With the Benefit of Foresight
29 February 2004
No phrase is more over-used by politicians and the private
sector than “with the benefit of hindsight”. From
the public sector, it is dismissed as an excuse. It is exploited now that rail
privatisation has gone pear-shaped. The reality is that warnings based on
hindsight were there for all who wanted to see. Worse, there were some blessed
with foresight who gave warnings before the ink was dry on the White Paper.
Where railways are concerned, politicians have doggedly ignored the lessons of
hindsight.
Pricing
When the Great War broke out in 1914, railways were
sequestrated by government under an 1871 Act. Every item or person connected to war
was carried free. Government froze rail prices, whilst costs rose 200% due to
industrial inflation. After the war, government created a court of law to
control rail charges, costing railways millions.
In 1939, the Big Four railways were sequestrated for another
war - but not 60,000 hauliers. “As railways were nearly bankrupted last
time”, government promised charges would rise to match inflation [1]. In
1940, government broke its hindsight-based promise and froze charges 16% above
pre-war until 1946. A new profits ceiling meant over 50% of traffic was carried
free [2]. Hauliers imposed unreasonable price increases. [3] Shipping charges
soared 400%. Industrial prices increased 116%.
In 1948, ignoring hindsight, government established a new court of law to fix rail prices. It
delayed increases to match inflation by an aggregate 12 years, and cost British
Rail billions.[4] Road transport had no restraint.
Hindsight was ignored in 1956, when government froze rail
fares - then 43 points below inflation - but not private sector prices, which
were causing inflation. Their “solution” to the inevitable deficit
was an interest bearing loan of £250m.
Profits
By the end of the Great War, some railways were near
bankruptcy, none was as healthy as pre-war. Government reneged on its legal
obligation under the 1871 Act, to compensate for excessive unpaid use of
railways, and imposed a nominal sum[5]. Under a 1921 Act, it pegged future
profits at 1913 levels in perpetuity, without adjustment for inflation.
In the Second World War, ignoring hindsight, government
replaced its 1913 ceiling on rail profits by a lower ceiling. Government
skimmed millions - in addition to tax - from railways. Industry profiteered
from war contracts[6]. Hauliers made huge profits from which they funded rapid
modernisation after the war.
After 1948, government's objective for
nationalised transport was to break even, “taking one year with
another”. The new law court used this to hold fares & charges below
inflation, deferring break-even to some unspecified future date. In 1952,
Churchill decreed that railways need not cover all costs and investment from
revenue - but retained the meaningless objective in his 1953 Act. Both the main
political parties enforced retention of loss making rural lines without
subsidy[7]. Hindsight would have revealed no industry had been solvent with
such policies. Inevitable losses were attributed to managerial incompetence
when such policies would have bankrupted any industry.
Competition
After the Great War, government cut working hours for rail
staff, but not for competing road haulage or coastwise shipping. Railways were
prevented from undercutting competitors, who were legally empowered to inspect
railway rate books, enabling them to undercut! Between the wars, government
ignored road haulage malpractice on working hours, over-loading, speeding and
maintenance, in contrast to discriminatory legislation, regulations and pricing
control for railways. Delays in obtaining authority to increase railfreight
rates to match costs, lost revenue. Railways tried repeatedly to secure
equality under the law to road transport, leading finally, to a demand for a
“Square Deal” . It is a myth that war deferred conceding this demand.
Government files reveal that they had no intention of doing so, then, or after
the war[8]. The rail freight rates structure - imposed by government - was
designed to subsidise industry[9] to enable it to compete with imports.
Otherwise, government would have to subsidise industry.
When road haulage was denationalised in 1953, government
ignored the lessons of hindsight. British Rail remained subject to the mercies
of a dilatory law court, and could not refuse any traffic, however unprofitable
- road haulage was free on both counts. Ministers were urged by The Economist to give equal freedom to
Organisation
Early railways were seen as toll
roads on which all could place vehicles, the impracticality of which soon
became evident. Whilst the right was preserved for traffic to be conveyed in
privately owned wagons, all haulage was left to railway companies, which owned
the infrastructure.
In 1921, government, with a 58 Tory majority - merged 120
railways into four “to end competition”, and preserve insolvent
rural lines without subsidy. During the 1939-45 war,
In 1948, railways were nationalised. Ignoring hindsight
lessons of effective organisations, government created an untried centralised
organisation under retired civil servant Lord Hurcomb. Periodically, government
tinkered with the organisation, appointing leaders[10] without railway
experience.
In 1993, ignoring hindsight, government
- with all the abandon of a D-I-Y novice, who removes a supporting wall -
fragmented the structure and
reverted to the discredited toll road concept. In privatisation debates,
ministers did not cite Brussels Directive 91/440 to justify fragmentation, as
it merely required separation of accounts - no different to a conglomerate
publishing separate group and subsidiary accounts. Secretary of State MacGregor
said on 2nd February 1993: “Vertical integration was neither practical
nor desirable ....., in a number of cases .... it is right to allow .....
vertical integration. The
The Directive did not require renewals and maintenance to be
contracted out to firms lacking experience of 125 mph railways. Hindsight
warned that, whilst contractors were employed to build early railways, railway
managers specified the materials used, fixed a price and supervised the work.
In the 1800s, some companies contracted out maintenance, but found it was a
costly error[11]. If pre-war privately-owned railways did not contract out,
there must have been sound reasons.
False hindsight
Ministers claimed that previous
privatisations were successful. MPs contested this, referring to inflated water
prices; and higher fares, reduced services and older assets in the bus industry!
Soon after railways were wholly in
the private sector, newcomers began to find - as professionals forecast - that
100% reliability was no more likely in respect of railways, than in any
industry. Illusory hindsight was prayed in aid: “rolling stock and assets
were decrepit”. No forecast was given of this prospect, yet one assumes
that newcomers had, at least, travelled by train and inspected assets.
If the assets were decrepit, how
could newcomers claim to be “sweating the assets”, “getting
more train miles out of rolling stock”? Under Railtrack, renewals were
extended beyond what BR and European railway engineers considered necessary.
The average age of rolling stock is older now than under
Ex-ministers claim that problems
arising from fragmentation can only be seen with the benefit of hindsight, and
yet lessons of hindsight were ignored. Hansard records that they were warned,
at the time, of the very consequences that have arisen.
False foresight
Subsidy
Ministers forecast
that the subsidy would fall. To make it easy, they did not set a real challenge
by privatising rural routes first, but prioritised unsubsidised services,
giving generous subsidies[13]. Now, ex-Ministers gloat, that some now pay a
premium. Until they have repaid subsidies plus interest, they cannot claim to
have matched
Investment
Ministers forecast
a massive inflow of investment. This was to be from the private sector that
invests abroad, where they transferred production! There was no intention of
State funding. Newcomers do not get value for money, as investment is wasted
due to inadequate planning that led to new trains standing idle because
fragmentation eliminated the liaison that ensured infrastructure was
simultaneously modernised. Avoidable accidents, such as Hatfield, have written
off BR investment long before life-expiry. Railtrack had grants when it was
supposed to be self financing, and taxpayers are funding new rolling stock.
Monopoly
Ministers claimed that privatisation
would end BR’s monopoly. Their predecessors admitted BR never had a
monopoly [15]. Newcomers and the Franchising Director acknowledged external
competition, which had long been obvious to
Economies
Ministers forecast fewer staff,
ignoring regular reports by BR of economies.[16] contrast, government failed to
cut civil service costs [17] the private sector threw in the towel and
transferred production abroad. Hundreds of non-productive jobs have been
created to oversee fragmented railways and settle disputes over costs, delays,
accidents, etc.
Unhindered by “union
power”, BR managers initiated thousands of productivity schemes that did
not provide more pay. Had industry achieved as much, the
A Minister foresaw “private
sector staff operating away from the constraints of the national Rule
Book”, which contained not one word that smacked of demarcation - unlike
rule books in industry. It specified safe methods of operations - when private
sector supplied equipment fails or following accidents. Its development over
150 years, owed much to the only people in
Performance
Ministers foresaw 100% reliability
with privatisation. Hindsight would have told them, as the private sector did
not deliver 100% standards, they were unlikely to do so on railways. Hope
triumphing over hindsight, they put infrastructure in the hands of the inexpert
and trains with those with worse reliability records! One worrying forecast was
that punctuality would be improved by getting drivers to drive faster. They
were unaware that trains were timed to run at the maximum permitted safe speed
of track and rolling stock.
Complaints were forecast to vanish.
As punctuality worsened, complaints soared. This was “justified” by
a rise in passengers [18], which was irrelevant. Complaints reached 1%: 100
times as many as BR [19]. When this was realised, the next excuse was that BR
never replied to complaints. Had that been so, annual Reports of ten
“watchdog” committees [20], would have abounded with criticism -
they did not. Hansard would have done likewise - it did not.
For the first time, the private
sector faced bodies whose existence was well publicised by BR on stations and
trains. Complaints included: unprecedented cancellations and delays, failure to
replace cancelled trains by buses, broken connections, shorter trains and trains
missing scheduled calls to make up lost time. When a student missed an exam
because a train failed stop at Gatley near
Politicians prophesied faster trains to match
Genuine Foresight
The media warned that BR could not compete with road
transport without the same commercial freedom as road transport [22]. Government refused to concede it.
Some Tory MPs warned that the privatisation concept was
flawed. Robert Adley, Tory chairman of the Transport Select Committee told
Parliament: “the Bill was a recipe for muddle, indecision and
conflict”. The Bill was developed on the hoof, with no less than 1,400
Government amendments to the Bill - a clear indication that the Bill was rushed
and ill conceived.
In the privatisation debate, an MP stated that the Swedish
Railways Chairman said that Government proposals were insane [23]. The
President of JR East, Japanese Railways had looked at the way they are trying
to privatise BR, and knew it will fail [24]. A Minister said that “
MPs and management in private sector industries warned that
privatisation would lead to the demise of the rolling stock industry and an
adverse effect on balance of payments. In June 1993, Ministers said the lack of
rolling stock orders was nothing to do with privatisation, but to a drop in BR
revenue, due to recession [26]. Ministers said it was a matter for BR - on
which they had pronounced the death sentence - “to decide where that
leasing order for £150m should be placed”. BR and Passenger
Transport Authorities had been regularly buying from the private sector, until
the concept of leasing raised doubts
in the financial markets as to the safety of such investments.
British Rail Board warned against fragmenting the successful
Business Sectors [27], which, they pointed out, in their 1994/5 Report, caused the
subsidy to double. Under BR, subsidy would have continued a downward trend
Bill Bradshaw (now Lord Bradshaw) - former BR Chief
Operating Manager, past Western Region General Manager, widely respected for
his experience and managerial skills - warned that the planned form of
privatisation “offended against every principle of professional railway
operations and is likely to result an outcome which will be expensive,
unsuitable and unsafe”.[28]
His fears were well founded. Subsidies are out of control
and safety is worse, despite Railtrack claims [29] that “1998 was the first year since 1902 when there was not
a single passenger fatality”. It was not. None were killed in train
accidents - nineteen were killed in 1998 in other accidents. None were killed
in train accidents in eleven years of the BR era! Train accident fatalities
totalled 46 in the years in which the industry has been fully privatised,
compared to five for the comparable final period under
Early in 1993, I warned [30] of risks to safety, broken
connections, disputes over paths, fare rises, and a great future for lawyers
and accountants. Foreseeing the downside risks if privatisation failed, I
advocated options to test the ground: a privately built and operated high speed
railway, re-opening 6,940 miles of closed railway, or partial privatisation. I
forecast that, to reduce road accidents, the hours of haulage drivers would be
cut to levels imposed on rail by government, and comparable safety standards
enforced. These would increase road costs, making rail more competitive. New
owners of railfreight soon called for a level playing field. On 1st April 1993,
on BBC Radio Stoke, I repeated these warnings adding that newcomers will
discover that too many cooks spoil the broth and will resolve it with mergers
and closures.
In view of the available options and downside risks, why did
Ministers take this leap in the dark. Were they afraid that BR would give better value for
money? MPs and Peers of all parties tabled Amendments giving BR - as the only
people in the
Clearly, there was foresight
to spare, and an abundance of hindsight
lessons.
In conclusion
Franchises are now being merged, resolving a problem they
created. To reduce track access charges and driver training costs, operators
opted for restricted use of designated platforms at large stations. It led to
trains standing outside a station, despite unoccupied platforms.
Had they been asked, ex-BR managers would have forecast the
consequences of significant increases in track occupation. Having not sought
that expert advice, newcomers put too many trains on the track, and now have to
withdraw hundreds to reduce delays. Journey times have been extended to reduce
delays. More intensive use, left fewer spares to cover breakdowns. Hence, some
routes had long gaps between trains which then arrived short-formed.
Railtrack and their apologists argued that contracting out
renewal and maintenance was common. In major industry - it is not. This policy
must be reversed.
Journalists who criticised BR in the “bad old
days” are now calling for re-nationalisation: “Bring back BR, all
is forgiven”.[32] Had critics studied facts rather than anecdotes, we
might never have had the form of privatisation forced through by the Tories.
The test of a great general,
[1]
[2] Railways were carrying
50% more freight, 100% more passengers. Square
Deal Denied page 141.
[3] Commercial Motor, vol
73, page 239.
[4]
[5] Square Deal Denied,
pages 30-36.
[6] Profits of 35% for 3,500 aircraft industry
contractors. (Hansard vol 345, col 349). Railways limited to 3%. See also The Life of Neville Chamberlain, by K. Feilding, page 292.
[7] The Railway Closure
Controversy.
[8] Square Deal Denied,
chapters 10 & 11.
[9] Square Deal Denied,
page 105.
[10] Of ten chairmen of
the BTC or BRB, only two were railway professionals - the fifth and the eighth
[11] Samuel Smiles, The
Life of George Stephenson, 1857, pages 441-443.
[12] In June 1993, John MacGregor told Parliament:
90% Regional Railways rolling stock is under 8 years old. The average age of
rolling stock has risen, see
[13]
[14] John MacGregor quoted
in 1993/4 Annual Report of TUCC for Scotland & Daily Telegraph 9.3.94
[15] In “Privatisation of BR”, Harris
& Godward state "Until 1952, the BTC was a monopoly of all non-car
transport, for passenger or freight". It was not. In 1951, 80,000
buses/coaches & 964,000 goods vehicles were in use; the BTC owned 22,683
& 55,646 respectively. In 1956, the Minister stated "the BTC was never
a complete monopoly". See
[16] Some expected economies from using track
machines instead of labour. BR introduced its first track maintenance machine
in 1948 - its first year, bought more of improving design every year &
designed new machines tailored to BR requirements. See
[17] Leslie Chapman,
Your Disobedient Servant.
[18] BR pre-recession volume was not matched until
1997/8. A journey on two companies' trains now equals two
[19] BR gross complaints - before refund or apology,
which the private sector considers voids a complaint - were 0.009% of
passengers. See
[20] Central Transport Consultative Committee and
Transport Users Committees created by the 1947 Act. They were twice re-named.
Their roles and location were publicised on stations and trains for decades.
[21] Sunday Telegraph 13
January 2002
[22] The Times 17 April 1952, 28 April 1952, 10
December 1956; Economist 12 July 1952, 30 June 1956; Financial Times 13 June
1956; Guardian 29 June 1956. Government's Stedeford committee made the same
point. See
[23] Hansard vol. 216, col. 772
[24] Railwatch, December 1993.
[25]
[26] Ex-Ministers said increased traffic was a
benefit of privatisation - recovery from recession was ignored.
[27] Created in 1980, not as a prelude to
privatisation as stated in Guinness Railway Fact Book, page 98. InterCity had
no subsidy after 1988; Network SouthEast had none in its last year, following a
downward trend over previous years. They were split into 18 companies, 17 of
which were subsidised.
[28] Address to Railway Students Association -
November 1991
[29] Sunday Telegraph, 8 October 2000.
[30]
[31] Blueprints for Bankruptcy. A copy was placed in
the House of Commons library. It also revealed that BR fares had trailed
inflation since 1948.
[32] The Times editorial 16 January 2002