Feature Railway Reforms in Europe The Reform of UK Railways —Privatization and Its Results Gérard Mathieu This article presents the results of a differences included: According to the privatization supporters, detailed analysis by the High Council of • A very low market share (about 5% of this separation of business activities would the Railway Public Service (CSSPF)1 of the the overall market) and a seemingly lead to a more responsible, innovative, and reform of UK railways 5 years after their irreversible decline in rail transport customer-oriented management style—the privatization. Privatization was a difficult • Great dependence on large subsidies older organization had been designed more process that had been put off for a long • Presumed vigorous opposition from for dealing with operating constraints than time. It was carried out in great haste by local residents to line closures and for satisfying market needs. In 1991 and the government, who first opted for network downsizing 1992, an additional step was taken with excessive fragmentation of the rail sector the introduction of The Organizing for and establishment of Railtrack as a private Prime Minister Thatcher and her cabinet Quality (O for Q), which would lead to ‘landlord,’ to manage the infrastructure, were extremely cautious about the idea abolition of the old regions and establish and then—despite the initial intentions— of privatizing railways, judging the issue profit centres within each business sector. had to renounce real competition to be complex and ‘potentially The BRB assumed overall responsibility (for between the franchised Train Operating unworkable.’ The Prime Minister ‘…felt general policy, finances, technical Companies (TOCs). Although traffic that Middle England held an inexplicable standards, etc.), while each profit centre increased, the mixed results were much affection for its railways and that to tinker had its own management. The high degree criticized in Britain, because the quality with BR would precipitate a political of autonomy and the new O for Q of services deteriorated considerably and disaster.’2 organization provided managers with the railway infrastructure has been poorly The initiative came from both Norman experience and principles that would prove maintained and managed. This situation Fowler, the Transport Secretary, and from invaluable when the railways were led the British government to place the British Railways Board (BRB) itself. Both privatized. To a large extent, this BR Railtrack in administration on 7 favoured privatization of BR subsidiaries. reorganization created favourable November 2001 and a new organization Above all, Fowler saw a way to reduce conditions for privatization. called Network Rail was announced on 3 subsidies, while the BRB hoped for more October 2002 (see JRTR 33, pp. 32–40). investment in the rail sector. This did not Long road to privatization from happen; once united within the same 1988 to 1997 Reform—Laborious and holding company, BR subsidiaries were BR privatization became a top priority for Risky Venture sold off gradually between 1981 and 1989. the government again only in 1988 under the initiative of Paul Shannon, Transport Denationalization or not? Precedent of BR reorganization Secretary. Even so, the government Reform of UK railways was part of the vast by business sector wavered between three options: programme of privatization undertaken by The privatization of UK railways was • Regional division, following the Margaret Thatcher’s Conservative facilitated by the reorganization model provided by the old private government in various sectors of the undertaken by BR in the 1970s. The aim networks in the pre-BR period economy, including telecommunications, was always to reduce BR’s need for public • Separation by business type into water authorities, air and road transport, subsidies. At the heart of reform efforts intercity, regional, and freight and maritime ports. However, the rail was partial reorganization emphasizing • Physical separation of infrastructure network was not an obvious choice for operations (business sectors) and using the and operations by establishing a Track denationalization and took place through existing structure based on regional Authority a long privatization process lasting from offices. The latter were then limited to 1979 to 1997. The British government operating trains. The business-sector The 1992 White Paper New Opportunities was perfectly aware of the unique offices designated people who were for the Railways reached the final choice; difficulties posed by the rail transport responsible for managing their sector and its intent was ‘To harness the management sector because British Rail (BR) was very achieving objectives, especially in skills, flair and entrepreneurial spirit of the different from other industries. These marketing, costs, and investments. private sector to provide better services Acknowledgement: This article was first published in French in Transports No. 423 mai/juin 2002, pp. 149–169. It is reproduced in English by courtesy of the publisher, Les Éditions Techniques et Économiques, at 3 rue Soufflot, 75005 Paris, France. 16 Japan Railway & Transport Review 34 • March 2003 Copyright © 2003 EJRCF. All rights reserved. to the public’ by creating guidelines for the privatization process and following the spirit of preceding privatizations. The chosen method was to: • Separate infrastructure and operations • Create a single manager for all infrastructure (Railtrack) • Divide BR into some 20 operating units • Adopt a franchise system for passenger services Why privatize? Despite her first reservations, Thatcher finally rallied to the principle of rail Commuter train at London Victoria Station before BR privatization (EJRCF) privatization. However, she was deposed as party leader and it was Prime Minister from train operations, the British purchased BR’s rolling stock and let it John Major who oversaw the BR government’s decisions went well beyond to the TOCs. privatization after Parliament adopted the these measures. • Many subcontracting companies were difficult 1993 Railways Act. The Act created, mainly to maintain and obtained royal assent on 5 October 1993 Fragmentation of BR improve infrastructure according to but 3 more years were needed to achieve Operations ‘modern equivalent’ rules. a functioning business structure. In promoting privatization, the The chosen option ultimately divided UK The TOCs have a monopoly on the lines government had three objectives: railways into some 100 separate entities they operate on, although other operators • Reduce the level of government summarized as follows: can use some track sections. The same subsidies for rail transport over the • Railtrack became the sole owner and applies to stations and depots, which were long term manager for the entire railway leased by Railtrack to a TOC (a Station • Open the transport sector to infrastructure including tracks, Facility Owner (SFO) in charge of track competition to improve services, signalling equipment, electrification operations and management). increase railway productivity, and equipment, stations, depots, shops, Competition is limited because very few reduce administrative sluggishness etc. services compete on the same • Respond better to market needs, • Twenty-five TOCs were established infrastructure. There is competition in thereby meeting demand and with franchises to run passenger awarding the franchises, but there is very improving financial results operations for durations of between 7 little in the market itself. years (18 franchises) and 15 years; Despite total privatization of the Privatization opponents ascribed ulterior • Eurostar, an international company, railway freight sector, the rail freight motives to the process, including the began managing joint operations with companies have a quasi-monopoly government’s desire to relieve public French National Railways (SNCF), status (although this is entirely relative, finances from the weight of investment Belgian National Railways (SNCB), because roads account for 94% of the necessary to improve a network that had and Eurostar UK as a 26th operator. freight market) and each carrier is very suffered from 20 years of chronic under- • Four freight companies were specialized (combined transport, investment, by transferring responsibility established: English, Welsh & Scottish nuclear, aggregate, etc.). to the private sector; and the desire to Railways (EWS, the most important), reduce the ‘paralyzing’ influence of the Freightliner, Direct Rail Services transport unions. Although privatization (DRS), and Combined Transport Ltd. Railtrack—A Private Monopoly was legitimized by the new European (CTL). policy of opening the rail sector to • Three Rolling Stock Companies Before being taken into administration on competition and separating infrastructure (ROSCOs) were established. They 7 November 2001, Railtrack was the sole Copyright © 2003 EJRCF. All rights reserved. Japan Railway & Transport Review 34 • March 2003 17 Railway Reforms in Europe owner of the railway infrastructure. It was responsible for major repairs and provided a core of guaranteed slots (firm created by the 1993 Railways Act and was maintenance, assuming the time slots permitting train operations), initially organized under public statutes. responsibilities incumbent upon an which were tacitly renewed unless a TOC The company was privatized in May 1996 owner. The proper operation of the system wished to reduce them. Requests