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Thursday 27 November 2014

Owen Jones – Know Your Railway

I hate to call out Owen Jones, who has just penned a Guardian Comment Is Free piece on the awarding of an eight-year franchise for what we used to call InterCity East Coast (ICEC), because he’s a sound bloke. But his analysis, “East coast rail has been too successful – quick, privatise it ... Being publicly owned doesn’t fit the free-market dogma that dictates that the railway must be a rip-off, fragmented mess”, misunderstands the way that passenger rail services are operated in the UK.
King's Cross station, London

It’s true that a Government company, Directly Operated Railways (DOR), has run ICEC for the past five years since previous incumbent National Express handed back the keys, and has generated more than £1 billion for the Treasury. But any assumption that the replacement franchise could not do better is false.

In fact, the joint venture of Stagecoach and Virgin – in a 90% to 10% split, unlike the West Coast’s 49% to 51% - has bid what is known as a premium profile to yield £3.3 billion in total. That is around twice the rate of premium paid by DOR. And when Jones tells “it must be run by a tax exile and a Scottish businessman perhaps best known for campaigning against gay equality” he goes wrong again.

The new operator has agreed to run services to a timetable, and with trains, specified by the DfT. They may run more than DOR, but only if the DfT agrees and allocates paths for them. Richard Branson and Brian Souter have no say in the matter. It is the same on West Coast: they have no more say in specifying the Virgin Trains service out of Crewe than I do.

British public opinion ... despairs of our fragmented, inefficient, rip-off rail network” asserts Jones. Well, up to a point. The despair is at what the travelling public see, while the reality is rather different. Virgin Trains operates several stations along the route of the West Coast operation. It owns none of them. Nor does it have any control of the tracks on which its trains run.

All are within the ownership of Network Rail (NR), which is a public body. All of that is already nationalised. No new trains are ordered for franchise operators unless the Government is prepared to underwrite the lease payments. The Government writes the timetable for them. What is not socialist is socialised. To some observers, franchise operators are the front the Government can easily hide behind.

And please, Owen, don’t fall into the “English passengers pay more for rail tickets than anywhere else in Europe” trap. It ain’t that simple, and like the choice of using a franchise system, to subsidise less than other European operations is a political decision. Demand management, especially for long distance services, is an area where the rest of Europe is more likely to move in our direction.

I welcome Owen Jones’ interest; I hope he sticks around and gets knowledgeable.


Mike@Raileasy said...

DOR saw revenue increase by about 12% in 5 years which fare increases would probably have accounted for.

Pax numbers were up by about 10% over the same period, again not that impressive.

Even Network Rail said EC's performance versus the flight market was "sub optimal".

Plus of course there were all the travellers who didn't book on the EC web site who missed out on discounted fares, including those that booked at EC ticket offices.

Anonymous said...

You only need to look at the Arriva Trains Wales franchise to see how a company can fleece a government.


Anonymous said...

I'm not sure the comparison against the premium profile is edifying because the Virgin/Stagecoach bid represents a different operation - new services etc. East Coast wasn't allowed to bid of course, so we can't draw an exact comparison.

In any case, the extreme difference between 3.3bn over 8 years and 1bn over 5 suggests something questionable about the V/S bid - are they overestimating how much they will be able to pay...perfectly plausible given the history of this line (i.e. National Express).

East Coast has worked well. Owen Jones is probably right in arguing that it's an example of Tory and Orange Book Lib Dem dogma, that the franchise is being privatised.

anubeon said...

"…has bid what is known as a premium profile to yield £3.3 billion in total. That is around twice the rate of premium paid by DOR."

Aren't you rather putting the cart before the horse here. The previous franchise operator (National Express) relinquished the franchise precisely because they couldn't deliver the premiums that they'd promised. I'll believe Virgin Trains East Coast's promises once they're fulfilled, rather than compare what DOR has actually achieved with what VTEC says it can achieve.

Also that £3.3Bn figure is nominal rather than real; does your 'over twice the rate' estimate factor this in (I'm too lazy to do the maths myself 😉)

It would also have been nice if the Department of Transport had allowed DOR to bid. The latter is an 'arms length' body is it not? In the absence of a rival public sector, co-operative or otherwise not-for-profit bid, I can't see how we can draw any conclusions aside from those drawn from logic.

Specifically, any investment that the TOCs and ROSCs can bring to bear could be obtain more cost effectively through the issuance of sovereign debt. Certainly in the long run (those shareholders will surely expect dividend payments eventually). Furthermore, it's surely more cost effective to hire human expertise direct through the labour market, rather than indirectly through what amount to consultancy firms (the TOCs, as you've already outlines, don't own much at all. Not the railways, not the stations, not even the rolling stock)

In short, there's little need for capitalists in this contrived public-private rail system of ours. Except to serve as political cover to our feckless political class and to perhaps to keep rail related borrowing off books a 'la PFI (although this applies more to NR and the ROSCOs more than the TOCs). We're essentially hiring some middlemen to borrow and invest on our behalf, and since in the event of their collapse we inevitably pick up the bill anyway, I can't see any benefit to this arrangement.

Anonymous said...

Spot on. The current East Coast operator has had no opportunity to think about future investment as it was never part of the future operating strategy, hence the lack of growth in the market.

Most of the improvements won't be seen until 2018/19 as electrification is required and new rolling stock needs delivering. Thats three years for the consortium to undertake lots of work to back pedal from today's promises.

I'd like to see the numbers behind the need for 7 direct services from Harrogate to London every day.

SteveB said...

I'm afraid two previous have a point Tim, NatEx had to give up because they offered unsustainable amounts of premium and unlike on the West Coast, this combo can't raise revenue by squeezing the off peak hours because it's already been done on East Coast. And before we see the business case for Harrogate I'd like to see the paths!!

And Virgin (if not Branson himself personally) have got away with controlling train paths at Crewe, for years they used a loophole in the legislation to stop London Midland running viable competition to London, and further afield they effectively forced Wrexham&Shropshire out of business by using the same loophole to ban them from some stations.

This deal now means that Stagecoach control the East Coast and Midland Mainline plus 49% of East Coast so there's an obvious competition row about to blow up. Could it be a way of finally letting First Group have West Coast? And has Branson lost interest, the 90:10 partnership on East Coast is basically him selling branding rights to Stagecoach (although why they think they need it is beyond me!).

And it's unfair to say ATW fleece the Welsh government, their bid was much cheaper than NatEx asked for and last time I looked they had the most punctual and reliable regional trains in Britain (despite their Cardiff HQ staff!!). If you want to see fleecing try Northern!

Anonymous said...

Don't disagree Re: Northern, but take ATW's £7.5 million "refurbishment"
Toilets that don't flush properly, faulty air-con and already looking tired.


john b said...

Arriva famously *underbid* for ATW, and made a sizeable loss on the contract (to the taxpayer's benefit).

Competition concerns are irrelevant: the idea of on-rail competition existing was only ever a pipedream among ridiculous libertarians, and has never had any real-life relevance. Virgin/Stagecoach provides a service to the DfT's specification, as would any other operator on the route.