Privatisation of British Rail
The privatisation of British Rail (BR) was the process by which ownership and operation of the railways of Great Britain passed from government control into private hands. Begun in 1994, it had been completed by 1997.
Historically, the railways had been in state ownership since 1948, with the operating arm BR controlled by the British Railways Board (BRB). Under the Conservative government of Margaret Thatcher elected in 1979, various state owned businesses were sold off, including various functions related to the railways – Sealink ferries and British Transport Hotels by 1984, Travellers Fare catering by 1988 and British Rail Engineering (train building) by 1989.
It was under Thatcher's successor John Major that the railways themselves were privatised, using the Railways Act 1993. The operations of the BRB were broken up and sold off, with various regulatory functions transferred to the newly created office of the Rail Regulator. Ownership of the infrastructure including the larger stations passed to Railtrack, while track maintenance and renewal assets were sold to 13 companies across the network. Ownership of passenger trains passed to three rolling stock operating companies (ROSCOs) – the stock being leased out to passenger train operating companies (TOCs) awarded contracts through a new system of rail franchising overseen by the Office of Passenger Rail Franchising (OPRAF). Ownership and operation of freight trains passed to two companies – English, Welsh and Scottish Railway (EWS) and Freightliner, less than the originally intended six, although there are considerably more now.
The process was very controversial at the time, and its success is hotly debated – with the claimed benefits ranging from a reduced cost to the taxpayer, lower fares, improved customer service, and more investment. Despite opposition from the Labour Party, who gained power in 1997 under Tony Blair, the process has never been reversed wholesale by any later government, and the system remains largely unaltered. A significant change came in 2001 with the collapse of Railtrack, which saw its assets passed to the state owned Network Rail (NR), with track maintenance also brought in house under NR in 2004. The regulatory structures have also subsequently changed.
- 1 Background
- 2 Legislation
- 3 System
- 4 Subsequent changes
- 5 Channel Tunnel infrastructure and services
- 6 Impact
- 7 Positive media coverage
- 8 Negative media coverage
- 9 Proposals for reform and renationalisation
- 10 See also
- 11 References
- 12 External links
- 13 Bibliography
Historically, the pre-nationalisation railway companies were almost entirely self-sufficient, including, for example, the production of the steel used in the manufacturing of rolling stock and rails. As a consequence of the nationalisation of the railways in 1948 some of these activities had been hived-off to other nationalised industries and institutions, e.g. "Railway Air Services Limited" was one of the forerunners of British Airways; the railways' road transport services, which had carried freight, parcels and passengers' luggage to and from railheads, ultimately became part of the National Freight Corporation, but not until 1969.
The preferred organisational structure in the 1970s was for the BRB to form wholly owned subsidiaries which were run at an arm's-length relationship, e.g. the railway engineering works became British Rail Engineering Limited (BREL) in 1970; the ferry operations to Ireland, France, Belgium and the Netherlands were run by Sealink (U.K.) Ltd, part of the Sealink consortium, which also used ferries owned by the French national railway SNCF, the Belgian Maritime Transport Authority Regie voor maritiem transport/Regie des transports maritimes (RMT/RTM), and the Dutch Zeeland Steamship Company. However, the BRB was still directly responsible for a multitude of other functions, such as the British Transport Police, the British Rail Property Board (which was responsible not just for operational track and property, but also for thousands of miles of abandoned tracks and stations arising from the Beeching Axe and other closure programmes), a staff savings bank, convalescent homes for rail staff, and the internal railway telephone and data comms networks (the largest in the country after British Telecom's), etc.
In 1979 the organisational structure of the BRB's railway operations still largely reflected that of the "Big Four" private railway companies, which had been merged to create British Railways over 30 years previously. There were five Regions (Scotland being a separate region), each region being formed of several Divisions, and each division of several Areas. There was some duplication of resources in this structure, and in the early 1980s the divisional layer of management was abolished with its work being redistributed either upwards to the regions or downwards to the areas.
The chain of British Transport Hotels was sold off, mainly one hotel at a time, in 1982. Sealink was sold in 1984 to Sea Containers, who ultimately sold the routes to their current owner, Stena Line. Also catering business Travellers Fare was sold in 1988 to a management buyout team. In 1988 British Rail Engineering Limited was split between the major engineering works, which became BREL (1988) Ltd, and the (mostly smaller) works that were used for day-to-day maintenance of rolling stock, which became British Rail Maintenance Limited (BRML). BREL (1988) Ltd was soon sold to the Swiss-Swedish conglomerate ASEA Brown-Boveri, which renamed the company ABB Transportation. A merger between ABB Transportation and Daimler Benz created ADtranz on 1 January 1996; ADtranz was subsequently taken over by the Canadian-owned conglomerate, Bombardier.
For reasons of efficiency and to reduce the amount of subsidy required from government British Rail undertook a comprehensive organisational restructuring in the late 1980s. The new management structure was based on business sectors rather than geographical regions, and first manifested itself in 1982 with the creation of Railfreight, the BRB's freight operation, and InterCity, though the Inter-City branding had been carried on coaching stock since the early 1970s. Commuter services in the south-east came under the London & South East sector, which would become Network SouthEast in 1986. Services in Scotland were operated by ScotRail, and Provincial sector handled local and rural routes. The regional management structure continued in parallel for a few years before it was abolished. Sectorisation was generally regarded within the industry as a great success, and it was to have a considerable effect on the way in which privatisation would be carried-out.
In 1985 what may in retrospect be viewed as the harbinger of private rail operation occurred when the quarry company Foster Yeoman bought a small number of extremely powerful 3600 hp locomotives from General Motors' Electromotive Division (GM-EMD), designated British Rail Class 59, to operate mineral trains from their quarry in Wiltshire. Although owned and maintained by Foster Yeoman, the Class 59s were manned by British Rail staff. During acceptance trials, on 16 February 1986 locomotive 59001 hauled a train weighing 4639 tonnes – the heaviest load ever hauled by a single non-articulated traction unit. Foster Yeoman's class 59s proved extremely reliable, and it was not long before quarry company ARC and privatised power generator National Power also bought small numbers of Class 59s to haul their own trains.
Also in 1986, the possibility of breaking up British Rail was explored when discussions were held with Sea Containers, later the franchise operators of GNER, concerning the possible takeover of the railway on the Isle of Wight. However, the discussions proved abortive.
In Sweden in 1988 the State Railways, Statens Järnvägar, was split into two – Banverket to control the track network, and SJ to operate the trains. This was the first time a national railway had been split in this manner, and it allowed local county authorities to tender for local passenger services to be provided by the new train operators that appeared. The Swedish system appeared to be very successful initially, although some train operators subsequently went bankrupt. The Swedish experiment was watched with great interest in other countries during the 1980s and 1990s.
The narrow gauge Vale of Rheidol Railway in Aberystwyth, Mid Wales was unique in Britain, being the only steam railway to be operated by British Rail. In 1988, The Department of Transport started the process of privatising the line. Later that year it was announced the line had been purchased by the owners of Brecon Mountain Railway, becoming the first part of British Rail to be privatised.
In 1991, following the successful Swedish example and wishing to create an environment where new rail operators could enter the market, the European Union issued EU Directive 91/440. This required of all EU member states to separate 'the management of railway operation and infrastructure from the provision of railway transport services, separation of accounts being compulsory and organisational or institutional separation being optional', the idea being that the track operator would charge the train operator a transparent fee to run its trains over the network, and anyone else could also run trains under the same conditions (open access).
In Britain, Margaret Thatcher was replaced by John Major as leader of the Conservative Party at the end of 1990. The Thatcher administration had already sold off nearly all the former state-owned industries, apart from the national rail network. Although the previous Transport Secretary and arch-Thatcherite Cecil Parkinson had advocated some form of privately or semi-privately operated rail network, this was deemed 'a privatisation too far' by Thatcher herself. In its manifesto for the 1992 general election the Conservatives included a commitment to privatise the railways, but were not specific about how this objective was to be achieved. Contrary to opinion polls, they won the election on 9 April 1992 and consequently had to develop a plan to carry out the privatisation before the Railways Bill was published the next year. The management of British Rail strongly advocated privatisation as one entity, a British Rail plc in effect; Cabinet Minister John Redwood "argued for regional companies in charge of track and trains" but Prime Minister John Major did not back his view; the Treasury, under the influence of the Adam Smith Institute think tank advocated the creation of seven, later 25, passenger railway franchises as a way of maximising revenue. In this instance it was the Treasury view that prevailed.
As a precursor to the main legislation, the British Coal and British Rail (Transfer Proposals) Act 1993 was passed on 19 January 1993. This gave the Secretary of State the power to issue directions to the British Railways Board to sell off assets, something which the board was unable to do until then.
The Railways Bill, published in 1993, established a complex structure for the rail industry. British Rail was to be broken up into over 100 separate companies, with most relationships between the successor companies established by contracts, some through regulatory mechanisms (such as the industry-wide network code and the multi-bilateral star model performance regime). Contracts for the use of railway facilities – track, stations and light maintenance depots – must be approved or directed by the Office of Rail Regulation, although some facilities are exempt from this requirement. Contracts between the principal passenger train operators and the state are called franchise agreements, and were first established with the Office of Passenger Rail Franchising (OPRAF), then its successor the Strategic Rail Authority and now with the Secretary of State for Transport.
The passage of the Railways Bill was controversial. The public was unconvinced of the virtues of rail privatisation and there was much lobbying against the Bill. The Labour Party was implacably opposed to it and promised to renationalise the railways when they got back into office as and when resources allowed. The Conservative chairman of the House of Commons Transport Committee, Robert Adley famously described the Bill as "a poll tax on wheels"; however Adley was known to be a rail enthusiast and his advice was discounted. Adley died suddenly before the Bill completed its passage through Parliament.
The Railways Bill became the Railways Act 1993 on 5 November 1993, and the organisational structure dictated by it came into effect on 1 April 1994. Initially, British Rail was broken up into various units frequently based on its own organisational sectors (Train Operating Units, Infrastructure Maintenance Units, etc. - for more details see below) still controlled by the British Railways Board, but which were sold off over the next few years.
The original privatisation structure, created over the three years from 1 April 1994, consisted of:
Railtrack took over ownership of all track, signalling and stations. Railtrack let out most of the 2,509 stations to the franchised passenger train operators, managing only a handful (12, later 17) of the largest city termini itself; maintenance and renewal of the infrastructure was also contracted out to British Rail Infrastructure Services, leaving Railtrack's directly-employed staff consisting mostly of signallers. In the original privatisation plan, Railtrack would have been the last part of British Rail to be sold, but with the approach of a general election in 1997 at which the Conservatives faced almost certain defeat, Railtrack was hastily privatised in May 1996 in an attempt to ensure that the new structure could not be reversed.
The Rail Regulator (the statutory officer at the head of the Office of the Rail Regulator (ORR)) was established to regulate the monopoly and dominant elements of the railway industry, and to police certain consumer protection conditions of operators' licences. He did this through his powers to supervise and control the consumption of capacity of railway facilities (his approval was needed before an access contract for the use of track, stations or certain maintenance facilities could be valid), to enforce domestic competition law, to issue, modify and enforce operating licences and to supervise the development of certain industry-wide codes, the most important of which is the network code. Probably the Rail Regulator's most significant power was the establishment, usually every five years, of the financial framework in which Railtrack (now Network Rail) operates, through the carrying out of access charges reviews. This settled the structure and level of access charges which the infrastructure provider is entitled to charge train operators for the operation, maintenance, renewal and enhancement of the national railway network. ORR's role only covered economic regulation; safety regulation remained the responsibility of the Health and Safety Executive, but that position changed in 2005 when safety regulation was transferred to ORR under the Railways Act 2005. The first Rail Regulator was John Swift QC
The Director of Passenger Rail Franchising took responsibility for organising the franchising process to transfer the 25 passenger train operators (known as Shadow franchises) to the private sector and then develop the refranchising programme for the future. The first round of franchising was based solely on the lowest cost bidder wins. The first Director of Passenger Rail Franchising was Roger Salmon.
Passenger train operators
Twenty-five passenger train operating units (TOUs), converted to train operating companies (TOCs) shortly before each was privatised, split by geographical area and service type. This meant that, for example, a major city terminus would be served by an ex-InterCity TOC and one or more local commuter TOCs, with consequent competition for train paths into and out of the stations, which had to be resolved by Railtrack and the Rail Regulator. The first batch of TOCs to be established (be privately operated) were South West Trains, Great Western in February 1996, the London, Tilbury & Southend franchise was to have been awarded to LTS Rail, but due to irregularities, the award was withdrawn and re-tendered, finally being awarded to c2c in May 1996. TOCs own fewer assets, hiring most of the assets (trains, tracks and stations) required from Railtrack and the ROSCOs and contracting suppliers to undertake heavy maintenance on the trains or provide onboard catering.
Three rolling stock leasing companies (ROSCOs):
These were allocated all British Rail's passenger coaches, locomotives, and multiple units. Freight locomotives and wagons were owned by the freight train operators.
Freight train operators
Six freight operating companies (FOCs):
- Geographical units for trainload freight
- Other units
Infrastructure maintenance and renewal
British Rail Infrastructure Services (BRIS), which took responsibility for the engineering requirements of the railway. BRIS was subsequently organised for privatisation on the basis of seven infrastructure maintenance units (IMUs), which maintained the railway, and six track renewal units (TRUs), which replaced rail lines, both organised geographically.
Infrastructure maintenance units
- Central Infrastructure Maintenance Company Limited Co. No. 02995513 now GT Railway Maintenance Limited
- Northern Infrastructure Maintenance Company Limited Co. No 02995419 now Jarvis Rail Limited
- Scotland Infrastructure Maintenance Company Limited Co. No 02999826 now Babcock Rail Limited
- Eastern Infrastructure Maintenance Company Limited Co. No. 02995393 (Company owned by Balfour Beatty Plc)
- South East Infrastructure Maintenance Company Limited Co. No 02995413 (Company owned by Balfour Beatty Plc)
- South West Infrastructure Maintenance Company Limited Co. No. 02995525 now Colas Rail Limited
- Western Infrastructure Maintenance Company Limited Co. No 02995531 now Amey Rail Limited
Track renewal units
- Central Track Renewals Company Limited Co. No. 02995364 now Centrac Limited
- Northern Track Renewals Company Limited Co. No. 02995377 (Dissolved 08/11/2008)
- Scotland Track Renewals Company Limited Co. No. 02999827 (Dissolved 01/03/2011)
- Eastern Track Renewals Company Limited Co. No. 02995454 (Dissolved 26/03/2013)
- Southern Track Renewals Company Limited Co. No. 02995436 (Company owned by Balfour Beatty Plc)
- Western Track Renewals Company Limited Co. No. 02995468 now Fastline Limited
Post-privatisation, the structure of the railways has remained largely the same, and the system is still based on competition between private operators who pay for access to the infrastructure provider and lease rolling stock from the ROSCOs.
A major change has been in the actual owner of the infrastructure. The aftermath of the Hatfield rail crash in 2000 led to severe financial difficulties for Railtrack and just under a year later the company was put into a special kind of insolvency by the British High Court at the direction of the government. The circumstances of that were very controversial, and eventually led to the largest class legal action in English legal history. The administration led to instability in its share price, and on 2 October 2002 a new organisation, Network Rail, bought Railtrack PLC from its parent Railtrack Group PLC. Network Rail has no shareholders and is a company limited by guarantee, nominally in the private sector but with members instead of shareholders and its borrowing guaranteed by the government. In 2004, Network Rail took back direct control of the maintenance of the track, signalling and overhead lines, although track renewal remained contracted out to the private sector.
Management of the passenger franchising system has changed, with the functions of the Director of Passenger Rail Franchising being replaced in 2001 by the Strategic Rail Authority (SRA), whose remit also included the promotion of freight services. The SRA was in turn was abolished in 2006 in favour of direct control by the Department of Transport's Rail Group. Overall, the system of franchising has proceeded as designed, with franchises being either retained or transferred dependent on performance. On two occasions, passenger franchises had to be taken temporarily into (indirect) government ownership, South Eastern Trains (2003–2006) and East Coast (2009–2015). Over time, some franchises have been merged and contract lengths have been extended; additionally, under the devolution programme, other government bodies have been given input into franchise terms – the Scottish Government with ScotRail, the Welsh Government in Wales and Borders, as well as the Mayor of London and the various passenger transport executives for the services in their respective areas. Since 2005 the Department for Transport has been using the community railway designation to loosen the regulations and lower the costs and increase usage of certain socially necessary routes and services, although these remain within the TOC structure.
In terms of non-franchised operators of trains, the planned post-privatisation freight operator market of at least six companies failed to materialise, with five being bought immediately and merged into what became known as the English Welsh and Scottish Railway (EWS) (now DB Schenker), leaving just Freightliner (UK) as the only other ex-BR freight business to be privatised to someone other than EWS. In both the freight and passenger sectors, a small number of open access operators have also emerged and disappeared. In terms of train ownership, the three ROSCOs continue to exist as originally established, although some now lease freight locomotives and wagons to the FOCs. They have been joined by a variety of small-scale train owners ready to let old railway stock on short-term leases. Also, Railtrack and its successor Network Rail have also purchased some rolling stock themselves.
The regulatory structure has also evolved; in line with changes to the regulation of other privatised industries, the position of Rail Regulator was abolished in 2004, replaced by a nine-member corporate board called the Office of Rail Regulation, incorporating responsibility for safety regulation, previously the remit of the Health and Safety Executive.
Channel Tunnel infrastructure and services
Privatisation of British Rail occurred as the same time as the Channel Tunnel project linking Great Britain with France reached completion, with the tunnel itself being officially opened on 6 May 1994. Key parts of the project were a passenger rail service through the tunnel, dubbed Eurostar, and the building of a new high speed railway on the British side, the 109-kilometre (68 mile) Channel Tunnel Rail Link (CTRL), to link the tunnel to London.
With the CTRL still at the planning stage, Eurostar trains began operating on 14 November 1994 over the existing railway, with operations on the British sections of the track being done by European Passenger Services (EPS), a subsidiary set up by British Rail. To manage construction of the CTRL, British Rail had also set up another subsidiary, Union Railways. In 1996, in line with the rest of the privatisation process, the government signed a contract with the private company London and Continental Railways (LCR) to build the CTRL, and as part of that deal LCR became the owner of both EPS and Union Railways; LCR renamed EPS as Eurostar (UK) Ltd (EUKL), thus ending British Rail's input in the project.
As the project progressed, due to financial difficulties both LCR and its subsidiaries underwent various changes in financing, structure and planning, with the government and Railtrack (later Network Rail) becoming involved in the various plans and projects. In 2007, the second stage of the CTRL was finally completed (the CTRL being rebranded at that point as High Speed 1). By 2009 the government had assumed full control of LCR, announcing its intention to privatise it to recoup its investment; this was achieved in two stages, with the 2010 sale of a 30-year concession to own and operate HS1, and the 2015 sale of the British stake in the Eurostar operator (renamed in 2009 to Eurostar International Limited, EIL).
Through a subsidiary established in 2003, Network Rail is the maintainer of the infrastructure of HS1. Domestic passenger services are operated on parts of HS1 as part of the Integrated Kent Franchise, these commenced in 2009, operated by franchisee Southeastern.
There is considerable debate around the effect of railway privatisation, especially since the structure now in place is considerably different from that originally envisaged at the time of the Railways Act 1993. Some of the most common arguments for and against are:
Privatisation was supposed to bring improved customer service and many rail lines have seen improvements in this field with better on-board and station services. In the early years, however, customer service was dented when too many drivers were given voluntary redundancy by the new TOCs and trains had to be cancelled. Also, the impact of the Hatfield rail accident in 2000 left services seriously affected for many months after. Since then, customer service satisfaction has recovered. Passenger satisfaction according to the National Rail Passenger survey has rose from 76% in 1999 (when the survey started) to 83% in 2013 and the number of passengers not satisfied with their journey dropped from 10% to 6%.
Level of traffic
Since privatisation, the number of national rail journeys had increased by 117% by 2014 (see graph) and the number of passenger-km had more than doubled. There is controversy as to how much of this is due to privatisation, and how much is due to other factors such as rising fuel prices, road congestion and low unemployment. Critics of privatisation have pointed out that passenger numbers started rising 18 months before the privatisation process began, as the economy started recovering from the recession of the early 1990s. However this increase has kept going during the entire duration of privatisation, with passenger numbers growing much faster than comparable European countries such as France or Germany.
Fares and timetable
In an attempt to protect passengers' interests, certain fares (mostly commuter season fares) and basic elements of the timetable were regulated. However, the TOCs still had quite a bit of latitude in changing unregulated fares and could change the number of trains run within certain regulatory and practical limitations. Overall, fare increases have been at a slower rate than under British Rail. So far as the timetable is concerned, many more trains are being run each day than under BR as operators have tried to run more frequent, but usually shorter, trains on many routes to attract more customers.
20 years after the privatisation the increase in fares hasn't been uniform: standard single fares increase up to 208% whereas season ticket price rises hover just below or slightly above the rate of inflation, with an increase of between 55% and 80%, while the price of Advance tickets has dramatically decreased in real terms: the average Advance ticket in 1995 cost £9.14 (in 2014 prices) compared to £5.17 in 2014. This is to try and reduce the huge number of people travelling at peak times as opposed to other times which causes overcrowding. For example, over half of National Rail journeys into London occur in the three hours from 7am to 10am, with half of these journeys (a quarter of the days total) occurring between 8 and 9. Overall, train fares cost 2.7% more in real terms than under British Rail.
The promoters of privatisation expected that the ROSCOs would compete against each other to provide the TOCs with the rolling stock they required. In practice, in most cases the individual TOCs required specific classes of trains to run their services, and often only one of the ROSCOs would have that class of train, resulting in their having to pay whatever the ROSCO concerned cared to charge for leasing the trains. Old rolling stock was extremely profitable to the ROSCOs, as they were able to charge substantial amounts for their hire even though British Rail had already written off their construction costs. As trains grow older, the cost of their lease does not decrease. This was due to the adoption of 'indifference pricing' as the method of determining lease costs by the government, which was intended to make purchasing new trains more attractive when compared to running life-expired trains. In practice, the average age of trains in the UK is only slightly different from that under the last years of BR, as average rolling-stock age fell slightly from the third quarter of 2001–2 to the fourth quarter of 2013–4, from 20.7 years old to 19.4 years old.
Rolling stock manufacture
The rolling stock manufacturers themselves suffered under privatisation; with the hiatus in new orders for new trains caused by the reorganisation and restructuring process, the former BREL York works (acquired by ABB) had been severely downsized and eventually closed. The former Metro Cammell plant in Birmingham (later owned by Alstom) followed suit in 2005, closing its doors once the last of Virgin Trains' new Pendolino units had rolled off the assembly line. Only the former British Rail research centre and associated BREL works in Derby and Crewe survive to the present day; now owned by Canadian conglomerate Bombardier.
Punctuality and reliability
The key index used to assess passenger train performance is the Public Performance Measure, which combines figures for punctuality and reliability. From a base of 90% of trains arriving on time in 1998 (the first year this index was used), the measure dipped to 75% in mid-2001 due to stringent safety restrictions put in place after the Hatfield crash in 2000. However, in June 2015 the PPM stood at 91.2% after a period of steady increases in the annual moving average since 2003 until around 2012 when the improvements levelled off.
The railway can point to continued improvements in safety under privatisation; in fact the rate of improvement has increased compared to that experienced in the last years of BR. In 2013, according to a European Railway Agency's report, Britain has the safest railways in Europe based on the number of train safety incidents.
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It is a common view that the railways had been systematically starved of government investment since the 1960s as successive governments openly favoured road transport, and that when the railways were privatised they were already in bad shape and in need of renewal. However, the journalist Roger Ford (in the industry trade magazine Modern Railways) argued that this is largely a myth. While BR received less financial support than in most European countries from the government, it was able to maintain the network to a reasonable standard, successfully completed major infrastructure upgrades such as the electrification of the West Coast, Great Eastern and East Coast main lines, the design and introduction of the InterCity 125 (HST) and InterCity 225 express trains and the total modernisation of various routes around the London commuter belt. Indeed, in BR's final years it could claim to run more trains at more than 100 mph (160 km/h) than any other railway in the world. This was largely because investment in the UK was spread across all rail lines rather than being pumped into developing a small number of high-speed lines. Since privatisation there has been considerable expenditure on modernising the system, but early investment was largely confined to a few routes – and many of these initial investment schemes were in fact initiated by British Rail rather than the private companies. The consequences of the Hatfield accident in 2000 caused Railtrack to undertake large-scale track relaying without sufficient planning, and much of the work was substandard and subsequently had to be re-done. Railtrack's poor project management abilities were exemplified with the West Coast Route Modernisation project, which was intended to deliver a 140 mph (225 km/h) route in 2005 at a cost of £2 bn, but which finally delivered a 125 mph (200 km/h) route in December 2008 at a cost of £9 bn, which was a major factor in the company's financial collapse.
However, since privatisation, the amount of investment has gone up nine-fold, from £698m in 1994–95 to £6.84bn in 2013–14. There is investment across the network in speed improvements, electrification, in-cab signalling, the Northern Hub, Thameslink and HS2.
Privatisation was intended to allow private borrowing to fund investment and remove the short-term constraints of Treasury budgeting from the railways. However, it was always recognised that there would be a requirement for some public subsidy to maintain unprofitable but socially desirable services. Indeed, of the three passenger sectors (Intercity, Network South East, and Regional Railways), only the first could hope to be independently commercial. The conflict between trying to maximise private sector investment while subsidising and regulating the industry to provide desirable services has proved difficult to reconcile. Neither most pro- nor anti-privatisers believe the current balance is correct.
Nevertheless, privatisation has brought some private sector investment into the railway. However, government subsidy spiralled after the Hatfield rail crash in 2000 after initially decreasing by over half. In 1994, the total government support received by BR was £1,627m, (£2,168m in 2005 terms, adjusted by RPI), while in 2005, government support from all sources totalled £4,593m, despite a lack of any particular increase in government investment in improving infrastructure. Once the extra safety investment after the Hatfield crash had finished, subsidies have since been brought under control. Subsidies to the rail industry have slightly decreased from £4bn in 1992–93 before privatisation to £3.8bn in 2013–14 (in 2014 prices) but have fallen by over fifty percent in terms of subsidy per journey from £5.40 to £2.40.
One of the principal expectations from privatisation was that the railway service could be delivered more efficiently in the private sector because of the profit motive. According to Dr David Turner, the expectation that there were considerable costs that could be slashed from the system was not fulfilled; new operators found that BR had already done much of what could be done to improve efficiency. However, the rail companies have still been able to make efficiencies, and since 1997–98 (the first full year of passenger rail franchising), day-to-day industry costs have increasingly been covered by non-government revenues, as industry-generated revenue covered 99% of industry running costs in 2013–14 compared with 72% in 1997–98. Since 1997–98, train company operating costs per passenger mile have declined by 20% in real terms.
Journalist Aditya Chakrabortty published calculations by the Centre for Research on Socio-Cultural Change indicating that "In the financial year ending in March 2012, the train companies gained an average return of 147% on every pound they put into their business." However, fullfact.org found that in reality the amount of return made after subsidy and paying money back to the government was 3.4% for the financial year ending March 2012 (i.e. the same period).
One of the benefits promoted for privatisation is that it would remove railways from short-term political control which damaged an industry like the railways, which had long-term investment requirements. This has not happened and, with the latest changes that have been made to the railway structure, the industry is more under government control than ever before. This was consolidated in September 2013 when the borrowing needs of Network Rail were once more taken under HM Treasury control and added to the Public Sector Borrowing Requirement PSBR effectively re-nationalising the Government-owned Not For Profit company which had been created by Labour Party Transport Minister Stephen Byers. The railways also suffer from the effects of short term control because the franchises given to TOCs typically last for a short time.
In theory, privatisation was meant to open up railway operations to the free market and encourage competition between multiple private companies. Critics have pointed to the fact that many of the franchises have ended up in the common ownership of the few dominant transport groups: Arriva, FirstGroup, Go-Ahead Group, National Express and Stagecoach Group, either as wholly owned subsidiaries, or as part owners of franchisees or other holding groups. Since these five groups all had their origins in the earlier deregulation and consolidation of bus services, it also meant that in some cases there was now a common private owner of both the bus and train operator on some routes. Criticism has also arisen due to the fact many of the private companies are themselves owned by the state-owned transport concerns of other nations, including the largest freight operator. Several passenger franchises are owned either in part or in full by subsidiaries or joint ventures of Deutsche Bahn, the German state operator, SNCF (French), and Nederlandse Spoorwegen (Dutch). Critics have also pointed out that the franchise system does not encourage true competition, although supporters point out that privatisation has enabled any private company to compete, as an open access operator.
A necessary side-effect of splitting the railway network into various parts owned by different private companies, with their relations between each other and the government dictated by contracts, is the requirement for a system of dispute resolution, up to and including settling disputes in the courts. Critics of privatisation have argued that these systems are costly and time-consuming, and ultimately serve no real purpose when compared to dispute resolution in markets where there is genuine competition.
A major dispute arose after the Hatfield rail crash in 2000, when Railtrack imposed over 1200 emergency speed restrictions on the network as a precautionary measure against further track failures. With political intervention stalled, eventually the passenger and freight train operators—who were losing very large sums of money as a result of the severe operational disruption which was taking place—applied to the Rail Regulator for enforcement action against Railtrack. That action was taken almost immediately and normal network performance was established a few months later.
The planned start date of December 2006 for the open access operator Grand Central Railway was delayed in part due to the franchised operator GNER taking the Rail Regulator to Court over his decision to grant access rights.
Positive media coverage
The Adam Smith Institute has written that while it would prefer more competition within the system, privatisation has introduced competition into the system which has meant an explosion in passenger numbers.
In 2013 the Guardian wrote that "on balance, rail privatisation has been a huge success" in terms of passenger numbers, fares and public subsidy, as well as Britain having both the safest railways in Europe and "most frequent services among eight European nations tested by a consumer group". In 2015, it released an editorial saying that again, despite some problems, privatisation has delivered many improvements. The editorial said that although privatisation 20 years ago was an ideological move, to renationalise the railways at a time when they are quickly growing would also be motivated by ideology.
In 2015, the Daily Telegraph wrote that "a state-owned railway would be a costly mistake" for three reasons. Firstly, it would be prohibitively expensive, secondly the trains are not owned by the operators but by third-party leasing companies and thirdly that EU law enshrines the right of open access operators such as Grand Central to operate free from government control.
The Independent explained that the reason for high fares was to fund the programme of investment and upgrades that is currently going on and while private companies do make large profits, they are small compared to the total cost and the private expertise means the companies are run more efficiently than if they were state-run. It also said that the reason fares are higher than in European countries is that there is less public subsidy and lowering fares would mean increasing taxes.
Lew Adams General Secretary of the Associated Society of Locomotive Engineers and Firemen (ASLEF) who vigorously opposed the privatisation of British Rail declared in 2004: “I was vehement that we wanted to stay in the public sector, and of course there were all the usual concerns trade unionists have regarding privatization, safety issues, job losses, protecting the conditions of service, and pensions. But accepting the will of Parliament, it was time to look at the arguments. So we said to management, ‘Well, if that’s what you want, this is what we want.’ Today I cannot argue against the private entrepreneur coming into the rail industry. We are running 1,700 more trains per day since it was privatized. The entrepreneurs built traffic to the extent that we are having to build more infrastructure. What is true is true: 4.2 billion pounds spent on new trains. We never saw that in all the years I’ve been in the rail industry. All the time it was in the public sector, all we got were cuts, cuts, cuts. And today there are more members in the trade union, more train drivers, and more trains running. The reality is that it worked, we’ve protected jobs, and we got more jobs. If a private company is making more money, I look at that from a union’s point of view, ‘Well, that looks like a wage increase to me.’ And we can argue that. And the more secure they are and the more productive they are in delivering train services, well, that means more jobs. I was there when the public railways had some 600,000 people and it came down to 100,000 in the time I worked in the rail industry. Now we are expanding on jobs.”.
Negative media coverage
The rail franchising system has in the past been a subject of criticism from companies, passengers, union leaders and some MPs. It has been said that the system is too complex and involves too many companies, some of which were merely sub-contractors. This has led to confusion about responsibilities, led to several safety-critical incidents and incurred high costs for companies and passengers. This is one of the reasons which led Network Rail to take back into its direct control all responsibility for infrastructure maintenance, whereas previously the company had used subcontractors. Multiple examples of problems with the DfT's original franchising model were highlighted by the East Coast franchise, when first GNER (owned by Sea Containers) and then National Express resigned the franchise when staged franchise payments to DfT became greater than the revenues that could be extracted.
Some observers—such as the rail journalist and author Christian Wolmar—argue that the whole idea of separating track from train operations in this way is fundamentally misconceived being based on the model of air transport, where the infrastructure, engineering and operational considerations are entirely different. The current subsidy of some £4 billion is at least twice as big as at the time of privatisation in the 1990s.
"Tellingly," wrote two British academics, "of all the European countries that came to investigate Britain's great railway privatisation experiment, not a single one has chosen to adopt the same approach." They note that "the domestic railway network has, compared to mainland Europe, been "starved of investment for decades, has been considerably reduced in scope, is significantly overcrowded and in many cases is not a particularly comfortable way to travel. … [T]he system costs a fortune." The pair note that "while other [European] countries have … developed wide-ranging electrified and increasingly significant high speed railways … the UK has achieved comparatively little … What is more, at least some in the government seem to regard this approach to investment as having been a success." An estimated 30% efficiency gap in railway operations compared to the continent contributes to an overall efficiency gap in transport "equivalent to a lost Terminal 5, or HS1, or two Jubilee Line Extensions every year." However this is at least partly due to the fact that Britain has the most restrictive loading gauge (maximum width and height of trains that can fit through tunnels, bridges etc.) in the world which means that any trains must be significantly thinner and shorter than those used elsewhere. This means that British trains cannot be bought "off-the-shelf" and must be specially built to fit British standards.
Academics have criticised the privatisation arguing that BR was not actually privatised in the conventional sense, but operates under governmental control with private companies subcontracted to manage franchises, resulting in high costs to the taxpayer. However, open access operators can now compete directly for long-distance travel.
Proposals for reform and renationalisation
Before losing power, the Labour Party planned to reform the existing system, and was reviewing options including a trial re-integration in Scotland. There has been discussion about the extremely high profits some believe the ROSCOs make (see impact of privatisation on profitability above for a full discussion) and proposals that would allow TOCs to own more rolling stock, or even to allow Network Rail to lease some stock. There have also been some market led changes in this area already with TOCs hiring in rolling stock and even locomotives from heritage railway organisations.
In 2004, the Labour Party Conference voted by 2 to 1 in favour of a TSSA motion calling on the government to take the TOCs back into public ownership as franchises expired. The policy was however immediately ruled out by the then Transport Secretary Alastair Darling.
In July 2006 the Conservative Party's shadow transport spokesman, Chris Grayling, admitted that the 1996 split of the rail industry into track and train components was a mistake which had increased costs: "We think, with hindsight, that the complete separation of track and train into separate businesses at the time of privatisation was not right for our railways. We think that the separation has helped push up the cost of running the railways—and hence fares—and is now slowing decisions about capacity improvements. Too many people and organisations are now involved in getting things done—so nothing happens. As a result, the industry lacks clarity about who is in charge and accountable for decisions.".
In 2007 the Conservative Party were consulting upon options for the future. Several changes have been proposed including a shift to regional operators owning the track and trains for their regions. In their view the separation of track ownership from the service providers has proved a failure, and "the separation has helped push up the cost of running the railways'. Such a shift would represent a return to the old British Rail model, but implemented by non-government organisations and franchise holders. However, critics say that were such a model to be applied to basic rail infrastructure, it would risk replicating the original mistake of the 1993 Railways Act – which fragmented the operation of train services among two dozen different operators. Many of these share infrastructure, and run competing services. Such a plan would be unworkable without the prior consolidation of existing franchises into just a small handful of regional operators.
From 2011 to 2015, both the Labour Party and the Conservative Party backed the current model of privatised railways, as did the Conservatives' coalition partners, the Liberal Democrats. The Green Party and TUSC (Trade Unionist and Socialist Coalition) call for renationalisation of the network. The Scottish Labour Party, the Scottish National Party, The Scottish Anti-cuts Coalition and the Scottish Greens all have advocated for the renationalisation of the First ScotRail contract that was operated by FirstGroup. In 2014, Transport Scotland awarded the franchise to Abellio ScotRail.
A 2012 poll showed that shows a 70% of voters want a re-nationalisation of the railways, while only 23% supported continued privatisation. According to a 2013 YouGov poll, 66% of the public support bringing the railways into public ownership.
In 2012 former Labour leader Ed Miliband hesitantly suggested the Party may put a promise to renationalise the railways in their 2015 general election manifesto. In 2013, 20 years after rail privatisation, Secretary of State for Transport Patrick McLoughlin celebrated "20 years of rising investment" and "of extraordinary growth on our railway" and declared that the only plans of the Opposition are "opposing competition, letting union bosses call the shots and cutting off private investment". According to him: "that would mean higher fares, fewer services, more crowding, an industry once again in decline. It would be a tragedy for passengers."
In 2013 Labour Party members suggested re-nationalising the railways should be one of the policies Labour should explore leading up to the 2015 general election The policy was later dropped in favor of simply keeping the fragmented rail system in place and creating a government backed Intercity franchise to compete with the other train operators.
The Green Party of England and Wales committed to Renationalisation in their 2015 Manifesto, reconfirming this at their Autumn conference in Birmingham in September 2014. Caroline Lucas' Private Member's Bill calls for the end of franchising altogether. Lucas argues allowing the individual franchises when they expire or when a company fails to meet its franchise conditions to fall back into public ownership will avoid expensive compensation to the rail companies, saving over £1 billion per year for the public.
In 2015, the Labour Party elected Jeremy Corbyn as its leader. He favours bringing the railways back into public ownership. At his first party conference as leader, Corbyn proposed taking each franchise back into public ownership as they came to the natural end of their contracts (i.e. without exercising break clauses), leading to a third of the railway being publicly owned by the end of his first full Parliament in 2025.
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