Published: 23rd September 2015
The headlines have been dominated by the new Labour Party leader Jeremy Corbyn, promising to renationalise the railways should he become Prime Minister in 2020. Rail.co.uk takes a look at what is involved and how this could affect the booming UK rail industry.
First of all the major part of the railway is already in taxpayers’ hands. Network Rail (NR) has just completed its first year as a Government department following compliance with EU legislation. Indeed, it has always really been a Government organisation as it was set up without shareholders, just Members who had a very limited role to play so far as Governance was concerned. The company was non-profit-making as all profits were reinvested into their coffers to be spent repaying interest on Bonds, on the network, or fines for poor performance!
But throughout NR’s 12 year history, it took over from Railtrack, a listed company which was placed into Administration by Stephen Byers in 2002, its funding has been agreed with the Office of Road and Rail, (ORR) in five-year periods known as Control periods (CP). The process is that funding as agreed for a specified set of outputs or targets to be met within that funding period. We are currently in CP5 which has four years to run. CP6 funding will be largely agreed by this time next year.
Railtrack and NR both raised funds in the long-term finance market with a minimum investment of £50,000 over at least a decade for the latter company. This method of raising finance to pay for investment was backed by the ORR who valued the asset base at tens of billions of pounds and the borrowing was secured against this notional value.
This system allowed the rail industry to plan ahead in five year segments enabling long-term projects to go ahead. Between 1948 and 1994 when the railways were nationalised, funding was agreed on a year by year basis with the Government.
If funds were committed to a project which ran late, then the unspent cash could be reclaimed by the Government at the end of the financial year and the ongoing project had to be financed out of the new financial year’s budget. This often brought about ‘Operation Quickspend’ which brought forward maintenance or other projects that could quickly be implemented before the financial year-end.
For example in 1991, some Regional Railways’ new trains were slightly delayed potentially leaving several millions of pounds unspent by the financial year end. The Retail department was given six months to procure station poster and information boards to be put at all 1500 stations run by the BR Sector bringing forward the million pound expenditure from the next financial year.
Obviously this type of scheme can be done when there is one organisation involved and would probably not be possible today with franchisees. But is this year on year financing the way forward for a multi-billion pound industry with long lead-times for investment and construction?
In the last year of British Rail, there was no real investment (apart from the Channel Tunnel Rail Link), but expenditure was directed at removing speed restrictions. This meant the books looked good as did the track when it was handed over to Railtrack on 1st April 1994. But privatisation led to a hiatus in new train ordering of three years due to the uncertainty.
Some blame Maggie Thatcher for rail privatisation but even she shied away from it being warned it was a policy too far! John major ignored that advice and decided to split up British Rail into over 100 companies.
The intellectual property was vested with these companies - when it wasn’t just thrown away. Railtrack was told to sub-contract its operations and to be a management company contracting out maintaining the railway infrastructure. Prices were reduced by contractors in an effort to win Railtrack’s custom and maintenance standards were cut and experienced staff made redundant leaving the industry.
Labour opposed rail privatisation in 1997 and promised to reverse it if they got into power. The Conservative Government completed the final franchise months before the 1997 election and Labour did not keep their election pledge to reverse it over the next three Parliaments.
In fact they shut down the Office of Passenger Rail Franchising and created the Strategic Rail Authority. This was itself closed down by the Conservative Government and powers given to the Department for Transport (DfT). They in turn made serious errors in the West Coast Main Line franchise three years ago which brought a ‘pause’ to the franchise system.
At the same time the Government commissioned Sir Roy McNulty to look at the railways’ structure and he published his ‘Value for Money;’ report in May 2012. Most of this has been subsequently ignored and one idea tried was closer collaboration via rail Alliances. The initial one with NR and Southwest Trains was disbanded a few months ago when competing commercial pressures meant the Alliance could no longer continue.
Who knows! The idea of allowing franchises to run their course and not be renewed would obviously avoid buying out contracts. But a train operator would have to be appointed to carry on running services.
But what about the Rolling Stock Leasing companies? They have funded billions of pounds worth of new trains and make a return on their investment by leasing these to train operators.
The major stations such as Euston, Waterloo, Gatwick Airport, Birmingham New Street, Glasgow Central and Edinburgh could be privatised and run independently which was in the original 1994 plan, but never carried out!
There is a small army of delay attribution staff across the rail industry. These people argue about who is to blame for delays and the compensation bill depends on these people but how much does this cost? Nobody knows but estimates of maybe 300 people working on this must mean that the cost of the scheme is £30million annually.
But, the current Government has time to award long-term rail contracts expiring after the 2025 Election to make it expensive for any Government to nationalise the railways after the 2020 election.
And what about European legislation? This is what drove railway privatisation in the first instance demanding that infrastructure accounts must be compiled separately from train operations’ accounts. Other EU countries have two companies, an Infrastructure arm and a Train Operations arm.
This means that the former allocates train paths and is responsible for the timetable delivery and track maintenance while the other company delivers train services considerably reducing the myriad of interfaces and the associated costs we have in the current UK rail system. The EU has also decreed that competition must be allowed under Open Access arrangements, and this did not happen under BR.
Rail fares would also be easier to allocate, in theory but different routes would presumably want, as they did under BR, their due share of revenue allocated to them.
Mr Corbyn told The Independent newspaper: “We know there is overwhelming support from the British people for a People’s Railway, better and more efficient services, proper integration and fairer fares. On this issue, it won’t work to have a nearly-but-not-quite position. Labour will commit to a clear plan for a fully integrated railway in public ownership.”
Despite all the political interfering since the 1992 election that shaped the way our railways operate today, railway staff have always done their best to deliver services despite the changes in policy and political direction. Record numbers of passengers cannot be wrong either!