It strikes me that 2008 is going to be a year of considerable challenge for the British railway industry – and a year in which some past chickens, resulting from the way the industry was structured for privatisation, may be coming home to roost.
The New Year engineering overruns at Rugby, and on the Liverpool Street-Shenfield and Glasgow-Paisley lines, probably did the worst damage to the industry’s reputation since the Hatfield crash in 2000.
And rail’s reputation took a further hammering because January’s massively adverse publicity coincided with many above-inflation fare increases, which were widely condemned – including by the industry’s own consumer watchdogs. The Liberal Democrats rubbed the salt in – publishing yet another study claiming Britain’s rail fares are the highest in Europe.
January’s fare increases were, of course, a consequence of (i) government policy, which aims for passengers to pay three-quarters of industry costs, and (ii) the assumptions (some would say ‘heroic’ assumptions) built into recent franchise agreements for a continuing boom in passenger demand and higher fares.
But one of the future ‘unknown unknowns’ is the extent to which raising fares at a time of economic uncertainty will produce the expected revenue – or whether a wider economic downturn will threaten the stability of some franchises.
Roughly two-thirds of passenger travel occurs in London and the South East and, previously, this region has been most susceptible to the impact of worsening economic conditions – especially if these reduce Central London employment.
Many City firms are shedding staff in the wake of last year’s credit crunch and last month’s stock market volatility. And retail sales have also dropped off – a trend, if it continues, that may further reduce numbers travelling into London. This could all spell bad news for former Network SouthEast TOCs.
After the ‘crash’ of 1992, NSE saw not only a big decline in passenger numbers but a significant ‘structural’ change – because many commuters who lost jobs in London looked for employment nearer their homes, or sold up and moved away to get out of negative equity.
In the long run, this may be no bad thing – but significant perturbations now to expected income flows may have a serious impact, as most (though not all) of the latest franchises are based on significant premium payments to the Government.
Meanwhile, Network Rail’s Business Plan – which anticipates a £29 billion spend over the five years, 2009-14 – is under rigorous examination by the Office of Rail Regulation, which seems to think the figure should be nearer the £27 billion budgeted by the Department for Transport in its Sofa (Statement of Funds Available).
Whatever final figure is set by the Regulator, future maintenance and enhancements of the infrastructure can only be underpinned if TOCs earn sufficient revenues for their Network Rail track access payments and also, in many cases, to meet their obligations for premium payments to the Government. All this may prove a tough call in a slowing economy.
There is little disagreement among industry observers that cost to the taxpayer of maintaining the rail network has increased substantially since privatisation, which resulted in separating ownership of the infrastructure from the operation of the trains – an arrangement that was never required by European rules (which merely required separate accounts) but was adopted by John Major’s government to justify its 1993 Railways Act.
Ever since I first got involved with the rail industry, I have been amazed how so many skills and specialisms are involved in successful operation. But since 1994, as one former colleague expressed to me, we have lost not one but two generations of knowledgeable, skilled specialists – those who left at or shortly after privatisation, and those who have not been recruited and trained since then.
If ever there was a dramatic demonstration of the skills’ shortage, it was the lack of overhead line engineers causing the extended New Year closures of the West Coast main line at Rugby and GE route into Liverpool Street.
Some companies, notably Network Rail (with its apprentice scheme operated with the Royal Navy, and its management training operated with Warwick University and Bombardier (which has reintroduced apprentice and management training schemes not unlike those previously run by British Rail) have grasped the nettle.
But there is still the vacuum left by those who departed in the 1990s, and this will not be filled until more recent recruits are sufficiently trained and acquire the skills and experience necessary to run the railway.
Another chicken coming home to roost from privatisation is the complexity of railway pension arrangements. The report just issued by the Railway Pensions Commission makes the significant point that – had the railway not been privatised – major changes to the pensions scheme would probably have been made already.
In other words, the upheavals of the past decade – what the Pensions Commission describes as “the frequent changes to corporate structure, contractors, franchisees and franchise boundaries, which have characterised much of the industry since privatisation” – have delayed necessary and essential changes.
But, as the Commission points out, when it comes to the industry structure, there is “clear opposition of the DfT to any fundamental change”.
And, it seems, Atoc and Network Rail are also unenthusiastic for any changes – despite the warning signs we may now be seeing.