The government talks about having a strategy, but the reality is that overambitious forecasts are likely to leave services cut, and taxpayers and passengers picking up the bill…
The private train companies that run Britain’s passenger rail services are finding life very tough at present. On the one hand, recently awarded franchises run by Stagecoach, Virgin and First are failing. And on the other, attempts by the privateers to cut costs by screwing down pay rises and having many more trains staffed only by a train driver are being doggedly resisted by rail workers and their unions.
The East Coast route has twice been handed over to private franchisees to run. Each time the operating company promised an unrealistic level of payments to the government out of their profits. And twice the franchise holders handed the franchises back. The state ran the services very successfully at a profit for several years in between.
Now, the third franchise holder to run East Coast finds itself in the same position as its two predecessors. The latest franchise holder is Stagecoach – Virgin holds a small stake and allows Stagecoach to use the Virgin brand for the company, known as “Virgin East Coast”.
Transport Secretary Chris Grayling is desperately trying to spare Stagecoach and Virgin’s blushes as well as his own. He tried to conceal the failure of the private operators by suggesting that ending the franchise in 2020, three years early, was part of a new “partnership” approach to running railways. In reality Virgin and Stagecoach were going to pull out of Virgin East Coast anyway.
‘Passenger numbers have stagnated.’
This so-called partnership looks much like the model in Scotland, where publicly owned infrastructure operator Network Rail and the private passenger train operator work more closely together to overcome the problems of splitting ownership of track and trains. In Scotland, this means both parties sharing a common head manager.
Grayling was less forthcoming about the fact that this move spared Stagecoach and Virgin the need to make nearly £2 billion in payments to the Treasury. It wasn’t missed by the stock market though – the announcement saw shares in Stagecoach shoot up by 13 per cent.
It would of course be much easier to bring both sides of the equation into public ownership and control as the rail unions are campaigning for – but Grayling and his corporate allies are ideologically opposed to anything that prevents the privateers from making a fast buck.
Network Rail, the government-owned company responsible for railway infrastructure, was created after the failure of the privately owned Railtrack. The Hatfield train crash in 2000 cost it over £500 million and exposed the disastrous state of the railway network under Railtrack’s management.
Now that Stagecoach and Virgin have effectively received a massive cash injection, rail union RMT has seen the opportunity to press home its claim for an inflation-plus pay increase for the East Coast staff, and is currently balloting them for strike action.
But it is not just East Coast that is in financial trouble. First is reported to be losing big money on the recently awarded Transpennine Express franchise. It is believed to be consulting its lawyers about how it can extricate itself from commitments to increase its payments to the Treasury from £6.8 million in 2017/18 to a massive £178.9 million by 2024/25.
Passenger numbers have stagnated over the past year after many years of astonishing growth. The figures were dragged down by 0.4 per cent nationally because of a 1.3 per cent fall in London and the South East. Much of the fall was down to the bitter and long-running Southern dispute over the proposed removal of guards.
RMT believes that another recently awarded franchise, Arriva Rail North (known as “Northern”) is also at risk. Again this is because of an over-optimistic projection of passenger growth, which assumed a 25 per cent increase in demand over the 9-year duration of the franchise. In the nine years up to 2016 rail passenger numbers grew by about 50 per cent overall. There were already signs that increase would not continue. Growth in regional railways, such as the area served by Northern, was much less – around 35 per cent.
This growth assumption had driven Northern, a subsidiary of Deutsche Bahn (German state railways), to promise to cut public subsidy for the rail services it runs by a staggering 85 per cent, from £275 million to £39 million in 2025/26.
RMT General Secretary Mick Cash said, “Far from a Northern Powerhouse there is now a real danger of a full blown Northern rail crisis. First we have the East Coast franchise being terminated early and now it emerges that the Transpennine Express could follow suit and the sustainability of the Northern franchise is built on sand.
“The government is engaged in fantasy franchising where over ambitious projections of passenger growth, combined with the reality of falling passenger numbers, is a toxic combination that is likely to torpedo the government’s whole franchising programme leaving passenger services vulnerable to cuts and the taxpayer left to pick up the bill.” He went on to call for a full inquiry into the sustainability of the government’s rail franchising programme.
The main reason for the sudden arrest of passenger growth is almost certainly the exorbitant costs of rail tickets at a time when living costs are increasing much faster than pay. And those ticket prices rose still further in January, up by 3.6 per cent, based on the July 2017 Retail Prices Index.
Analysis of routes into six cities found the average annual season ticket would rise by £100 from £2,740 to £2,840. That compares with an average rise last year of £44 for the same tickets. (These figures are an average across 85 of the most commonly bought annual season tickets for commuters into London, Birmingham, Manchester, Liverpool, Leeds and Bristol.)
Many workers in the public sector and elsewhere who have been subject to a government-imposed cap on their pay will find that fare increases may mean they will not be able to afford to continue to travel to their work. And rising housing costs, especially for workers in the big cities, are forcing many to live further from the workplace.
“The government is engaged in fantasy franchising.”
Meanwhile, many private train companies continue to make massive profits. According to Cambridge Economic Policy Associates and the transport consultancy SYSTRA, the over-extended Virgin East Coast franchise received an astonishing £48.49 per train mile in 2015/16 from passenger fares alone – £708 million revenue in a year. Virgin West Coast, another Virgin-Stagecoach franchise, was slightly behind with £46.33 per train mile but overall earned more passenger revenue: £1.017 billion.
These huge sums outstrip even those received by the lucrative London and South East commuter franchises including GTR’s Southern. Even so, passenger revenue here was still a very healthy £34.81 per train mile for a franchise that has been widely criticised for atrocious performance.
The RMT has accused those franchise companies of putting private profit before public safety. And the issue that exemplifies this is the government-led move to have many more trains crewed solely by a driver.
Grayling’s announcement in November of the government’s “Strategic Vision for Rail” largely recycles previous announcements despite claims that it will “boost jobs and housing”. It may propose to open a few rail lines closed by Beeching in the 1960s. It may be a tinkering with what many now regard as a completely broken franchise system, including splitting up the disastrous Govia Thameslink Railway of which Southern has been a part. But there’s not much in this strategy that’s a believable approach to the future of railways in Britain.
Mick Whelan, general secretary of train drivers’ union ASLEF, said of Grayling’s plans “There is nothing bold about them, and they will do nothing to improve our transport infrastructure, nothing to increase the number of jobs in this country, and nothing to help build the homes young people so desperately need.”
The solution to the woes of Britain’s railways is to invest massively, not just in the much-needed extra capacity that HS2 will bring, but in expanding the rail network as a whole. The profit motive and the franchise system hold the industry back. These are once again putting profits before safety. We must not return to the disaster-strewn period overseen by a privately owned Railtrack.
The bold strategy which would stimulate economic growth would be to return Britain’s railways to public ownership, where they belong.