Government cancels decision to award rail franchise for West Coast Main Line to FirstGroup

[whole diary]

[woody]

Of course, as we all know, First Group did not end the FGW^▸ (First Great Western) franchise 3 years early. It will not end until the date specified in the contract. It is just that they did not choose to take up their option to extend the contract by 3 years in just the same way as the DfT^» (Department for Transport - about) did not refuse to take up its option not to give a 3 year contract extension. But this is what the politicians do dirty their political opponents and that applies certainly and equally to the two main political parties and what gives politics a bad name for twisting the truth.

The problem with our railways is not privatisation as such but the way in which the railways were originally privatised leaving a fragmented railway with a high cost base.Also what the current West Coast main line rail franchising disaster has shown is that its virtually impossible to reliably assess the risk factor in a rail franchise 15 years into the future let alone the 10 year option that FGW had.That is why First Group very wisely from their own point of view had a 7 year opt-out clause in the contract leaving the taxpayer short changed by ^800milion because most of the "back loaded" franchise premium payments were due in the final 3 years of the FGW rail franchise.That is no sustainable way to run a railway that is largely funded by the taxpayer.

[TonyK]

I agree that First did not cheat, merely acted wisely. Anything they did in line with the contract they signed is legitimate business. Any accusation of wrong-doing is political spin of the facts. First signed up to a deal that looked good in 2006, based on the facts available to them then. Things changed, and not going through with the extra three years looks sound business, based on the facts available now.

The past few years have shown that "forecasting" and "guessing" are two sides of the same penny. When the franchise was awarded in 2006, no-one would have known we were heading for a huge economic downturn, let alone what effect that would have on railway operations. So the 7 to 10 year forecast would have been optimistic, more so than what actually happened. A guess or a throw of a dice may have produced a more accurate outcome. The problem is the lack of adaptability to new events during the life of a franchise. A weather forecast can be amended, which is why it is a forecast, not just an informed guess.

[ellendune]

No wonder their are calls now for renationalization of the railways.

http://www.guardian.co.uk/commentisfree/2012/oct/04/public-want-railways-renationalised

But if the civil service cannot run the franchise process.  Or an economic train procureemnt process how do you think they are going to run a nationalised railway? After all civil service interference in BR^▸ (British Rail(ways)) does not set a shining precident.  Trying to fix the franchise process may be preferable.

[TonyK]

No wonder their are calls now for renationalization of the railways.

http://www.guardian.co.uk/commentisfree/2012/oct/04/public-want-railways-renationalised

But if the civil service cannot run the franchise process.  Or an economic train procureemnt process how do you think they are going to run a nationalised railway? After all civil service interference in BR^▸ (British Rail(ways)) does not set a shining precident.  Trying to fix the franchise process may be preferable.

Good idea! We'll get the Civil Service on the case straight...oh, hang on a minute...

I'll declare an interest: I am a civil servant. At times, that sounds like saying I am a kitten drowner by trade. I am low down on the ladder, but have a responsible job - not saying what - which can impact heavily on peoples' lives. Sometimes I hear people rant about civil servants and propose an immediate cull. If I tell them what I do, most - not all - say "Yes, but that's different, we need people like you". Others will doubtless say the same about their vital function.

Like the others, I work for Her Majesty the Queen to put into effect the policies  put forward by her democratically elected government and passed  into law by Her. Somebody has to do it, and unlike in some other countries, the government keeps charge by not letting some things out to potentially corrupt practices. So if you want a passport, or exemption from prescriptions, or safe food, or a loft extension, then you don't have to bribe someone first, as well as paying the fee. I know the limits of my authority and my competence, and the possible consequences of exceeding either. Just because someone MAY have incorrectly applied an arcane procedure, it doesn't make the whole civil service useless. I have, of course, made mistakes, although mine are always cheaper.

I've done ranting. Any more Civil Servant bashing, and when I get to work next, I shall find your records, and press Shift+Ctrl+K on my keyboard. Then you'll be sorry!

[ellendune]

But if the civil service cannot run the franchise process.  Or an economic train procureemnt process how do you think they are going to run a nationalised railway? After all civil service interference in BR^▸ (British Rail(ways)) does not set a shining precident.  Trying to fix the franchise process may be preferable.

Just because someone MAY have incorrectly applied an arcane procedure, it doesn't make the whole civil service useless. I have, of course, made mistakes, although mine are always cheaper.

I've done ranting. Any more Civil Servant bashing, and when I get to work next, I shall find your records, and press Shift+Ctrl+K on my keyboard. Then you'll be sorry!

Sorry FTN I am not bashing individual civil servants, but the civil service management which operates a system that, at least in Whitehall, means that to be promoted you have to swap jobs frequently.  That means civil servants advising ministers on policy matters, do not have enough experience of the subject they are dealing with.  That system cannot, I am affraid, be blamed on ministers, but on the civil service management. 

I have to say that the slash and burn of these same parts of the civil service by the present government has only served to exacerbate the situation. 

I am aware of at least of one major area of the government, where the civil servants have no more than a few months experience of the subject they are dealing with.  This coupled with fewer staff for the same workload means that the quality of advice is often sadly lacking. Also government has no long term corporate memory of past crises and are therefore forced to learn lessons all over again. 

I wonder what percentage of civil servants in DfT^» (Department for Transport - about) Railways were working on anything to do with railways 5 years ago and how many of those working on franchising had any long term experience of previous franchises. 

[TonyK]

No offence taken, ellendunne.

A little more information is in my possession that was the case this morning in any case. One of the suspended civil servants has gone public. Kate Mingay, whose ^140K pa salary is indicative of a position in the very upper echelons, has spoken to the Times, to explain that it isn't her fault. She was formerly a banker with Goldman Sachs, and may have been attracted to the civil service by the cut in pay, lack of opportunity, and the wish to be used as a scapegoat by either the government , the media, or the public. Or she may have been brought in specially, to provide those cutting edge skills needed for such a job. Either way, going public suggests she isn't thinking of going back to her job at DafT.

We lower orders don't move around much. Our bosses do, but we get on with things, in spite of them. I've served under only one queen, but seven prime ministers. I am used to me getting the blame, them getting the credit.

[ellendune]

No offence taken, ellendunne.

A little more information is in my possession that was the case this morning in any case. One of the suspended civil servants has gone public. Kate Mingay, whose ^140K pa salary is indicative of a position in the very upper echelons, has spoken to the Times, to explain that it isn't her fault. She was formerly a banker with Goldman Sachs, and may have been attracted to the civil service by the cut in pay, lack of opportunity, and the wish to be used as a scapegoat by either the government , the media, or the public. Or she may have been brought in specially, to provide those cutting edge skills needed for such a job. Either way, going public suggests she isn't thinking of going back to her job at DafT.

We lower orders don't move around much. Our bosses do, but we get on with things, in spite of them. I've served under only one queen, but seven prime ministers. I am used to me getting the blame, them getting the credit.

Her defence she says is:

"I would like to make it clear that I did not have lead responsibility for this project. Neither I nor any member of my team had any responsibility for the economic modelling for this project or for any Department for Transport project.

"Nor did I have any responsibility for the financial modelling in respect of this project."

http://www.bbc.co.uk/news/uk-19854459

[woody]

No wonder their are calls now for renationalization of the railways.

http://www.guardian.co.uk/commentisfree/2012/oct/04/public-want-railways-renationalised

But if the civil service cannot run the franchise process.  Or an economic train procureemnt process how do you think they are going to run a nationalised railway? After all civil service interference in BR^▸ (British Rail(ways)) does not set a shining precident.  Trying to fix the franchise process may be preferable.

I do not look back at BR through rose coloured spectacles,clearly it had its downsides as well,but when you compare the up and downs of BR and our privatised railway,the up side of BR wort's and all namely that it was one much more efficient unified organisation from the taxpayers point of view outweighs all its downsides.
 As the Guardian puts it "The problem seems to be that despite the financial crash of 2008, Britain's political elite are still in thrall to neoliberal dogma. This dogma holds that nationalised industries are inherently "inefficient" and that "private sector solutions" are always best. But this flies in the face of the evidence of the past 33 years. No one who travels regularly on the eminently affordable, reliable and comfortable state-operated railways of, say, Germany and France could say ^ hand on heart ^ that they are less efficient that Britain's overcrowded and hideously expensive privatised trains."
  Remember it was BR who came up with the bargain basement HST^▸ (High Speed Train) and if BR had been publicly funded to the same level as our privatised railway system then there is no doubt in my mind that we would already now have a fleet 155mph tilting APT^▸ (Advanced Passenger Train) trains running the length and breadth of country on an all electrified main line railway. Instead we are still having to pour mind boggling amounts of public money into the railway in order to prop up a discredited system that clearly is not working financially for the passenger or the taxpayer,only the private companies involved.The only thing that has stopped the whole privatised railway from imploding to date is above inflation fare rises and massive taxpayer support that cannot go on as the West Coast franchise disaster has shown. No one else in the world uses our privatised railway model,that should tell you something. I am not necessarily promoting re nationalisation but somehow our fragmented inefficient railway has got to be put back together again somehow as the previous 150 odd years of railway operating experience showed to be necessary for the operation of an efficient cost effective railway.

[ellendune]

No wonder their are calls now for renationalization of the railways.

http://www.guardian.co.uk/commentisfree/2012/oct/04/public-want-railways-renationalised

But if the civil service cannot run the franchise process.  Or an economic train procureemnt process how do you think they are going to run a nationalised railway? After all civil service interference in BR^▸ (British Rail(ways)) does not set a shining precident.  Trying to fix the franchise process may be preferable.

I do not look back at BR through rose coloured spectacles,clearly it had its downsides as well,but when you compare the up and downs of BR and our privatised railway,the up side of BR wort's and all namely that it was one much more efficient unified organisation from the taxpayers point of view outweighs all its downsides.
 As the Guardian puts it "The problem seems to be that despite the financial crash of 2008, Britain's political elite are still in thrall to neoliberal dogma. This dogma holds that nationalised industries are inherently "inefficient" and that "private sector solutions" are always best. But this flies in the face of the evidence of the past 33 years. No one who travels regularly on the eminently affordable, reliable and comfortable state-operated railways of, say, Germany and France could say ^ hand on heart ^ that they are less efficient that Britain's overcrowded and hideously expensive privatised trains."
  Remember it was BR who came up with the bargain basement HST^▸ (High Speed Train) and if BR had been publicly funded to the same level as our privatised railway system then there is no doubt in my mind that we would already now have a fleet 155mph tilting APT^▸ (Advanced Passenger Train) trains running the length and breadth of country on an all electrified main line railway. Instead we are still having to pour mind boggling amounts of public money into the railway in order to prop up a discredited system that clearly is not working financially for the passenger or the taxpayer,only the private companies involved.The only thing that has stopped the whole privatised railway from imploding to date is above inflation fare rises and massive taxpayer support that cannot go on as the West Coast franchise disaster has shown. No one else in the world uses our privatised railway model,that should tell you something. I am not necessarily promoting re nationalisation but somehow our fragmented inefficient railway has got to be put back together again somehow as the previous 150 odd years of railway operating experience showed to be necessary for the operation of an efficient cost effective railway.

I remember all that, but it was the way that DfT^» (Department for Transport - about)'s predecessors were able to micro-manage BR that was the problem.  BR were brilliant at what they did but they were essentially being told to manage decline by DfT's predecessors.  Even the HST programme was cut back. 

Sure the much of the post privitisation growth in traffic has been partly down to outside circumstances, but the fact that DfT did not initially get the idea of a growing railway even after privitisation, leads me to assume that under BR, DfT would have stifled it with their policy of cuts and a culture of decline.  Privitisation allowed some companies to try for growth and made it work - spectacularly - and now we have a growth agenda that pulls DfT (reluctantly) along. 

[Chris from Nailsea]

From the Telegraph:

No way to run a grown-up railway

The West Coast Main Line debacle is evidence of a deeply flawed rail network

Last Tuesday, as daylight faded on the evening rush hour, Virgin Trains was providing some much-needed stress relief ^ for its customers, and perhaps also for itself. On the platform at Stafford, the company launched ^the UK^▸ (United Kingdom)^s first pet therapy service at a railway station^, with a ^collection of animals available for commuters to sit with and stroke^. Given Virgin^s imminent extinction as a rail operator, one unkind observer thought one of the creatures should have been a dodo.

By the end of that same night, however, a rather different group of people were in urgent need of therapeutic furry friends. At 11.30pm British time, in his New York hotel room, a stunned Richard Branson, Virgin^s owner, took a call from the Transport Secretary, Patrick McLoughlin. Officials had found ^deeply regrettable and completely unacceptable^ mistakes in Virgin^s sacking from its franchise to run the West Coast Main Line, the backbone of Britain^s rail network. Three civil servants had been suspended. The whole competition would be re-run.

Virgin Trains had lived, at least temporarily, to fight another day. But far more importantly, on Tuesday night, a southbound Class 390 express had crashed through the Government^s flagging credibility, through one of its most cherished projects ^ HS2^▸ (The next High Speed line(s)) ^ and through its fundamentally flawed idea of how to run a railway.

To a triumphant Sir Richard, of course, Virgin^s reprieve was all that mattered. Before it, he^d quite seriously claimed that his loss of the franchise was ^bad for the country^. Since 1997, he said, in a ^remarkable achievement by our team,^ Virgin had ^transformed^ the West Coast line. ^I am immensely proud of our staff for turning it from a heavily loss-making operation into one that will return the taxpayer billions in the years to come,^ he said. Celebrities clustered round one of their own: ^Shame to see brilliant Virgin Trains unrewarded for such hard work,^ tweeted Derren Brown. A Downing Street petition urging a rethink and claiming that ^the West Coast Main Line^s current value is thanks to millions of pounds of investment and commitment from Virgin Trains^ drew almost 175,000 signatures.

It was a sobering symptom of public credulousness, and the power of Branson^s superb personal PR^▸ (Public Relations). The West Coast line has indeed been ^transformed^ but this ^remarkable achievement^ is almost entirely the work of the taxpayer, not Sir Richard. It was the Government, not Virgin, that paid ^8.7 billion to upgrade the tracks and signalling, making possible today^s faster, more reliable and more frequent trains.

In British Rail days, again contrary to Virgin^s claims, West Coast was profitable. Since Branson took it over, however, far from ^returning money to the taxpayer^, he has in fact taken almost a further ^2 billion in public subsidy just to run the service. This is the first year, in Virgin^s 15-year franchise, when its premium payments to the Treasury will exceed the subsidies it receives from the public purse.

Despite this, however, Virgin charges some of the network^s highest walk-on fares: a peak return from London to Manchester is just under ^300, up 37 per cent in five years. The morning peak period, during which such fares are charged, has been gradually extended to finish as late as 11.20am, while Virgin^s evening peak for most English destinations now starts at 3.01pm.

On comparable routes, FirstGroup, the rival that thought it had defeated Virgin on the West Coast, has cheaper walk-on fares and better punctuality. But First, too, is a deeply problematic company. Its passenger satisfaction ratings trail Virgin^s. Three years ago, it was running its Thameslink franchise so conspicuously badly that the then transport secretary, Lord Adonis, threatened to sack it.

And First is just as clever as Branson at the subsidy game. For its Great Western franchise, First did a deal that involved receiving mainly subsidies in the early years and then paying mainly premiums to the taxpayer later. Having collected the subsidies, First is now surrendering the franchise three years early ^ thus avoiding paying most of the premiums. Taxpayers are ^826 million down as a result.

Indeed, the franchising system, for many rail companies, is not far off a one-way bet. If, after the first few years of a company^s franchise, revenue falls short of their expectations, the Government makes part, or most, of it up to them in so-called ^revenue support^. Currently, seven of Britain^s 19 rail franchises benefit from this arrangement. Of the ^1 billion paid by the 19 to the Treasury in premiums this year, around ^450 million is now returned to the seven in ^revenue support,^ up 55 per cent in the past 12 months. (This money is separate from the further subsidies paid to Network Rail to maintain the track and infrastructure, and the yet further subsidies paid directly to some local operators to run services.) As even Whitehall now admits, revenue support has caused ^perverse outcomes, as well as significant financial liabilities for the Government^.

All this suggests the real reason why Virgin was so angry about the West Coast deal: operating Britain^s biggest railway, in Branson^s own words as reported by his biographer Tom Bower, is a ^licence to print money^. But the money being printed is substantially taxpayers^ and farepayers^ ours, in other words. Public subsidy for the railways has risen, in real terms, as much as threefold since privatisation. And there is one final irony: despite its rail operation leaning so heavily on the taxpayer, Virgin Group is largely held offshore, through family trusts in the Channel Islands and the Caribbean ^ substantially reducing its own liability for British taxes.

Yet hard as it may be to get worked up about which one of two unappealing companies gets to paint its logo on some trains, Sir Richard has done us a big favour by exposing the broken nature of the franchising system. Last year, the Government tried to reform rail franchises to avoid the ^one-way bet^ of revenue support. They made franchisees put up a risk-related ^performance bond^ to guard against broken promises, and they linked future revenue demands and revenue support to future changes in the economy. West Coast is the first franchise to be let under the new rules. But it is precisely these calculations, the level of the performance bond and the likely changes in the economy, that the civil servants assessing Virgin against First appear to have got so badly wrong.

The debacle has implications well beyond the West Coast route. Some of the same statistical models are being used, in different ways, to justify a new high-speed line from London to Birmingham, HS2. Opponents now have extra ammunition to argue that HS2^s figures do not add up.

More widely, of course, the fiasco feeds a wider and very damaging ^narrative^ of coalition incompetence and chaos. Extraordinarily, late on Friday night, one of the suspended civil servants, Kate Mingay, hired libel lawyers to attack her own department for making ^inaccurate^ statements about her. The entire rail network, meanwhile, is on hold for months, as Whitehall grinds through inquests and reviews.

But there may be a silver lining. The franchise documents explicitly say that the calculations that turned out to be wrong were for civil servants to make. The Department for Transport has been a shambles for years, under all recent administrations, with West Coast just the latest in a string of costly disasters, such as the Tube public-private partnership.

And the crisis may now give ministers, long frustrated with ^obstructive^ civil servants, the opening they^ve been waiting for. Just hours before the rail meltdown was announced ^ probably by coincidence, perhaps not ^ the Cabinet Office minister, Francis Maude, attacked the ^unacceptable^ behaviour of some senior bureaucrats who, he said, have ^blocked agreed government policy from going ahead or advised other officials not to implement ministerial decisions^. Maude and others want to fundamentally change Whitehall into a policy delivery, not a policymaking, operation. Ministers, they say, make the policies.

In the end, however, the most lasting effect of the Virgin rebirth will be to fuel the growing consensus that the railways cannot go on like this. The system^s effort to share risk between public and private always seems to work against the taxpayer and farepayer. One option would be to move to a ^concession^ form of franchising, as on London^s buses and many European regional railways, where the company is no more than a contractor.

Britain^s second-most important main line, East Coast, offers a more radical alternative. Three years ago, it was taken back into state ownership after the franchisee, National Express, failed to meet its ambitious revenue targets (it was too early in the franchise for government ^revenue support^ to be payable). For Branson, this ^handing back the keys^ is the ^doomsday scenario^ it has been dreadful to see what has happened on the East Coast Main Line in the past couple of years.^

In fact, however, and for the whole of the last year, the renationalised East Coast Main Line has enjoyed better punctuality than Virgin. Satisfaction, too, is up, to 89 per cent ^ just two points below West Coast. There are more seats, more passengers, a new destination (Lincoln) has been added, and last year ^ again in contrast to Branson Rail ^ the franchise earned more than ^350 million in premium payments and profits for the taxpayer. ^Handing back the keys^ has been the best thing that^s happened on the East Coast main line for years. And now Labour has started to talk about keeping it in public ownership ^ or even letting other franchises revert to the state as they expire.

That would, of course, be terrible news for Branson and FirstGroup. But it would make life a lot simpler for the rest of us.

[eightf48544]

One thing I've not seen mentioned recently is that at some stage Branson said he'ed run the WCML^▸ (West Coast Main Line) for "free" after the franchise expired.

What did he mean? He couldn't mean that Virgin would pay the staff hire the trains and pay Networkrail access charges out of their own funds.

[SapperPsmith]

One thing I've not seen mentioned recently is that a some stage Branson said he'ed run the WCML^▸ (West Coast Main Line) for "free" after the franchise expired.

What did he mean? He couldn't mean that Virgin would pay the staff hire the trains and pay Networkrail access charges out of their own funds.

He meant he will still make money from the branding fee!  (this is paid to a Virgin company with limited number of shareholders and a based offshore)

[woody]

The West Coast franchise disaster poses the wider question,What if?.What if Richard Branson,widely poo pooed at the time as sour grapes and a poor looser had not challenged the West Coast franchise decision in the first place something the Government had clearly not expected to happen from the chain of events that followed.What has now been revealed as a deeply flawed rail franchising system would have been allowed to stumble on from crisis to crisis with continued Government and industry support.And why,because the whole flawed process was profitable for those concerned so "don't rock the boat".It is quite clear to me that the Government largely knew what was going on but for reasons of political dogma (private good,public bad) were quite happy up till then to allow things to carry on as they were.What they did not expect was Richard Bransons legal challenge.They knew that a judicial review would of exposed the whole "cover up" as it were so the only alternative to being caught with their political pants down was to find a scape goat or fall guys (Dft officials) to cover their political asses at the last minute in what was little more than blind political panic.Its as simple as that.What a shambles our railway finances have descended into.We must be the laughing stock of the world.

[grahame]

The West Coast franchise disaster poses the wider question,What if?.What if Richard Branson,widely poo pooed at the time as sour grapes and a poor looser had not challenged the West Coast franchise decision in the first place ...

Has anyone asked the question "Did Virgin loose the Cross Country franchise fairly?" and the follow up questions if the answer is anything except a categorical "yes".

[eightf48544]

Interesting point Grahame having lost CC and seemingly West Coast as well, Virgin would cease to be a train opertator. So he really had nothing to lose challenging the system.