With the Benefit of Foresight

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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 BR. It was nine years before BR freight rates were freed from control by the law court, and even then, Ministers interfered to protect coastwise shipping for another twenty years.

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, Whitehall worked on plans for post-war nationalisation, which they saw as inevitable - irrespective of which Party was in power - given the ruinous financial state into which government control was driving railways.

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 Isle of Wight can be vertically integrated”. Ten days later, another Minister confirmed, “we do not rule out vertical franchising”. On 25th May, MacGregor, said of Select Committee recommendations: “We disagree with some: the crucial one relates to vertical integration. I cannot go into it, but there are good arguments on both sides”. On 2nd November, Tory MP Tim Rathbone was “concerned the franchising director must submit to the Secretary of State for approval, any proposal for vertically integrated franchises”.

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 BR.[12]

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 BR. The east coast route had a £40m pa profit[14] and should have attracted a £40m premium from Day One, not a subsidy of £73m. GNER will have cause to boast when they have repaid past subsidies plus that £40m pa plus interest, and the premium exceeds £40m - all uplifted for inflation. Even then, their boast should be tempered with the fact that they want government to fund new rolling stock. Subsidies increased as operators threatened to pull out or close lines or stations.

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 BR.  

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 UK would not be a net importer. Political hopes were dashed as newcomers exposed their ignorance, causing train cancellations by ill-conceived and unsustainable economies. Pay rise policies caused pay-leapfrogging and poaching of staff, leading to increased training costs. Railtrack badly mishandled its first pay-deal and caused an avoidable strike that cost BR - still then responsible for running all trains - an 8% drop in revenue. This proved an ill-wind, when the lower base became a benchmark to prove expansion under the private sector, judiciously ignoring recovery from recession!

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 Whitehall who knew anything about railways - the Minister's Railway Inspectorate! They must have cringed at his words. His aspirations were ignored or there would have been even more accidents.

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 Stockport - First NorthWestern said that it is entitled to do so to make up time and reduce inconvenience to the majority [21]. The phone would have been hot from Whitehall had BR followed this practice. Newcomers adopted private sector euphemisms in replies to complaints: thanks for “comments” or “observations”. At least, the word “complaint” vanished.

Politicians prophesied faster trains to match France and Japan. They were able to cut new routes; five alternative routes for our channel tunnel link were blocked by NIMBYs and MPs bending to voter power. The current route involves extensive tunnelling, funded by government, not the private sector

 

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 “Japan and Sweden were among countries following the same path as the UK”.[25] He was contradicted by MPs of all Parties.

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 BR. Despite claims of fewer broken rails, H&SE Reports show that they increased. In the period that Railtrack was responsible, the annual average was 751. In the comparable period under BR, it was 678.[30] 

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 UK that knew how to run railways - the right to bid for franchises. Ministers refused. Excuses they advanced for not doing so did not hold water.  

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, Wellington said, “is to know when to re­treat and to dare to do it”. It must surely be the test of a great politician. Hopefully, it may not be too long be­fore we see one. 

 

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[1] Britain's Railways - The Reality, page 14.

[2] Railways were carrying 50% more freight, 100% more passengers. Square Deal Denied page 141.

[3] Commercial Motor, vol 73, page 239.

[4] Britain's Railways - The Reality, chapter 15

[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 Britain's Railways - The Reality, page 84

[13] Britain's Railways - The Reality, chapter 15.

[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 Britain's Railways - The Reality, page 172.

[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 Britain's Railways - The Reality, chapters 9 & 13.

[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 Britain's Railways - The Reality.

[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 Britain's Railways - The Reality.

[23] Hansard vol. 216, col. 772

[24] Railwatch, December 1993.

[25] Britain's Railways: A New Age, 1994. In the same publication, he praised BR.

[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] Britain's Railways - The Reality, Appendix D (fatalities), Table 15 (broken rails).

[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