PRIVATISATION

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22 August 2009

Brussels Directive

It is being claimed that the railways had to be fragmented due to Directive 91/440. An examination of the privatisation debates recorded in Hansard reveal no reference to a requirement from Brussels to fragment railways. All that was required was that the accounts for the infrastructure be separated from those for train operations. A simple split such as will be found under any Holding Company would have met that requirement. The justifications for privatisation have all been exposed as unreal by events.

Hindsight

Ex-ministers are now saying that fragmentation was an error, but it can only be seen with the benefit of hindsight. There was foresight in abundance if Ministers had heeded it : the Tory chairman of the Transport Select Committee (Robert Adley), numerous backbench MPs of both major parties, several Tory Peers, together with Opposition speakers warned of the consequences which have come to pass.

Railway experts warned against the form of privatisation envisaged. There were also lessons to be learned by looking at available hindsight.

Performance

The DoT was instructed to prepare a plan for measuring and publishing [BR] standards of performance". (John Major: "The Autobiography", Page 252). Regrettably, similar action has not been initiated for industry or the UK might still be a major supplier to the world, instead of a minor supplier in its own backyard, and towns would have no empty shops. BR data had been published for decades in the Reports of the Consultative Committees created in the 1947 Act, and picked up by the media. Conveniently, figures for BR's competitors and industry were shrouded in mystery.

If the DfT had measured and published BR performance standards, it would have been invaluable in establishing a meaningful objective comparison between BR and privatised railways. Prudently, if they did measure, they did not publish. The reality is that BR Accounts were awash with data. As there was no published data, I remedied that deficiency in Britain’s Railways – the Reality.(see Appendix E)

Table 1 Punctuality
Train Operating Company [TOC]	BR Business Sector	% within target		trains pa	trains within target
		TOC	BR		TOC	BR
Anglia - inter city	InterCity	77.3	90.6	23321	18027	21129
Anglia - local	Regional Rlys	85.7	90.3	70076	60055	63279
Central	Regional Rlys	74.2	90.3	404114	299853	364915
Chiltern	NSE	89.4	92.0	90654	81045	83402
Cross Country	InterCity	62.5	90.6	44742	27964	40536
GNER	InterCity	70.0	90.6	39065	27346	35393
Gatwick Express	InterCity	81.1	90.6	54035	43822	48956
Great Eastern	NSE	85.2	92.0	257937	219762	237302
Great Western	InterCity	71.6	90.6	63994	45820	57979
Island	NSE	96.7	92.0	23734	22951	21835
LTS	NSE	82.1	92.0	99518	81704	91557
Merseyrail	Regional Rlys	81.3	90.3	204157	165980	184354
Midland Mainline	InterCity	74.2	90.6	44771	33220	40563
Northern Spirit	Regional Rlys	75.7	90.3	452033	342189	408186
North Western	Regional Rlys	78.6	90.3	474776	373174	428723
Scotrail	Regional Rlys	82.2	90.3	602449	495213	544011
Silverlink	NSE	82.9	92.0	202961	168255	186724
South Central	NSE	77.6	92.0	575226	446375	529208
South East	NSE	80.2	92.0	558866	448211	514157
South West	NSE	69.9	92.0	546583	382062	502856
Thameslink	NSE	71.8	92.0	156308	112229	143803
Thames Trains	NSE	80.2	92.0	267686	214684	246271
Wales & Borders	Regional Rlys	78.6	90.3	83494	65626	75395
WAGN	NSE	74.8	92.0	328148	245455	301896
West Coast	InterCity	68.7	90.6	59237	40696	53669
Totals				5727885	4461718	5226099
% punctuality					77.9	91.2
Punctuality targets are on the same basis. Inter City within ten minutes, the rest within five.
The number of trains pa are those shown for the companies in the SRA Report
The targets and actual percentage of trains within target are from the BRB & SRA Reports
Sources: BRB 1993/4 Report (BR’s last year as an entity) & SRA 2001/2 Report

Statistics for privatised railways would be even worse had they held a similar proportion of connections as BR did.

"In most of our Region, competition does not exist. Some are reluctant to hold a train for a few minutes so passengers from a late running connection can make it. Missing out stops to avoid a train being late at destination is not unknown. Who is going to pay for big investment suggested by train companies? Are they prepared to gamble on there not being a downturn in the economy in the next 20 years? Not one of the toilets was working - they stank to high heaven, and are a health risk. In some cases, companies are adamant that they would not compensate. Off peak fares are not regulated and have been raised by Connex to double the inflation rate. There is a trend for smaller seats in new rolling stock, even though people are getting fatter. (RUCC South 1998/9 Report, Page 39). Given the policy of breaking connections, lengthening journey times, missing calls to recover delays and not making extra calls to replace a cancelled train, punctuality should eclipse BR's.

Operators said, we are entitled to miss calls to make up time! (Sunday Telegraph 13.1.02). The phone would have been hot from Whitehall had BR done that.

In October, 1995, the "Today" newspaper quoted an MP, who rejected criticisms of connections broken in the new era, saying that trains held for connections multiply delay. It showed how little politicians knew about railways. BR managers had known of the potential for delay since "Adam was a lad", which they addressed by specifying "Connectional margins" - the maximum - say five minutes - which selected trains can be held for a delayed arrival, but only if it is known an incoming train will arrive, connection be made and the train leave within the margin. If it is forecast that connection cannot be made within that margin, the forward train must depart without waiting. Some trains were held, but for good reasons some had no margin and had to depart without waiting for delayed arrivals. Margins were determined so as to ensure that a delayed connection would not cause delay to other trains into which it was required to make connection en route. This avoided the snowball effect which the MP appeared to assume was overlooked by experienced BR managers.

From 1948, BR had punctuality targets for passenger services, and for fast freight services. They were progressively lifted. Originally, they were for internal use only. District Officers had to explain delays on daily telephone conferences, and were required to take action to avoid repetition. Targets and achievements were set out in Annual Reports that were supplied to Watchdogs and the media. Watchdogs and politicians thought it would be useful for BR to set an example to other businesses and industry that did not publish any performance nor complaints data. It led to the Citizens Charter, which focused on rail travel - the micro area of public expenditure - instead of the macro areas - such as mortgages, cars, insurance, etc. These far more important areas - not to mention, BR's competitors: air, sea, and road - have still to respond to political vision by following BR's example.

Complaints

In 1983, BR complaints totalled 63,000 - a staggering figure - until related to total passengers, when it became apparent, that 99.991% were not complaining. Watchdogs never made this calculation - until privatised railways were praised for having 99.885% passengers not complaining. (North East RUCC 1997/8). This is worse than BR. Since 1997/8, complaints increased to 1% or more.As it seemed likely that some of the 0.009% who complained had been given redress, I decided to examine complaints files to ascertain to what extent BR had redressed complaints, and found that staff were categorising as complaints, letters that were not complaints about BR services, representing 33% of total "complaints". (see Britain’s Railways – the Reality, Table 6). Files revealed that 55% of the balance were given refunds; and others an apology or explanation - all deemed to redress a private sector complaint. Some 9% of letters of complaint to BR also included praise or thanks for some particular act. TUCC files revealed that, in 1983, only 1,800 [2.8%] were dissatisfied with BR's reply, and took up their complaint with TUCCs, which had been publicising their complaints role.

Subsidies

The new boys & Government have ignored the old adage that: “turnover is vanity, profit is sanity”. In BR, we tried to achieve this against all the odds: political interference in pricing, closures, investment and day-to-day operations. The new boys – actively encouraged by Government - & given a virtually free rein, have made a mad dash for turnover & find they cannot manage without massive doses of subsidy.

Subsidies to the private sector are unjustified. They were supposed to show how to manage without a subsidy and keep fares below inflation! BR fares were below inflation for 39 years, (see Fares). In April 1996, the Minister of Transport stated that "two thirds of services were franchised for one third of the subsidy paid to BR". Unable to get a reply from the Dept of Transport, inquiries of Tory Central Office established that "two thirds was calculated on the basis of passenger revenue". OPRAF data showed, that as at October 1996, on that basis, one-half had by then been franchised. The subsidy to franchisees of £567m was 4.9% more than the net subsidy BR was paid in 1994/5, after deducting the unwarranted administrative profit of 20.3%, which had never been paid before, see Table 2 below. (The introduction of a "profit" element was revealed in letters from OPRAF and the BRB). The average BR fare was 12p per mile, franchised fares averaged 12.5p per mile - 9.6% higher than unfranchised at 11.4p per mile, see Table 2. This higher fare level called for initial subsidies to be 10% less than BR! Attractive services were hived off first rather than the challenging rural areas. Eleven of the thirteen services, which received 84% of the total subsidy, were profitable under BR! When all services were franchised, the total subsidy was double that paid to BR in 1993/4:

"Railtrack plc was created 1st April 1994. Within BR, 70 business units were created with responsibility for train operations, rolling stock, and other services. Each business unit charges prices calculated to enable it to be a self sustaining commercial enterprise, earning profits to fund investment and a return for shareholders. This led to much higher charges attributed to them than while BR was a single entity. Most notable was the price paid by operators to Railtrack for access to the infrastructure and rolling stock companies for leasing trains. As a result, Government paid much higher grants. Previously, the PSO was paid for the statutory obligation to provide loss-making services for social reasons. In 1994/5, the payment was £1,748m in place of the former PSO of £930m. In addition, grants from PTEs increased to £342m, more than double the previous year's payments. (BRB Report, 1994/5, Page 5).

"The industry starts off with a much greater level of funding than provided to BR in the final years of the previous financial system. Government has specified much more clearly than ever before what non commercial services it requires the industry to provide". (BRB 1995/6 Report, Page 6).

Had BR not been about to be privatised, Government would not have doubled the PSO to facilitate a split into 70, even had BR argued that it would improve services and increase traffic. The 1994/5 subsidy would have fallen below that of 1993/4. The theory was that the average for the franchise period would be less than the hugely increased and artificial subsidy to BR. £1 paid now is worth more than £1 paid in 15 years time! There was an assumption that anyone bidding for a lapsed franchise would make a bargain bid, when they would want to start back at "GO", and collect their £200m. In 1993, I forecast ("Blueprints for Bankruptcy"), that, if franchisees cannot operate profitably with a reduced subsidy, or are wound up, the state will be called on to run trains, or a higher subsidy paid. This has happened - Arriva had an increase of £60m in the subsidy; ScotRail [1] and Central got an extra £56m between them; Connex SouthEast was given an extra £58m to stave off bankruptcy for one year. GB Railways received an extra £24m subsidy in 2002 to keep it afloat until the franchise ends in 2004. Other companies seek "re-negotiation of subsidies". "Railtrack received £732m in Grants from Government, in the first year of its funding cycle with four more to go. Its profit for the year was £292m. It cannot survive without Government handouts". (Times 19.12.01). Prior to privatisation, it was stated that Railtrack would receive no subsidy, but would be financed by access charges paid by train companies. (Select Committee on Transport, 4th Report, March 1995). "The new railway has had to receive twice the subsidy of the old one, despite business rising by more than a third". (Times 16.1.02). "All former Regional Railways franchises have now received extra funding compared to the original deal". ("Modern Railways", April 2002, Page 5).

As if the bigger subsidy was not enough, rolling stock and infrastructure were sold for less than their value. The sale of rolling stock was completed in early 1996 for £1.8bn. Some was re-sold for a 56% profit within eight months. By the end of 1997, all had been re-sold for £2.7bn - a 50% profit on a depreciated asset, as no new stock had been acquired, proving that stock was not "decrepit" as some operators claimed to explain away their worsening performance. Some media reports claimed that assets were under priced due to fear of re-nationalisation, which pre-supposes that the Tories expected to lose an election in four years' time, of which the media carried no forecast. The flotation of Railtrack cost the taxpayer £6bn. A Select Committee criticised the last Tory Government and its civil servants. The Treasury raised £2bn from the sale. Railtrack's share value quadrupled to £8bn. Government made the mistake of selling 100% of the shares in one sale, instead of testing the market value by selling them in stages. Advisors said that it was the first time a Government had sold a company dependent on a subsidy of around £1.8bn a year. (Public Accounts Committee Report No 24, 1999).

Government claimed it cut the subsidy paid to BR, by offsetting against subsidies, capital from the sale of rolling stock companies. This seems to be the classic error of mixing capital and revenue. They had stopped BR from leasing stock in 1971, or there would have been less stock to sell.

The Institute of Directors said that "3,000 miles of branch lines should be closed, diverting subsidies to main lines". Audited BR Accounts show that InterCity received no subsidy from 1988, and NSE none in the year before privatisation. Only rural and provincial commuter routes had subsidies. Had 3,000 miles of branch lines not existed, BR would have had no subsidy. In the last year under BR, Government - without precedent - changed the basis and doubled the subsidy. No main lines should have had a subsidy! The SRA said some [subsidised] services are of "dubious economic value", (Policy Statement, Page 9), signalling an intention to close them. Clearly the goalposts have been moved. BR, with a lower subsidy, was directed not to reduce the system.

Table 2 Comparison of BR & Franchisees' subsidies - October 1996
Franchisee/	Data supplied by OPRAF			BR subsidy 1995/6
BR Business Sector	revenue	passenger miles	subsidy	Total	"Profit"
	£m 1	(millions) 1	£m	£m	£m 2
Anglia	34.0	300.0
Cross Country	102.0	1,128.0
East Coast *	217.0	1,900.0	64.6	66.2	18.4
Gatwick Express	27.0	96.0	-4.6	-3.1	3.1
Great Western *	156.0	1,200.0	53.2	61.8	14.5
Midland Mainline *	58.0	442.0	16.5	14.5	5.9
West Coast	216.0	1,815.0
InterCity 3	810.0	6,881.0	129.7	139.4	41.9
Chiltern	22.0	161.0	16.5	17.3	2.3
Great Eastern	109.0	855.0
Island	0.8	4.0	2.0	2.5	0.1
LTS *	53.0	423.0	29.5	32.1	4.1
Network South Cen *	158.0	1,300.0	85.3	94.5	13.7
North London	55.0	439.0
South East	215.0	1,548.0	125.4	142.9	18.0
South West	221.0	1,800.0	54.7	83.4	19.9
Thameslink	65.0	455.0
Thames Trains	46.0	376.0	33.2	42.0	4.7
West Anglia	107.0	729.0
Network SouthEast3	1,051.8	8,090.0	346.6	414.7	62.8
Cardiff	5.7	52.0	19.9	21.4	0.7
Central	60.0	601.0
Merseyrail	19.0	147.0
North East	61.0	692.0
North West	44.0	377.0
Scotrail	86.0	851.0
Wales & West	40.0	412.0	70.9	74.9	4.4
Regional Railways	315.7	3,132.0	90.8	96.3	5.1
Totals	2,177.5	18,103.0	567.1	650.4	109.8
Less "Profit"				-109.8
Net			567.1	540.6
Franchised	1,219.5	9,714.0
% franchised	56.0	53.7
This is the halfway house - with about half of the train companies privatised.
1 Revenue & passenger miles are 1994/5 except where shown * which were 1993-4
2 A "profit" was new. Hitherto, a subsidy was the forecast deficit. Before privatisation the subsidy to BR was doubled as a result of fragmentation.
3 Inter City received no subsidy after 1988. NSE received no subsidy in 1993/4

[1] They won the franchise in 1997 with a subsidy of £288m pa, to fall to £202m by the end of the contract. They said the franchise is not a commercial operation, unless you strip out a whole lot of routes. They cannot operate on the present subsidy if the current service is to be maintained. (Sunday Times 20.1.02).The subsidy covered all services.

Many more points will be added soon

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