Privatisation of British Rail - Effects of Privatisation

Effects of Privatisation

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:

Customer service

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.

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.

New trains

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 no different to that under the last years of BR.

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 works at York (now owned 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 privatised railway has not shown the improvement in punctuality and reliability that was hoped for. The contracts in place between companies were intended to incentivise improvements in these areas, but with the large increase in the number of trains run while using more or less the same amount of rolling stock and track, there has been less room for manoeuvre when problems occur, with consequent impacts on punctuality. This was also compounded by post-Hatfield disruption.

Level of traffic

Since privatisation, the number of national rail journeys has increased 84% and the number of passenger-km 88%. 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.

Safety

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.

Investment

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 largely confined to a few routes - and many of these 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.

Funding

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, due to what many believe to be a largely inefficient structure, government subsidy has spiralled. 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.

Profitability and efficiency

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. 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. Staff wages under British Rail were low compared to the market rates, and have risen considerably since privatisation. In addition, the profit motive was diluted when some of the passenger franchises ran into financial trouble and entered into management contracts with the franchising authority, which reduced the incentive to innovate. With individual train operating companies unable to procure equipment to the volumes previously procured by British Rail, the unit costs to the privatised rail industry is significantly higher. In addition, new health and safety requirements and the complexity of the privatised structure has thrown up additional costs in the industry. In all, the subsidy to the railway from the Government is considerably larger now than it was for BR.

Political control

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. The railways also suffer from the effects of short term control because the franchises given to TOCs typically last for a short time.