‘shadow form’ for to dissolve Railtrack. expectations, raised by the promises the previous 18 months) with Sir Alistair The sense of crisis that had been made during the privatization process, Morton— former Chairman of developing among the TOCs was had not been met, the number of Eurotunnel—as its part-time Chairman. undoubtedly exacerbated by the complaints soared, reaching the million This new body replaced the Office of disruption to rail services following mark for the first time in 1998/9, over half Passenger Rail Franchising (OPRAF) as Hatfield, but it further reflected an of which were about lateness or the organization tasked with awarding increasing struggle to cut costs enough cancellations. The inability of the private the passenger rail franchises and to offset the continuing decline in companies to provide good customer monitoring compliance with government subsidies. By the time of Railtrack’s care may have been unexpected, but is guidelines. The also works demise, the government had agreed to not really surprising. The way that the in conjunction with OPRAF and oversees bail-out MTL Trust Holdings and Regional franchises were structured meant that the contractual relationships between Railways North East; their franchises were cost-cutting had to be the first imperative Railtrack and the train operators. taken over by Arriva Trains Merseyside, to make up for the rapidly declining rate The SRA thus became the key body in which was then paid considerably more of subsidy.’ implementing the government’s new subsidy, at considerable cost to British Clearly, rail users’ perception of the state policies for operation of the railways, taxpayers. Several other franchises were of the UK railway network was rather supplementing Railtrack’s management also in financial difficulty, particularly different from the optimistic picture of the infrastructure as set out in the those operating outside major cities and painted by the incoming Labour White Paper Transport 2010—The 10 without commuters to rely on for a government in 1997. Year Plan. This plan to solve Britain’s regular revenue stream. transport problems proposed spending Labour Government’s Ongoing £180 billion on rail, road and other Britain’s Railways since Transport Policy transport modes from 2001–10. Railtrack’s Demise However, the issue of how this One item of significance for the future investment was to be financed in the A number of further significant events administration of the railway network did climate of government financial restraint have occurred in the year since Railtrack emerge from Labour’s first term—the was crucially important to the railways. was placed in administration. Railtrack creation of the Despite its overall constraints on public has become , a ‘not-for- (SRA). The SRA attained official status in spending, the government was still profit’ body charged with running the rail

Copyright © 2003 EJRCF. All rights reserved. Japan Railway & Transport Review 34 • March 2003 13 Railway Reforms in Europe

Virgin Class 220 Voyager—Virgin Rail improved its cross-country services through the introduction of faster and more comfortable rolling stock. (/Milepost 92 1/2)

infrastructure. The SRA has acquired a typical example, recently receiving £58 in a far greater crisis than at any time new Chairman in Richard Bowker, million in additional subsidies on top of before. While there are examples of formerly of London Underground and the £30 million provided at the outset of service enhancements (such as Virgin Virgin Rail, who replaced Morton in late its operating contract. Rail’s improvements to its cross-country 2001. Mr Bowker’s proven skills (in his Finally, major investment projects, services through the introduction of faster, previous management positions) in notably speed-up of the West Coast Main more comfortable Voyager trains), the raising private capital for public-sector Line and other major track and signalling overall standard of passenger service projects were undoubtedly a key factor improvements, have been put on ice provision has undoubtedly deteriorated. in his appointment. The SRA’s new pending a further review of the The knock-on effect of this decline in strategy document drawn up shortly after government’s strategic plan for transport. service has been to contribute to a his appointment centred on a private This will consider the investment reversal in the growth in rail usage seen finance initiative by calling for almost half requirements in both passenger and in the initial post-privatization years. A of the £70 billion then planned to be freight operations in the light of the further significant factor in the decline in spent on the railways over the next 10 railways’ deteriorating financial position passenger usage has been safety with the years to come from the private sector. and will reassess the practicality of the fatal railway accidents (Paddington, Under Bowker’s leadership, the SRA has commitments made in the government’s Hatfield and Potters Bar in 2001) acting also adopted a more proactive role in the Transport 2010—The 10 Year Plan. as a spur to resumption of car use for both running of the new Network Rail and has commuting and longer journeys. sought to impose clearer specifications State of UK Railway Network The deterioration in the financial position on the operations of the franchises. 5 Years after Privatization of the TOCs has no doubt also The TOCs have continued to suffer contributed to the decline in passengers, financial problems and a significant The BR privatization introduced a with necessary service improvements proportion have had their subsidies radically new structure to Britain’s being delayed or cancelled through lack increased to levels substantially above railways, with infrastructure and of funds. The prior evidence of public those agreed with the government in their operations separated, and both track and funding being used to increase subsidy franchise agreements. Connex South passenger lines run by private companies. levels to existing franchises and the Central (Govia since August 2001) is a After 5 years, the UK railway network is likelihood of more generous terms having

14 Japan Railway & Transport Review 34 • March 2003 Copyright © 2003 EJRCF. All rights reserved. to be offered in the forthcoming re- private–public partnerships to fund transport and especially railway policies. negotiation of franchises suggest that transport projects, the pressure on Wolmar takes the view that a government subsidies for train operations government finance and the recent fundamental review of the running of the will increase significantly in the near downward revision of projected growth railways is required; in his book, he future rather than fall as had been hoped. rates for rail usage will not inspire writes, ‘The government should use its Moreover, Railtrack’s dissolution and its confidence in prospective private present position as effective owner of replacement by a public trust (Network investors. (On 17 December 2002, the Railtrack to restructure the whole Rail) will do nothing to alleviate the Financial Times reported Mr Alistair industry, breaking up the infrastructure government’s funding problems. Indeed, Darling, the Transport Secretary, as into a series of regional companies, the costs of servicing Network Rail’s having stated that, ‘…pledges to increase which would then be melded in with the borrowing requirements is likely to be rail passenger numbers and improve train operators.’ He concludes that ‘The substantially in excess of its earnings from service were also behind schedule.’) railways are a nineteenth-century track access charges, leaving an Indeed, the SRA, having forecast in its invention which have a great future in increased requirement for the Treasury to original strategic plan last year that some the twenty-first, but only if they are foot the bill. £34 billion (out of £70 billion) of its nurtured by a sensible government.’ Two questions need answering. First, to projected spending over a 10-year period In terms of the critical issues of ensuring what extent was the BR privatization to would come from the private sector, may continuity of passenger service provision blame for the current state of the country’s now have to be more realistic in (through renegotiations of the franchise railways? Secondly, where do we go from expecting a maximum of £20 billion to contracts) and of funding major here? come from private investment sources investment projects (through encouraging It may be too harsh to argue that it was with the rest having to be underwritten involvement by the private sector), much the privatization per se that caused the by the government. depends on the commitment of the SRA current problems. After all, the British Where do we go from here? This is a Chairman. railway system was in pressing need of question to which the UK government As on Sunday (10 November restructuring by the early 1990s to deal has no ready answer. Mr Darling is the 2002) put it, ‘After so many years without with issues of refinancing government third Transport Secretary since the effective leadership, politicians and the subsidies for train operations and of announcement of Transport 2010—The railway industry—and even long- funding for future capital investment. 10 Year Plan, which does not give the suffering passengers—must be pleased However, to many observers, it seems impression of consistent leadership for Bowker is so eager to do the job nobody that the decision to split the track transport strategy. else wants.’ I infrastructure from operations was a In an ideal world, a further radical disaster, contributing significantly to the restructuring of the railways might well Further Reading deterioration in safety standards on the be implemented but the Labour C. Wolmar, Broken Rails: How Privatisation Wrecked railways and to the decline in services to government is likely to achieve little more Britain’s Railways, Aurum, London 2001. the travelling public. Wolmar is adamant than continued muddling along. Things SRA Chief Defends Rail Authority’s power, Financial that the Hatfield crash was a direct result might be different if Prime Minister Tony Times, 4 December 2002. of the BR privatization process noting, Blair was more interested in transport ‘The accident at Hatfield was not caused issues. Unfortunately, the evidence is that by a broken rail. It was caused by total he shares a common trait with ex-Prime mismanagement by Railtrack and its Minister Thatcher—a lack of interest in contractors.…Indeed, Hatfield was the perfect example of an accident caused Ian Smith by the way that the railways had been fragmented.’ Dr Smith is a lecturer in the Business School of Napier University, Edinburgh. His main teaching Moreover, Railtrack’s financial collapse subjects are International Business and Business Ethics, and he retains a research interest in . In the early 1990s, he spent 2 years carrying out transport research as a Visiting Scholar has further complicated the issue of at Daito Bunka University, and as Ishikawa Research Fellow of the Institute of Transport Statistics, financing major investment projects. both in Tokyo. He has published articles in a number of Japanese journals, including past issues While the new SRA chairman brings a of JRTR. reputation of success in putting together

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