Chris Grayling, the Transport Secretary, has announced that he’s taking back into temporary public ownership the running of the troubled East Coast mainline rail service. He says the private company that holds the franchise simply cannot carry on. He wants to create a new public-private sector partnership to run the service from 2020. Although his decision has been widely welcomed he has been criticised for letting the existing franchise holders off the hook and for not going far enough. Both the Labour Party and the Greens believe that the whole railway system should be renationalised. Are they right or should we persist with a semi-privatised system in which services are run by a variety of publicly-owned bodies, private ventures and public-private partnerships?
British Rail, the old company that used to run all of Britain’s railways, was famously the nationalised industry that even Margaret Thatcher drew back from privatising. It was left to her successor, John Major, to do the deed. But his model of rail privatisation was always controversial and has remained so, not least because of its form. Sir John could have divided the network into regional companies on the lines of the old pre-nationalisation railway companies, each with responsibility for every facet of the rail service in their patch. Instead he decided to break up the system according to functions. A single private company, Railtrack, was to be responsible for the track, the signalling and some of the major stations. But the actual running of train services on this system would be in the hands of private companies who would bid for more than twenty regional franchises to do so.
This scheme didn’t last long. By 2001 Railtrack was getting into such trouble that it was, in effect, renationalised, born again under a government-owned company, Network Rail. This move brought three quarters of the system back into public control. But the franchising of rail services continued. Some of these have worked smoothly enough, but some have got into big trouble, none more so than the East Coast mainline which runs the service between London and Edinburgh. Three times in the last dozen years governments have had to intervene because the franchise company couldn’t fulfil its obligation.
In 2006 the Labour government took over the service from GNER which, only a year before, had bid £1.35bn to run it for ten years. A new franchise company, National Express, took on the route in 2007 for £1.4bn. It survived only until 2009, when the government had to take it back into public ownership. Then in 2015 a consortium owned 90% by Stagecoach and 10% by Virgin bid £3.3bn for the ten-year franchise. Two years later it too ran into trouble and it is this franchise which Mr Grayling ended this week.
There seem to be several reasons for the latest failure. Stagecoach and Virgin say that the forecast increased passenger numbers on which they based their bid simply failed to materialise. They also complain that holdups by Network Rail prevented them from increasing their services. Others say that the consortium quite simply bid too much in order to secure the franchise and that they then got their inevitable comeuppance.
The Transport Secretary’s decision to allow the consortium to relinquish its responsibilities five years before the franchise was due to expire has been criticised on the grounds that the government will now forgo the outstanding £2.2bn owed to it from the original franchise bid. But Mr Grayling argues that whether or not the government will lose money depends on how well the new means of running the service does financially. He also points out that the two companies in the failed consortium have paid ‘a high financial and reputational price’ as a result of the failure of the franchise. Some reckon the cost to the companies will be about £200m.
Mr Grayling had the choice between allowing the consortium to rebid for the franchise on less ambitious terms or take the running of the service back into temporary public ownership as an interim step to putting together a wholly new franchise entity. He chose the latter with the aim of creating a new public-private sector partnership to run the service from 2020. He told MPs: ‘I plan to use a period of operator of last resort control to shape the new partnership’. That partnership will provide ‘one single team operating the railway’. The new company will be called the London and North East Railway, or LNER, a name and brand very familiar to those who remember pre-nationalisation railways.
Few people wanted Mr Grayling to make the other choice so his decision has been broadly welcomed. But it has implications for how the railways as a whole should be run in future. Lord Adonis, the transport secretary in the last Labour government, argues that if this new public-private partnership, LNER, proves a success it should be allowed to bid for other franchises around the country when they next come due. In other words, the government’s move should create a precedent whereby it should no longer only be private companies or consortia that can bid for future franchises. The railways should be open to becoming a mix of public, private and public-private partnership entities.
But the official Labour opposition wants a more thoroughgoing renationalisation of the railways. Their plan is for the existing franchises not to be renewed but for the services they run to be ‘brought back in’ to the public sector. Eventually, with all the services publicly owned, the division between running the track, signalling and stations on one hand, and the train services on the other can be ended and a single nationalised system reinstated. In short, British Rail will then be reborn.
The shadow chancellor, John McDonnell, argues that this need not entail huge public spending costs as there will be no cash needed to compensate private owners if their franchises are allowed to come to their natural end. And supporters of this idea argue that government is already spending £3.3bn a year of taxpayers’ money to keep the railways going, though most of it goes to Network Rail. (This figure is down from £3.8bn ten years simply as a result of governments shifting more of the cost on to ticket prices and away from taxpayer subsidy.)
But critics argue that the real cost of full-scale renationalisation would be felt in terms of lower investment. They argue that for all the problems with the complex system of rail privatisation introduced by John Major’s government, the great success of it has been a huge increase in investment in the system and a corresponding huge increase in passenger numbers. The reason they fear for the future of investment is quite simply because decisions on investment would no longer be taken by those whose sole concern was the running of the railways but by governments who have a lot of other demands on their resources.
Michael Holden, a former train executive under the nationalised system, remarked: ‘You were always competing for money with education and health. The end result was that we never had enough money’. Others point out that whenever governments need to save money because of some public spending crisis or other, it’s always investment that gets cut first because the effects are less immediately noticed by voters.
Any idea that Britain’s railways could be run solely by the private sector has long been abandoned. The choice now is whether the railways should be wholly renationalised or whether there should be a hybrid system, part-owned by the public sector, part by the private sector and part by partnerships between the two.
What’s your view? Was Mr Grayling right to take the East Coast mainline back into temporary public ownership with a view to creating a public-private sector partnership to run it in the next decade? Do you think he has let the previous franchise holders, Stagecoach and Virgin, off lightly or not? If it is successful, should the new LNER company he plans to create be allowed to bid for other franchises? And what do you think should be the ultimate shape of our railways? Should they be wholly publicly-owned as Labour and the Greens want, or should the hybrid system emerging under the Tories be the way forward? And finally, do you pine for the good old days of British Railways?
Let us know your views.