On the Wrong Line and Down the Tube

The struggle to attract private capital into the railways in Britain

in the past 15 years

Christian Wolmar

• Roots of privatisation

• How railway was sold

• A decade of changes

• Effects

• Dysfunctional railway or brilliant success?

• Prospects for the future

1. British Rail privatisation

• Popularity of railways

• Problem of subsidy

• Failure of bus privatisation

• Complexity

Reasons for not privatising rail earlier

• BR plc

• Sale of sectors IC etc

• Regionalisation

• Track authority model

• Some kind of hybrid

Five possible models of rail privatisation

• Reduction in subsidy• Taking government out of the railways• Encouragement of private enterprise and flair• Create competition• Break trade union power (unstated)• Breaking up BR• Role for Treasury privatisation unit

Aims of privatisation

• Thin document • Set out model of track authority• Unclear on number of franchises• Vague on network benefits• Emphasis on competition and open access• Railtrack not to be privatised till next Parliament • Start date April 1994 • Vertical integration still seen as possibility

‘New opportunities for the Railways’ July 1992

• Huge media opposition• And opposition within Tory party, esp Robert

Adley• BR playing a rearguard action• Fears of fare rises • Worries about loss of services• Fiasco over ticket sales and the 300 stations• Deerstalker express cut reversal

Legislation passed in difficult climate

• Two regulators

• Competition moderated

• Railtrack sold

• Changes in response to opposition

• Vertical integration abandoned

Model created on the hoof

Concessions to opponents:

• Fares regulation

• Closures made difficult

• Public service requirements

• Roscos

• Freight companies

• TOCs

• BR infrastructure units

Main components of sale

• Seven year model adopted as norm • Always cheapest franchise bid won• Very few additional services or rolling

stock• All on reduced subsidies over time, some

steep• Some longer franchises where rolling

stock involved• Unrealistic bids towards end

Sale of franchises

• Jun 97 – Oct 99 Good performance • Oct 99 – Oct 2001 Decline post accidents• Oct 2001 – Oct 2002 Uncertainty and

restructuring after Railtrack collapse• Oct 2002 – July 2004 creation of Network

Rail/ maintenance taken in house • July 2004 - Rail review and railways act,

abolition of SRA, creation of HLOS process

Five periods post privatisation

• Fares regulation

• Booming economy

• Fuel tax escalator

• Growing road congestion

• Publicity (and media coverage of privatisation?)

• Some very cheap off-peak fares

Growth post privatisation

• Ladbroke Grove: • Driver training • Signal siting• Abandonment of ATP

• Hatfield: • Poor maintenance • Bad procedures (checking from cess)• Cuts in routine maintenance • Bad communication between Railtrack and contractors• Loss of corporate memory

How structure contributed to accidents

• 1. Too many companies and interfaces• 2. Not designed for growth • 3. Performance regime was over dependent on weather

and luck• 4. Impossible agenda for Railtrack - shareholder agenda,

maintenance v profits and no reward for greater use• 5. Privatisation of maintenance, loss of expertise and

engineering skills. No asset register.• 6. No control of costs• 7. Safety became a casualty• 8. Hatfield was catalyst

Why initial model collapsed

• No strategic vision • No authority• Plan took too long to produce• Refranchising floundered• Bad relationship with regulator eg west coast

row• Bowker over prescriptive • Bloated bureaucracy• Bowker arrogance and unpopularity

Failure of SRA

• Interfaces

• Roscos

• Network Rail

• Franchises

• Profits eg Stagecoach/SWT

Biggest problem now costs not safety

• Health and safety • Gold plating• Specification changes• Risk averse culture• Rolling stock costs • Interfaces• Transaction costs

(some) Reasons for cost escalation

• Franchise freedom to run extra trains• Declining subsidies • Light regulatory touch• Loose franchise arrangements• Profit maximising Railtrack at heart of network• Railtrack carries out enhancements• Expectation of decline or stagnation but cheap to run

more trains• Encourage on-rail competition• Co-operation between TOCs not encouraged• Risk with TOCs and Railtrack• Competition through short-term franchises

Privatisation model mark one

• Management contracts replace franchises• Non-profit making Network Rail • Special Purpose Vehicles to do major enhancements• Capacity, and therefore timetable, frequency determined by

SRA• Subsidy level more stable and some paid directly to NR• Fewer franchises• Expectation of growth• No attempt at on-rail competition• Maintenance contracts directly control by NR• Creation of virtual boards and systems authorities (eg

wheel rail interface)• Much greater government involvement• Risk with NR and SRA (though not transparent)

Privatisation model mark two

• NR has much bigger role eg timetable, RUSs• Open access again in the offing• Safety problems resolved but at a price• DfT rail in charge of franchises• ORR responsible for safety regulation• Franchise subsidy reduced sharply• Risk sharing model of franchises• Fewer management contracts• Virtual integration• Even more government involvement

Privatisation model three

• Subsidy increased hugely

• Government’s plays key role

• On rail competition is be irrelevance

• Trade unions esp ASLEF still strong

• Service culture did not really improve

• Higher cost of investment

Privatisation promises not delivered

• Record investment

• Rolling stock

• Rise in passenger numbers

• Increase in freight

• Recent safety record

• Growth in services

• No closures

Achievements

• Fragmentation • Accommodating growth is costly• Franchise process causes upheavals• Lack of flexibility • Unclear purpose of franchises • Lack of leadership • Still experimental• Franchises dependent on growth • Industry still in state of flux• Government’s role unclear but micromanaging• Huge cost and upheaval of process • Money money money

How ideology and incompetence wrecked Britain’s railways

• HLOS– clash between regulator and Network Rail

• SoFA

• Strategy

• Privatisation model four?

The future

2. The London Underground Public Private Partnership

• Short history of the Tube

• Why the Tube got into this mess

• The creation of the PPP

• What the PPP is

• The political story

• The collapse of Metronet

• What went wrong

History

• Oldest system in the world

• Boom before the war

• Decline until 1980s

• Decently Modern Metro campaign

Reasons for PPP

• Jubilee Line overrun

• Treasury dependence

• Annuality

• Search for private capital

• No other game in town

What is the PPP

• Split between infrastructure and operation

• Three contracts (though two won by Metronet)

• Performance-based except stations

• Structure opposite to privatised railway

Initial problems

• Complexity

• Subsidy

• Cost of creation over £500m

• Political opposition from Livingstone

• Lack of bidders

• Extent of risk transfer?

• Partners or adversaries?

Performance

• £1bn subsidy delivered some improvements

• But widely regarded as costly

• Some innovation – eg speed up of escalator renewal

• Collapse of Metronet highlighted limitations

• Uncertainty over 7.5 year review

Collapse of Metronet

• Overspend by over £1bn

• Supplier dominated organisation

• Difficulty of recreating PPP

• Future uncertain

Conclusions

• Collapse of Railtrack, Metronet, TOCs• Risk transfer difficult• Lack of consistent logic eg PPP different

from rail privatisation• Fragmentation of responsibility• Inflexibility to changing circumstances• Complexity• Cost