Great-Britain : a brief overview of the railway regionalisation

Analysis of - Signalling technician and railways observer
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As one of minister of Transport pointed in 90's, BR cannot run the railways effectively because, as a public body, its investment programme was always be constrained by the Treasury. Nationalized in 1948, British Rail passenger services were split in 1982 into three core sectors: InterCityNetwork South East and Regional Railways. Beginning in the mid-1990s, the UK took the vertical separation idea and pushed it far beyond any point that the EU Commission had mandated. The old vertically integrated British Railways (national BR since 1948), was entirely broke apart, with the infrastructure privatized to the called Railtrack and the train services would be divided into 25 different franchises, such as ScotRail, Network SouthEast, the Gatwick Express and many others. After the well-known disaster of the concept of a private rail network, infrastructure was back in 2004 into a state company called Network Rail.

357031 arriving at Limehouse with a c2c service for Fenchurch Street on 14th October 2011 (photo by Roger Mark via flickr CC BY-NC-ND 2.0)
At the central point of the system, operators have to contract on the one hand with the infrastructure manager and on the other hand with the rolling stock rental company. It is the Office of Rail Regulation (ORR) that proposes the government the level of income which can benefit Network Rail. The access rules are codified as they can be a source of litigation. As an independent regulator, ORR operates within the framework set by UK and EU legislation and is accountable through Parliament and the courts.

Rolling stock
When the Railways Act 1993 divided up track, rolling stock were sold In 1996 to three private companies called ROSCO. These companies lease the rolling stock to the train operating companies (TOCs) who then deploy it on their services. In addition, in recent years the Government has stepped in to procure large rolling stock orders directly from the train manufacturers. The average age of rolling stock across the GB rail network increased from a little over 15 years in 2007/08 to more than 18.5 years by 2012/13. This in itself masks significant variation: trains in Merseyside and on the Great Western route are on average more than 30 years old while trains on the Trans-Pennine and West Coast routes are less than 10 years old.

Franchising system
Competition within GB’s passenger rail sector currently takes place « for the market » by way of franchising system. They are not competition « in the market » between overlapping franchises or between franchised passenger train operators, in one word the « open access » like in Italy or Czech Republic is very limited. Franchises are contracts between government and private operators companies for the provision of passenger services in a defined area or lines. Initially there are 25 franchises but this number has since fallen to 16. They have ranged from approximately 3 to 15 years in term. Franchisees must perform the defined train services, achieve specified levels of efficiency, reliability, punctuality and recent franchises contain targets on passenger satisfaction metric. Train operators lease rolling stock and pay access charges to Network Rail for the use of infrastructure and stations. Concerning employment, the staff is transfered directly to the new operator at change of franchise and the new operator employ its own small management team.

Concerning bidders, the Department assesses the risk of financial delivery. Award is then made on the basis of price, with provision for other non-financial elements to be considered in the event of two bids being close financially. Companies then bid for the right to operate a franchise to that specification. The Government picks whichever company it thinks will deliver the best overall package for the franchise and give the best value for money. Franchise agreements include details of the performance standards that franchisees must meet and arrangements for the termination of a franchise in the case of failure to meet these standards.

The Department for Transport constantly identifies areas for improvement because franchises have a complex nature. The clash of this system in 2012 with the cancellation of InterCity West Coast franchise doesn't mean – according the 2012 Brown report - that the franchising system is broken. It seems clear that the department should have more adequate technical and legal resources to manage the study of franchise offers with efficiency. This brings to the forefront the question of a strong regulation and the clear objectives to be reached that are necessary for supervising the management of railway regional concessions. The Department announced a new schedule for rail franchising on 26 March 2013. This set out the full programme of upcoming franchises for the next 8 years, covering all franchises.

Negative results
As everybody knows, the results were mixed and Railtrack failed dramatically and brought back in 2004 into a quasi-public status to the so-called Network Rail. According The Independent (1), a study for Transport 2000 by the independent consultants Steer Davies Gleave concludes that the total railways bill will rise by 15 per cent over the decade after privatization. This is to pay for the added administrative burden of 25 franchise operators, three regulatory bodies and a separate track authority.

While franchising process had been largely successful to the Hatfield accident in October 2000, there has been much debate in Britain how much of the growth can be attributed to privatization through franchising as opposed to other factors, such as the very strong of the economy over the post-privatization period. According the website Just Economics bus and rail fares have skyrocketed since privatization and deregulation, yet up to 50 per cent of people in the UK do not have access to some kind of basic service (such as schools, hospitals and food stores) by public transport. Spending has tended to favour the most lucrative routes and those where passengers are prepared to pay most, rather than where the service needs of lower earners are greatest. Overall the poor find themselves paying over the odds for services that meet their needs only partially at best.

Negative results can also concern the Exchange. Last week, the value of First Group’s shares has fallen by £150 million, while Stagecoach has seen £33 million wiped from the value of its shares on mere rumor of the East Coast franchise won by a competitor. Finally, the winner was…Stagecoach !

Positive results
The results are they so negative? It works though if it’s believe the spin from the industry. Train operators are generating more than four times as much money for Government to invest in rail services than 15 years earlier, average price paid by passengers per mile is down, and more people are using the trains than ever. According Stagecoach, franchising creates a strong incentive for train companies to attract additional passengers to maximise revenue. Since privatization, train operators have delivered
22% more services and attracted over 60% more passengers.

Traffic has nearly doubled since 1997 and ORR publishes the overall subsidy per passenger mile on annual basis. According the Department for Transport’s, the competition for passenger rail services has been fairly vigorous ant that there have been no cases of collusion between bidders. There are a growing number of different companies that have and continue to compete for franchise competition. On his website ORR show also that rail use is on the rise as Britain's railways clocked up 1.23 billion journeys in 2011-12. This accounts for a 6% increase in rail passenger journeys compared with the previous year – the highest since records began in 1995-96. And recently it’s reported that the number of passenger journeys nationwide reached 393.9 million for the first quarter 2014-15, an increase of 2% compared to the same quarter last year (2).

The question of subsidies continues to be under heavy criticism in UK and when the british system is examined with many doubts by others European member states. Why ? Because in reality this system aims to achieve a significantly decline in volume of public funds. Is it the case ? As the website reports, According to figures published by the Department for Transport (DfT), the total subsidy paid to franchised train operators was 6.8 pence per passenger mile in 2013/14; down from 7.3p per passenger mile in 2012/13. The total paid to rail operators by the government was £2.3 billion; down from the £3.2bn paid out in 2009/10. (ORR) showed that the rail network's overall share of government support rose by £227 million this year to a total of £5.3bn. However, this increase includes spending on infrastructure and major projects, such as Crossrail. «phenomenal growth in rail passengers is helping train operators to pay £2bn a year back to government – five times more than 15 years ago – with government choosing to reinvest this money in further improving Europe's best network,» said the Rail Delivery Group, which represents train operators and Network Rail.

However, according The Telegraph (3), the latest figures released by the Office of Rail Regulation (ORR) reveals that government funding varied from £2.19 for every passenger journey in England to £7.60 per passenger journey in Scotland and £9.33 in Wales. As a proportion of total income in 2012/13, England had the lowest level of subsidy, at 27 per cent of total industry income, compared to 56 per cent for Wales and 54 per cent for Scotland, the ORR report said. The Department for Transport defended the disparity, saying that the heavily-subsidised rail services provided a lifeline to rural communities.

Arriva, a company owned by german Deutsche Bahn. Dmu 158828 & 158819 leave Wellington on 25/10/11 with the a service to Holyhead (photo by Steve Jones via flickr_CC BY-NC-ND 2.0)

A good business for foreign companies !
Procurements for schemes such as the InterCity Express Programme, Thameslink and Crossrail have become mired in controversy due to the award of successive contracts to companies based largely outside of the UK. It isn't a mystery that three main railways in Europe are present in Great-Britain. According Buzzfeed, the French, German and Dutch state railways together run the majority of UK rail services in terms of passenger miles travelled. As reported Touchstoneblog, a research of the union RMT pretends that three quarters of the rail franchises in the UK are now owned by foreign state-owned or backed rail companies. The french SNCF via Keolis, the german DBAG via Arriva and the Dutch Railways NS via Abellio. 50 or 75%, the fact is that out of the 309 million passenger miles travelled on UK trains in 2012–13, 159 million were made on franchises either partly or entirely controlled by a foreign state railway. Dan McCurry, a Labour activist, has written : « We put these franchises out to tender because we wanted the private sector to provide their management know-how. It turns out that this company is not private sector but is the state sector of Holland. »

Europe in Britain, it's simply the result of the open market...

Back to public sector ?
This situation makes waves in UK. There is nothing that the political back court to understand the future of british railways. Many people think that a radical change is needed. Before to be ejected out of power, the Labour leaders had indicated  they is not ready to renationalise the lines and the coalition government remains committed to the existing system. But according The Guardian the Labour leader also said the party would let the public sector challenge private operators to take on the running of rail franchises, arguing it would improve services for passengers and end a situation in which foreign state-owned companies could compete to run trains in the UK without competition from a British equivalent (4).

Green Party leader Natalie Bennett, whose party supports renationalisation, said still that a return to public ownership would simple and inexpensive. « The fact that large amounts of the profits of our railways – coming from British pockets, whether by means of fares or taxes – are going to foreign governments just illustrates the absurdity of our current arrangements » she added.(5) But this « absurdity »  is simply an open market in Europe, widely asked by industrials and financials sectors from UK. A regret ?

Stagecoach finally won the East Coast Main Line franchise. Services begin in march 2015.(photo Ingy The Wingy via flickr CC BY-ND 2.0)

What’s the best future ?
The future would certainly not be a revived British Rail – which was a hopelessly inefficient organisation that as a nationalised industry had an uneasy relationship with Government that led to managerial paralysis.  This is a chance to build something far better and workable, drawing on the best practice of railway networks in Europe and beyond. According many politicians, tighter regulation, rather than state ownership, can seriously deliver improvements. Example of this new deal : in early 2011 the Government stated its intention to deliver more than 2,100 new rail carriages to the network by May 2019 (an increase of 1,850 net); and that the Department would negotiate with train operators to provide more and/or better rolling stock on a number of franchises. Deals for extra rolling stock were reached with Northern Rail, First Great Western, London Midland, Virgin West Coast, South West Trains and Southern at the end of 2011. The state became a rolling stock owner, without to become again British Railways...