"Euston... We have a problem": What's wrong with Britain's railways

Timetable chaos, annual ticket-price hikes and strike action have left commuters questioning whether re-nationalisation could be a solution to our railway impasse.

by Mat Snow
Last Updated: 16 Apr 2019
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It says something about both our railways and what we regard as news that you seldom have to wait long for a story reporting trouble on the track. From widespread disgruntlement with each new passenger survey and protests every January as ticket prices rise faster than incomes, to new timetables creating wholesale chaos, our railways increasingly seem to give us cause for complaint.

Some three million people depend on the trains each weekday, most of them to, from and within London, where over a third of workers commute by rail, both surface and underground. As rising property prices and rents expand the capital’s footprint far beyond the old Home Counties, commutes are getting longer, on average an hour each way.

Though you may not get a seat on the 7.44am from Flitwick, you can generally rely on arriving at Blackfriars an hour later at 8.43am – until you can’t, as happened last summer when timetable chaos paralysed Govia Thameslink. It was not alone. Network Rail’s new timetable changes caused disruption across the south-east and north of England. Between them, Thameslink and Northern failed to run an average of close to 800 scheduled services each day.

And, as the latest figures from the Office for National Statistics reveal, although days lost to strike action have fallen significantly in recent decades, the transport and storage sector accounted for 68 per cent of the 276,000 working days lost in 2017. Most of those were within public transport, especially rail where the planned introduction of driver-only trains across a number of routes, including those run by Thameslink, has proved contentious.

After years of loudly-trumpeted passenger journey rises – demand for rail services has more than doubled over the last 20 years – last year they fell 1.4 per cent, with a further fall expected this year. Spending on fares, meanwhile, fell 2.4 per cent, raising the question: just what is going wrong with our railway system?

It’s an important issue, not just for passengers, most of whom are commuting for work, but also for the economy. Though currently only eight per cent of passenger miles are undertaken by rail, London’s traffic means rail is business-critical to the wealth of the nation. Meanwhile the rail freight industry, reports The Rail Delivery Group, secured over £1.7 billion of economic benefits for Britain in 2016.

It helps to understand how we got here. Railways lines were first run between the manufacturing and trade centres in the north of England. Back in 1840, no railway ran between England and Scotland; while Wales, the south-west, East Anglia and the Lake District were almost virgin territory. Just 12 years later, so-called Railway Mania had privately funded and built 6,600 miles of track, including many of today’s main and branch lines, and by 1901 almost 19,000 miles. The competing rail barons had created a nationwide network connecting people, goods and money.

Supplanting canals and roads, railways became the national arterial system, and surprisingly early were argued to be too strategically vital to be left in private hands. In 1844 the President of the Board of Trade and future four-term prime minister William Gladstone tried to take them into public ownership, and though his bill was defeated in Parliament, regulation of the industry was underway.

There would have been no railway system to regulate in the first place, however, had Parliament not been so helpful in legislating on both compulsory purchase orders and rights of way. So deeply embedded in each other’s pockets became the railways and Parliament that, by 1873, every fifth MP was a railway company director.

Public ownership

By the time the railways first came under temporary direct government control in the First World War, it was a mature industry. The need to replace and upgrade rail, signalling and rolling stock squeezed the huge profits of the early decades and, in 1923, Parliament consolidated and rationalised the numerous rail companies. When war intervened again, the resultant bombing and under-maintenance meant the regeneration needed could not be financed privately, and so, in 1948, the railways fell into full public ownership.

Initially British Rail made a profit, but, despite its conversion from steam to diesel and electricity, fell into red ink, bleeding millions of pounds a year by the early 1960s as car ownership widened and freight took to the new motorways. The infamous 1963 Beeching cuts to the network, which spelt the end for thousands of stations and hundreds of branch lines, symbolised how rail, though still vital, was now the poor relation of the transport system.

Though in its final two decades British Rail cut overheads by shedding a significant chunk of its workforce, while still introducing the speedy warhorse InterCity 125, public subsidy,  and hence investment and modernisation, lagged behind the railway systems of the major continental nations, also publicly owned. While Margaret Thatcher’s government believed selling the railways would be "a privatisation too far", her successor, John Major, thought otherwise. In 1994 rail was privatised, a move that many commentators now believe is the root cause of today’s rail problems. J

From a pragmatic viewpoint, privatisation made some financial sense. This publicly owned asset cost the taxpayer £1-1.5 billion a year in subsidy. By selling off physical assets and licensing operating rights, the Exchequer could turn that red ink black, as well as introducing free market disciplines,        innovations and investment. Major opted to slice the BR cake into three – fixed infrastructure (under one shareholder-owned company, Railtrack), rolling stock leasing companies and the new train operating companies (TOCs).

"That was one of the largest industrial restructurings of any state-owned business anywhere in the world," says Alex Hynes, managing director of the ScotRail Alliance. "While we’re beating ourselves up about it, across the world countries are copying us, making sure they account for infrastructure separately from operations to create open access for freight and innovative new passenger providers." He points to Germany, which has seen big UK players, such as FirstGroup, Go-Ahead and National Express, winning franchises.

The private era hardly got off to a smooth start, however. Cracks in the system became tragically apparent in 1999 when 31 people lost their lives and hundreds more were injured when a train going through Ladbroke Grove in West London crashed after missing a signal – an accident that could have been prevented had there been an automatic train protection system, something that had been rejected by Railtrack on cost grounds.

A year later at Hatfield another four people were killed when a train derailed because of track metal fatigue, further damaging public confidence. In the wake of the crash, Railtrack ran into financial difficulties and its shares, once as high as £17.68, were suspended at 280p in 2001. In 2002, the assets returned to public ownership as Network Rail.

Fatalities of such magnitude have not been seen since: over the past decade there have been no passenger or workforce fatalities from either mainline train collision or derailments. There has also been a reduction in the number of workforce fatalities, which regularly exceeded 100 per year in the 1960s, to typically (though still unacceptably) no more than three per year over the last decade.

The quality of the rail network is certainly better than it was 20 years ago, says Hynes. "If you look at investment in infrastructure and trains and customer service, it’s better than British Rail, no question about that." Critics, however, argue that improvements under privatisation are a consequence of state investments to meet increasing passenger demand, not the iron discipline of private sector management.

They also assert that it’s not possible for a large number of companies – there are around 20 different franchised operators – to harmonise their decision-making with the precision needed for every single element of what is essentially a highly complicated interlocking mechanism to remain in perfect synchronisation.

Railway historian and transport pundit Christian Wolmar is among them. The worst aspect of privatisation, he says, was not the privatisation itself but the resulting fragmentation: "The structure is misconceived because the railways are an integrated business – they are not a series of discrete functions."

This, he adds, not only leads to costs but also to a failure of the public to understand exactly who is responsible for what when things go wrong. "British Rail, for all its problems, had this amazing cohort of railway people who one day might be working in the ticket office or another time as an operations manager in South West Trains, going round understanding the whole railway, developing these amazing management skills and therefore understanding that it works as a whole."

British Rail may have cost the taxpayer but today’s railway network costs significantly more. In 2017-18, Network Rail received a £4.5 billion network grant and cost the taxpayer an additional £4.5 billion in borrowing, with its debt now standing at £51.2 billion.

Then there are the TOCs. Bidding low to win contracts, many operators found they could not turn a profit on ticket income. Depending on the route, they either make annual payments to the government or receive an operating subsidy. In 2017-18 that resulted in a net receipt for the government of £0.4 billion.

However, to maintain the system, successive governments have had to make further subsidies through Network Rail, which in the same period received just £1.7 billion of net income from train operators for the use of its infrastructure. For the weary commuter facing delays, cancellations and overcrowded trains, that’s a bitter pill to swallow, made all the more unpalatable by the seeming lack of downsides for the train operating companies.

A broken model?

Running between London and Edinburgh, the all-electrified East Coast Main Line was operated until last year by Virgin Trains East Coast, a joint venture 90 per cent owned by Sir Brian Souter’s Stagecoach and 10 per cent by Sir Richard Branson’s Virgin. The company pulled out of its operating contract early on the basis that it could not make a profit but, instead of having to pay the government all or part of the outstanding franchise fee of around £2 billion, the debt was written off.

"The critics argue that Stagecoach and Virgin are somehow benefitting from this," wrote Branson in a blog. "The fact is we have both lost significant amounts of money – well over £100m in total – and have not received a penny in dividends." But Labour peer Lord Andrew Adonis was not amused, citing the move, together with the government’s Brexit J strategy, as a reason to quit his role as chairman of the National Infrastructure Commission (NIC). "In the good times, Sir Richard and his fellow billionaire Brian Souter coined it from public rail contacts," he told The Guardian. "What he now says is that they weren’t prepared to sustain further losses despite the billions they have earned from rail contracts until now."

This is no ordinary business, in no ordinary market. Franchise agreements are so tightly specified, and TOCs so thinly capitalised, that the rail barons who first laid this country’s tracks would scarcely recognise what exists today as capitalism. Though the profits and losses can be substantial, the strategic decisions are all made in the public interest as vested in Parliament – and are therefore subject to the prevailing political wind.

Take HS2. Inspired by Japan’s Shinkansen service between Tokyo and Osaka, France’s LGV (Lignes à Grande Vitesse), Spain’s now extensive high-speed system and, currently leading the world in both distances and speeds, China, an English north-south dedicated high-speed rail line was first mooted some 20 years ago, but a business case was hard to make.


RAILWAY FACTS AND FIGURES

The national rail network in Great Britain has almost 16,000km of route and serves over 2,500 stations.

Every year around 1.7bn passenger journeys are made.

In 2017, the top 20% of earners in England made on average over three times as many rail trips per year as those in the lowest 20%.

The Rail Industry Association puts UK network utilisation at around 60% higher than the EU average.

According to Network Rail, around 70% of delays are due to congestion rather than a primary cause.

Between 2019 and 2024, Network Rail plans to spend around £48bn in England and Wales and around £5bn in Scotland.

In real terms passenger fare revenue has almost doubled in the 15 years to 2017-18, increasing from £4.9bn to £9.7bn.

A decade ago it was raised again. Championed by MPs of both major political parties, HS2 has seemingly lurched from one argument – and counterargument – to another in the teeth of both tight government spending and local opposition along the proposed track. The environmental case, for instance, is now less than clear-cut given the growth in use of electric and dual-fuel cars from which the comparatively carbon-heavy HS2 was supposed to be seducing passengers.

The current government has maintained its commitment to the project but the cost of "Concorde on wheels" may be its undoing, despite the investment already made. Last year the Chairman of the NIC, John Armitt, admitted that HS2 needs an extra £43 billion adding to a budget put by the Transport Department at £56 billion (though the Treasury now reckons it could be between £80 billion and £100 billion).

If this were France, where single contractors, managed by officials, bid to manage construction projects against closely benchmarked costs, the outlay could be significantly less – at least based on a simple comparison between French high-speed lines and HS1 (the Channel Tunnel Rail Link, which in 2010 was transferred on a 30-year lease to a Canadian pension fund for £2.1 billion, less than a quarter of the cost of construction, then sold to a South Korean consortium for £3 billion).

Engineering experts in Germany, meanwhile, look askance at the costs of rail electrification in the UK, which European Commission statistics reveal stood at 34 per cent of the network in 2016, compared to 53 per cent in Germany. Unlike in the UK, German rail electrification projects are tendered on a fixed price basis to a known remit and run by small project management teams – at less than a third of the costs in the UK.

It’s hard to say whether these infrastructure cost overruns are a direct consequence of Britain’s railway fragmentation, as opposed to an unfortunate and more general pattern in UK public procurement. Besides, Wolmar argues that, while France and Germany have the advantage that they are still largely integrated railways, it is premature to assume their railways are better than ours.

"Deutsche Bahn is not as efficient as people think. They have this great network, these wonderful e-trains, they’re very comfortable, but they have the same problems that we have in terms of keeping to time always, overcrowded networks and the likes," he says. "France’s SNCF has a fantastic TGV network which is far better than our intercity, but go outside that and it’s pretty bad. Try to take a train from Boulogne to Lyon and you’ve got half a dozen trains a day shambling through at 30mph."

Bradshaw Address

Last autumn the government decided to take action on the railways with a review carried out by former British Airways chief executive Keith Williams. So far he seems less than impressed. Delivering the Bradshaw Address to industry leaders in February, he pointed out that while impressive growth has been achieved on the railways over the past decades, "despite everything that is being done and all the money that is being spent over time, the rail industry has lost sight of its customers – passengers and freight – and therefore lost public trust".

Efforts to improve the situation for customers are all too often frustrated, he said, not J because of lack of will but because no single organisation owns the problem. "Too often the current system incentivises short term behaviours and inhibits reform. Franchising cannot continue in the way that it is today. It is no longer delivering clear benefits for either taxpayers or farepayers."

So what might we hope to see when the government publishes a White Paper in the autumn based on the review’s recommendations? Right now, polls indicate the public supports renationalisation by around three to one. You can see why: all the parts would be joined up again under a central command.

Switzerland’s excellent but expensive national railway offers a blueprint, as does Transport for London’s tube and rail system, which, like privatised rail, has seen rising passenger numbers thanks to upgrades, service improvements, innovations like touch-and-go payment, and with Crossrail’s Elizabeth Line still to come. But there would be substantial costs attached to buying the TOCs out of their contracts, and an annual public subsidy dependent on the goodwill of the Treasury would almost certainly still apply.

Then there is the Japanese model, where in 1987 the former Japan National Railways was split along regional lines before everything – infrastructure, rolling stock and operations – was sold together. JR East, centred on Tokyo, owns tracks, trains and stations outright, as do JR Central and JR West. But JR Hokkaido, which operates many rural lines, remains publicly owned, providing the government with a yardstick with which to prevent private companies from exploiting passengers.

Hybrid options

Japan’s culturally embedded public service ethos is reinforced by detailed governmental monitoring of costs and profits across the entire private rail sector and regulated accordingly. Fares are distance-based and haven’t risen in over 30 years. Owning their own infrastructure and rolling stock, the Japanese rail companies have every incentive to keep investing for the long-term success of the line in a coordinated manner.

In the UK, a train operating company may invest indirectly in new rolling stock and IT at the start of its 10-year franchise period but has no incentive to continue as the end approaches. Network Rail, meanwhile, invests in the stations and track, but has no incentive to do so in a way that benefits the profitability and therefore viability of the operators.

One attempt to make the system more joined up is the Scottish model. Network Rail and the TOC Abellio teamed up in 2015 to form ScotRail Alliance, a partnership with unified objectives. Hynes says ScotRail is among the best performers in the UK; despite being criticised for extensive delays, cancellations and significant overcrowding. But, in any case, it may not be possible to copy and paste the Scottish model (or the Japanese one) onto the rest of the country. Scotland benefits from having significant overlap between its Network Rail route and its operators.

"South of the border it gets a damn sight more complicated," says Hynes. "My view is that the learnings from ScotRail are nuggets of gold when deciding how to run the railways in England, but it’s not a template."

Perhaps squaring the circle, last year chair of the Big Innovation Centre, Will Hutton, floated yet another public-private hybrid: a new kind of company, the public benefit company (PBC). Legally constituted to subordinate profit to the public good, compliance would be guaranteed by the government’s foundation share as a condition of its licence to operate, giving the government the right to appoint independent non-executive directors.

Existing shareholders’ rights to votes and dividends would remain intact, and borrowing would not be classed as public debt, so freeing it from Treasury constraint. Nor would the Secretary of State for Transport get dragged into the operational running, thus politicising decisions.

"The aim would be to combine the best of both the public and private sectors," Hutton wrote in The Guardian. "If companies do not deliver what they have promised, there should be a well-defined system of escalating penalties, starting with the right to sue companies and ending with taking all the assets into public ownership if a company persistently neglected its obligations."

Could this be the light at the end of the tunnel? Many will argue that Hutton’s proposals are unworkable. Whether Williams is among them will not become apparent until the autumn.

Image copyright: Getty Images

Additional reporting by Claire Warren and Adam Gale

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