Why Privatisation Sucks.
We now spend more money subsidising the rail network than we ever spent on British Rail, yet ticket prices are going up, engineering works overrun to the tune of billions of pounds (looking at you West Coast) and our best trains were built in the 1970s, all while shareholders seem to be making lots and lots of money! This doesn’t seem right, how is this happening?
Short answer? Because privatisation sucks.
This article is aimed at explain just how and why privatisation sucks, the various arguments that can be had about how we can ‘improve’ the situation from a series of perspectives (aka ‘free the market!’ versus ‘nationalise the bastard!’), why the latter is correct, and how we can achieve it without having to sell Scotland to pay for it.
First, I will start with a critique of the current system, how it works and why it sucks.
The current system (aka this fucking mess we are in)
This depends on what you define as the ‘current system’, or more clearly, if we are talking about the era of Railtrack, or the era of Network Rail. I could probably write an epic on the privatisation of British Rail (which started in the late 70s), including some cool bits you’ve probably never heard of, which were literally selling of the family silver (BR Research for instance was probably one of the most advanced rail R&D facilities on the planet). However, for the sake of clarity, we shall start with the era of Railtrack as this is where our problems arose; i.e. with the Railways Act 1993.
The first thing to understand is that, as much as it pains me to admit, John Major is not to blame for what follows. He favoured the system of splitting the behemoth back into the ‘Big 4’ which I shall cover later, in the latter half of the free market solution. His grey underpantsness himeslf however, was convinced by that hotbed of knowledge of railway operations, maintenance and investment, The Adam Smith Institute, to go for the follow system of utter madness.
In theory, it was supposed to encourage competition, thus drive down the costs to the taxpayer, whilst government kept an eye on oversight only. However, what the Adam Smith Institute either failed to understand or willfully ignored is that the system they created is basically just a series of natural monopolies, interlinked together. Let’s look at a couple of examples of this:
Firstly, trains. They are not owned by the companies that run them, but by Rolling Stock Operating Companies (RoSCos), which are usually large capital investment funds. The idea was that having three (as current: Alpha Trains, Porterbrook and HSBC Rail) companies supplying trains would drive competition and investment in new rolling stock.
However, certain trains will only work in certain places, no good taking a third rail train to Scotland, as they only work south of the Thames. Diesel trains have massive maintenance and fuel costs compared to electrics, so no need to use them where there are overhead wires. No use taking a high-speed electric train on the West Coast Main Line, as they won’t be able to get up to 125 due to the cant unless they can tilt.
Train Operating Companies (TOCs) were locked into buying stock fit for their bit of track, and the RoSCos didn’t see fit to buy any new stock at all.
Now we come to TOCs themselves. When you get a train you get one from the nearest station to your house, to the station nearest to where you are going. Unless you live in Central London and are going to Clapham Junction, this gives you zero choice, so companies cannot compete against each other. TOCs are given a service agreement with the DfT and they are told to operate a certain part of a route, and this is locked in with a watertight contract, which stifles any sort of competition. Open access operators (like the recently failed Wrexham and Shropshire service) can run specialist routes which have local or national interest, but the contracts signed by the larger TOCs will lock them out of the profitable bits of shared infrastructure (such as Birmingham New St and Coventry in this case) meaning that they find themselves short of business and inevitably go bust. These contracts are written by a bidding process, so larger operators have a very large advantage over smaller ones (and can run essentially loss-leading services to maintain a monopoly), along with having the advantage of being able to make a large political donation to whomever happens to be in government at the time which in no way will influence the bidding process.
A good example of how the madness of this contracting strategy produces a badly integrated rail network based on money, rather than sense, is with the Heathrow Express service.
Heathrow Express are a premium TOC which offer a non-stop journey from London Paddington to Heathrow Airport for about £10 more than the slower service (which takes about 10 minutes longer but somehow manages to not appear on National Rail Enquiries unless you know how to spot it…).
As part of its service agreement, signed under the Railtrack era, it has rights to an unimpeded run from Heathrow to Paddington, which means that if their trains are held up or delayed, they are entitled to massive delay payments (the delay minutes attribution system is vastly complex and probably a topic for another time).
This means, you end up with a crazy system where a First Great Western High Speed Train (HST) running from Penzance to London will be running late (this means anything from a couple of minutes to HOURS) so misses its slot on the main lines into Paddington. What will then happen, no matter how delayed the HST is, it will be slowed down from 125mph, and likely brought to a stand at West Drayton (west London, just before trains from Heathrow rejoin the main lines) to allow an almost certainly empty Heathrow Express out of the tunnels in front of it! This is because its cheaper to incur (more) delay minutes on the HST than it is to check the Heathrow Express train by even a couple of minutes. This drives the signallers trying to regulate traffic and timetabling people who plan this sort of thing absolutely mad, as you can imagine.
These are just two examples of how privatisation is shit, but it is fair to say that everything from the Potters Bar crash to the £6bn over-budget West Coast Main Line upgrade can be traced back to this idiotic system.
Ever the company man, I would have to say that Network Rail taking charge and renationalising maintenance was a step forward in many aspects of how things are done, but compared to the expertise and sheer sense of BR we are in a right old shitty state.
Some aspects of the railway have got better under privatisation, let us be clear about that. However, the TOCs tend to spend lots of money on ‘look at the shiny shiny!’ distractions, like better catering and less grotty bogs whilst not investing any money in infrastructure that might be useful (we’ll get to this when we look at BR in the late 80s, but needless to say, the reason the stations didn’t get painted very often was because they were stealing money from the budgets to do this to build things that were useful). This is somewhat of a bluff on their part, because when you see that refurbished and nicely painted train, you forget that it now only runs once every hour rather than once every half hour, all while your ticket is nearly twice as expensive… Unfortunately for them, the mask is slipping.
Next, let us look at the 'free market solution' (aka party like it’s 18461)
The freer the market, the freer the people, so say
utter bastards certain aspects of society, so perhaps the problem with our current system is not that privatisation is shit (though it definitely, definitely is), it is because the system is too heavily regulated, and we need to allow the free market to sort out all these problems.
First thing to recognise about the railway is that it can never be a true, unregulated, free market system, and basically hasn’t been since the Regulation of Railways Act 1889. Avoiding the history lesson, the railway companies of the day refused to install certain technologies because it was ‘prohibitively expensive’ and lots of people died, so the government stepped in to regulate and demanded that they take certain steps to prevent crashes.
Since then, regulation has only got tighter, and this website contains all the high level Railway Group Standards and the Rule Book, which you WILL comply with. As even a cursory glance reveals, you can see there are hundreds of items mandated here, from the shape of speed signs, to train braking regulations, to what to do if a train has doors out of service, all mandated and regulated by the Railway Safety and Standards Board. Don’t even think about not complying with them, or you’ll find yourself on a corporate manslaughter charge should anything go wrong.
There is a saying on the railway, which reflects almost the laissez-faire the regulations were developed, in that the Rule Book is written in blood. No rule has been mandated just because; there is some best practice and some ‘nice to haves’ but for anything that has been explicitly mandated, you can be 99% sure that it’s there because not having it killed someone. There is a reason people in my profession (signal engineering) are often seen as conservative and reluctant to take chances in the engineering environment, because of this very fact. Your decisions can literally kill someone.
So, that’s blown your true free market out of the water straight away.
However, you could say: well, fair enough, but that wasn’t what I meant, how about we just free up the tendering and franchise arrangements so we get a nice, safe, internal marketplace instead?
As I’ve already said, the natural monopolies exist, and there is no way of defeating them. Ever. You could theoretically build a new line between A and B, but your capital outlay is going to vastly outstrip your return for at least the next 50 years, and that is only if you can provide marked improvement over the current route between A and B. Railways are inherently uncompetitive, which is why the free market doesn’t work, but we could perhaps explore a theoretical free market solution..
Firstly, for this to work, we will assume all RoSCoS have been dissolved and the trains given to the franchisees, removing one of the more protectionist aspects of the modern railway, eliminating one of the most exploitive of the monopolies that stifle the free market. However, the question is how far do you block natural monopolies from developing? More to the point, how do you create competition in an uncompetitive environment? Short answer is, you can’t.
Assuming we keep a Railtrack/Network Rail type body in charge of the track and other fixed assets, but come up with a far more free franchising system, whereby this problem of heavy regulation about who can stop where is removed by everything other than timetable space.
In a true free market franchise system, I would suspect that quite quickly, one or two TOCs would dominate out all competition (likely First Group and Stagecoach for passengers, with DB Schenker2 running freight), and then use their new found clout to block all new up-starts. Running trains is expensive, and like we often see in other industries, the huge private companies will undercut the new operators by subsiding their own services by the profits of other parts. This is already apparent, as I said earlier, in today’s ‘free market’, and will only get worse with less regulation. At least the British government has to pretend to block this sort of thing, while the market has no such qualms.
You will, quite naturally, get to a system with two or three huge companies running the show, with zero competition, so there is no point in competition in the first place, because the companies cannot possibly compete against one another. Railways in the 21st century are not competitive with anything except cars and air travel.
One argument that often comes up is that the best free market system for the railway is to split the companies back into the ‘Big 4’ of the pre-war era, and if you suggest this you are an idiot who knows nothing about railways.
First thing to recognise about the ‘Big 4’ is that they were vertically integrated businesses. They dug their own ballast (stones that hold the track in place), they built their own signalling systems, they built their own trains, they ran their own hotels at stations, they ran their own parcel and freight marshalling yards within their regions, with their own delivery networks attached to them.
Cross regional traffic was always an interesting prospect because of this and there were complex arrangements either regarding changing drivers, engines or just detraining all the passengers and shuffling them off onto new ones because of it. It was a system so vastly different around the country that we still suffer from its throwbacks now, for instance, Western Region semaphore signals still go down when they’re off (meaning go), everyone else’s go up… It took a special meeting of the signalling engineers (under the banner of the Institute of Railway Signalling Engineers) from all over the country to agree on the practices of colour light signalling in 1923, or undoubtedly, it’d would have been green for stop and red for go in one of the regions just because.
In short, the Big 4 were bloated organisations which acted as little fiefdoms, which worked solely because people were locked into using them. Some of this was good, for instance the Great Western Railway (GWR) provided a cradle-to-grave care for its workers at the Swindon works which became almost the basis of the NHS, but not all railway companies are equal, and none looked after its workers like the GWR did (which is probably why it is still the most revered of the Big 4 today). The network was not built with any sort of cognisant plan which is why it struggles with the joined up 21st century world we live in today.
Unlike the French system, which was built with heavy government oversight and regulation, this is mostly a throwback to the worst of Victorian laissez-faire, which means that while our system gives us tiny little branches from Bumfuck-on-Thames to Arseend-upon-Nowhere, it also meant that our current system misses out towns who insulted the great railway pioneers or just didn’t like the idea of trains. Reading supposedly has a far less grand station than it deserves as a major junction because the Corporation of Reading annoyed Brunel.
Would this have been a sensible model to return too? In short, no. It’s a smaller world these days, and this system couldn’t have possibly lasted. National procurement and strategy are required to drive down equipment costs, and large banks of rules would be required so that neo-GWR doesn’t go designing lower quadrant in-cab signalling which is completely incompatible with the neo-LNW’s system. The RSSB already has such regulation and approval rules just to stop this from happening within the regions of Network Rail, so the level of national regulation would be stifling. It would require a large organisation just to watch over these issues independently, whilst still allowing the companies to be autonomous in their decisions.
This brings me to an interesting point, the above is almost an exact description of the BR of the 1940s-1970s era, which is when it earned its reputation as a rather bloated and inefficient organisation. I think trying to emulate such a system when a coherent national strategy for provision of travel is needed would be at best rather idiotic, and at worst, likely make the whole system collapse in on itself.
How about then, a fully nationalised system? (aka Bring Back British Rail!)
BR of the late 80s was a fantastically efficient, well run company which should have been left alone and had money literally thrown at it. There I said it, and pinned my colours to the mast.
Let me start by telling you why, before we critique how this can be reapplied in the 21st century, which is a far more interesting prospect.
The 1980s for BR brought a lot of challenges, not least one Maggie Thatcher. Though Thatcher wasn’t exactly wild for privatising the railway (she was a scientist after all, even if she was an awful sociopath), people could see the writing on the wall as parts of the non-operational business were systematically sold off, often to the nationalised rail operators of other countries! It also saw BR’s budget cut, and pressure increased to cover more of the cost of the network through ticket price rises.
The BR board panicked and in 1983, ordered a vast, sweeping restructuring which turned the bloated ex-Big 4 regions into the more streamlined ‘Sectors’. Express services were made into the famous ‘InterCity’ brand, south east and London commuter routes became ‘Network SouthEast’ and everywhere else became ‘Regional Railways’, non-passenger stuff went to ‘Railfreight’ and ‘Parcels’ (who are fairly self explanatory).
The sectors stripped out the bullshit of the Big 4, focusing on the business aspirations of three major subsets of passengers, and enhancing their services and requesting engineering developments where needed. Engineering functions (maintenance, enhancements, renewals) operated both integrated directly into their local sector, but also within their national engineering functions, thus the Head of Enhancement Engineering for Network SouthEast would report to both the Head of Network SouthEast and the Head of Enhancement Engineering, meaning that joined up thinking was applied throughout the nation. BR really cut a lot of fat during the 80s despite rather harsh financial pressures put on it by the government.
BR suffered from only one major problem during this time, and that was budget. BR received an annual budget, which had to be allocated between maintenance, enhancements, renewals and day-to-day operating costs, and not receiving any sort of long term investment.
It is hard to plan a large scale resignalling scheme (which will take at least a couple of years to design and probably at its most efficient a year to build, test and commission) when you only know where the money is coming from for the next 12 months. Long term vision was virtually impossible without ringfenced money (this was how the electrification of the East Coast Main Line was achieved, for instance, by direct government investment) so a short term ‘patch and make do’ approach was taken rather than big investments which would have made a real difference.
When people argue about how efficient BR was, this is the era they use. If this model had been kept, but with five year budget allocations like NR receives through huge government consultation about what it needs and why, the British Rail network would look vastly different to how it does today. For one thing, the BR HQ Signal Engineering team wouldn’t have been sold a packet of magic beans like the dynamic business leaders who ran Railtrack were on the technology for the West Coast Mainline upgrades (this is perhaps a story for another day).
I, as you can probably tell, am all for the return of this model. However, unless we literally tell the TOCs et al to get fucked, this won’t happen. You would literally have to renationalise the entire asset again, probably at huge cost, which will then fuck the Department for Transport’s budget for the next century.
So, getting to crux of this history lesson, I propose a new approach to nationalisation. Network Rail is a great place to start; it currently owns all the infrastructure and has built up in the last several years a lot of engineering expertise. This needs to be expanded on and grown back to the levels BR had, with contractors used to prop up big engineering jobs, and also return to their more natural environment of developing new technologies (lots of money in this if anyone is interested!) with central guidance.
The first thing the government needs to do to make this plan work is simple. Get back our fucking trains! Either buy back or order new builds of rolling stock and systematically block the RoSCoS out of the market, because these are the biggest arseholes in the whole bloody set-up. This will require long-term planning and investment from government that must be free from meddling or it won’t work.
Secondly, create a new TOC under either a similar model to Network Rail, or perhaps as a mutual. The latter was actually suggested, by an alliance of the three big railway unions (ASLEF, the RMT and the TSSA, who are collectively perhaps worthy of their own article) as an option for running the currently nationalised East Coast franchise, which operates under this model currently, but with profits heading straight to the DfT. This was unsurprisingly blocked by the government for bullshit reasons so some other bus company which may or may not donate large quantities of money to the Labour or Tory Party can take it over instead.
In this fantasy world, this TOC will then inherit the franchises one by one as the current ones run out, and we will end up with a pseudo-nationalised TOC working for a pseudo-nationalised Infrastructure Controller (Network Rail). We could seriously leave it here quite frankly, as most of the bullshit between the TOCs and NR is legal wrangling, with no respect for overall vision for the future of the network, as it is short-term profits over long-term investments and gain.
In keeping with EU competition rules about open access, this will also allow small operators to bid for access from NR for specials which can’t be provided by the nationalised TOC. The best way to think of this is that the NHS provides you core healthcare, but if you want to get something fancy that is outside of its budget, you have to go private. This is how I envisage services to the continent beginning, but it could also work the other way, with the nationalised TOC being able to expand into the European markets through an era of interoperability that is beginning to emerge through the European Rail Authority.
So, there we have it, a grand summation of why privatisation is shit, why BR was more awesome than you thought and why we really, really need to sort things out.
I will add as a caveat that nationalisation won’t be the panacea to all the industries ills. The lack of investment in the UK rail infrastructure means that it will likely be 10 years of sustained payouts from the government before we see a marked improvement. You can’t solve a cut artery with a plaster and we should stop pretending that there are short term solutions to long term problems and get our fucking national wallet out and pay for serious remedies.
1 – 1846 represents the zenith of ‘Railway Mania’, a 19th Century speculative bubble not unlike the dot-com industries of the 1990s. Some people got very rich, while most people lost considerable sums of money. The epitome of Capitalism at work.
2 – DB Schenker is a subsidiary of Deutsch Bahn, the German national railway company. They are technically a private company (through a quirk of the unification treaty between East and West Germany), but owned almost entirely by the German government.