Would full privatisation work?

[whole diary]

[Ralph Ayres]

Chiltern may look good to the outsider or the longer-distance traveller, but they have made few real improvements for local journeys south of Bicester. The frequency of service to many stations is no better than 40 years ago and any shorter journey times are only to avoid the local trains delaying their lucrative Birmingham and Bicester Village services. Without the requirements of the franchise they would have closed a number of stations long ago.

[Tim]

I am no fan of privatisation.  In fact I would prefer the railways to be renationalised.  BR^▸ (British Rail(ways)) wasn't great but it did provide MUCH better value than the current set up. 

BUT the current set up is the worse of all worlds.  The problem is that the likes of First have no "skin in the game".  They own very little because they are no more than thinly capitalised spivs.  That means that when the revenue predictions or performance go wrong (as they will eventually) they can walk away (see NX and SeaCo) or demand fresh subsidies (see Southern).  I'd be happy with NR^» (Network Rail - home page) staying more or less as it is now but with the TOCs^▸ (Train Operating Company) moving to be much more like the FOCs^▸ (Freight Operating Company) or else just being contractors rather than franchisees.

It is instructive, I think, to note that whilst the FOCs have doubled their productivity since privatisation due to investment in equipment (which BR would never have ordered), the productivity of TOCs (ie the real cost of moving a passenger a mile) is virtually unchanged since the days of BR despite record levels of investment, advances in technology and a year on year increase in customers of the kind that most businesses would kill for.     

[ChrisB]

I'm mindful of the rolling stock problem created by BR^▸ (British Rail(ways)) that we are still being forced to travel on, many years after it should have been replaced, and its taken this long within privatisation to get a real handle on renewals.

What would have happened if BR was still around I dread to think. I can't believe those around in the dying years of BR can seriously want them back....we'll be back to square one with no renewals in the next generation either. So hit the repeat button in around 50 years time.

[ellendune]

I am no fan of privatisation.  In fact I would prefer the railways to be renationalised.  BR^▸ (British Rail(ways)) wasn't great but it did provide MUCH better value than the current set up. 

BUT the current set up is the worse of all worlds.  The problem is that the likes of First have no "skin in the game".  They own very little because they are no more than thinly capitalised spivs.  That means that when the revenue predictions or performance go wrong (as they will eventually) they can walk away (see NX and SeaCo) or demand fresh subsidies (see Southern).  I'd be happy with NR^» (Network Rail - home page) staying more or less as it is now but with the TOCs^▸ (Train Operating Company) moving to be much more like the FOCs^▸ (Freight Operating Company) or else just being contractors rather than franchisees.

It is instructive, I think, to note that whilst the FOCs have doubled their productivity since privatisation due to investment in equipment (which BR would never have ordered), the productivity of TOCs (ie the real cost of moving a passenger a mile) is virtually unchanged since the days of BR despite record levels of investment, advances in technology and a year on year increase in customers of the kind that most businesses would kill for.     

The Franchise system is how the government made it. 

The TOCs are "thinly capitalised" because that is how the government wanted it with the trains owned by leasing companies.  Notwithstanding this First Group did buy some additional HSTs^▸ (High Speed Train) a few years ago - I assume creating their own separate leasing company to do it. 

Chiltern did put some capital into track improvements earlier in their franchise, but then they had a 20 year franchise. Government, however decided they did not want any more 20 year franchises so TOCs cannot put money in unless they have a very short term return on their investment. 

As for TOCs walking away their ability to do this is down to the terms of the franchise contract. DfT^» (Department for Transport - about) tried to improve these with some system of guarantees but these were so complicated that they led to the collapse of the whole west coast and GW^▸ (Great Western) franchise renewals a few years back. I am not sure what they are doing on this for new franchises now being let.   

The alternatives as I see it are:

a) More long term franchises like Chiltern with incentives for franchisees to invest;
b) Everything being open access and leave it to the market what services are run (that would be the FOC model); or
b) Management contracts like London Overground where all the investment comes from government (if I understand correctly).

[Tim]

agree that any of those 3 options would be preferable to the phoney capitalism system we have now. Your options a) and b) have the advantage of attracting private sector investment which probably means more investment than option c). 

Of course the really expensive investments (billions rather than mere millions) are needed in the infrastructure rather than the train fleets.  Given that NR^» (Network Rail - home page) is on the government's books anyway perhaps that is a minor consideration.

[ChrisB]

And NR^» (Network Rail - home page) are already having their wings clipped having to move work into CP6^▸ (Control Period 6 - The five year period between 2019 and 2024), meaning less new work can be accomodated in that period assuming similar spending levels.

So the downward spiral under State control has already started. Be careful what you wish for!

[ChrisB]

Option b) would mean serious competition across the peaks with no one wanting the socially required very early & late (except maybe Fridays & Saturdays if NR^» (Network Rail - home page) acquiese). You need franchises/management contracts in order to impose those on operators, not a free for all open access.

Again, be careful what you wish for!

[ellendune]

I have though of an option d)

d) open access (as (b)), but with government contracting operators to provide the non-commercial services. 

The main disadvantage as I see it for this is that it has been tried for bus services outside London as as manifestly failed. 

[ellendune]

Option b) would mean serious competition across the peaks with no one wanting the socially required very early & late (except maybe Fridays & Saturdays if NR^» (Network Rail - home page) acquiese). You need franchises/management contracts in order to impose those on operators, not a free for all open access.

Again, be careful what you wish for!

Again what would happen to fares?  On some routes competition might force them down, but on others they could just go up.  I am not sure full privatisation has kept bus fares down. 

[Tim]

why do we need to let TOCs^▸ (Train Operating Company) set their own fares? 

[ellendune]

why do we need to let TOCs^▸ (Train Operating Company) set their own fares? 

We don't, but that is the FOC^▸ (Freight Operating Company) model. 

[devonexpress]

I am no fan of privatisation.  In fact I would prefer the railways to be renationalised.  BR^▸ (British Rail(ways)) wasn't great but it did provide MUCH better value than the current set up. 

BUT the current set up is the worse of all worlds.  The problem is that the likes of First have no "skin in the game".  They own very little because they are no more than thinly capitalised spivs.  That means that when the revenue predictions or performance go wrong (as they will eventually) they can walk away (see NX and SeaCo) or demand fresh subsidies (see Southern).  I'd be happy with NR^» (Network Rail - home page) staying more or less as it is now but with the TOCs^▸ (Train Operating Company) moving to be much more like the FOCs^▸ (Freight Operating Company) or else just being contractors rather than franchisees.

It is instructive, I think, to note that whilst the FOCs have doubled their productivity since privatisation due to investment in equipment (which BR would never have ordered), the productivity of TOCs (ie the real cost of moving a passenger a mile) is virtually unchanged since the days of BR despite record levels of investment, advances in technology and a year on year increase in customers of the kind that most businesses would kill for.     

You might not be a fan of privatisation but it works, you only have to look at British Airways to see how well it has done since it was taken off the public books, this is why I firmly believe the railways could flourish as well.  It might be a bit expensive short term, but long term costs would likely come down.  Most of the problems we have had with the Great Western in the past 20 years since it was franchised has actually been down to infrastructure or the trains being too old.

I wonder if anyone has the numbers on how much it is going to cost GWR^▸ (Great Western Railway) to lease trains, staff/management costs, operating costs, and income for the 2015 -2019 franchise.  As all I know is that they are paying £68 million to the government to operate it. It would be interesting to work out how much income is made by passenger and freight traffic and what is going out.

[Tim]

I am no fan of privatisation.  In fact I would prefer the railways to be renationalised.  BR^▸ (British Rail(ways)) wasn't great but it did provide MUCH better value than the current set up. 

BUT the current set up is the worse of all worlds.  The problem is that the likes of First have no "skin in the game".  They own very little because they are no more than thinly capitalised spivs.  That means that when the revenue predictions or performance go wrong (as they will eventually) they can walk away (see NX and SeaCo) or demand fresh subsidies (see Southern).  I'd be happy with NR^» (Network Rail - home page) staying more or less as it is now but with the TOCs^▸ (Train Operating Company) moving to be much more like the FOCs^▸ (Freight Operating Company) or else just being contractors rather than franchisees.

It is instructive, I think, to note that whilst the FOCs have doubled their productivity since privatisation due to investment in equipment (which BR would never have ordered), the productivity of TOCs (ie the real cost of moving a passenger a mile) is virtually unchanged since the days of BR despite record levels of investment, advances in technology and a year on year increase in customers of the kind that most businesses would kill for.     

You might not be a fan of privatisation but it works, you only have to look at British Airways to see how well it has done since it was taken off the public books, this is why I firmly believe the railways could flourish as well.  It might be a bit expensive short term, but long term costs would likely come down.  Most of the problems we have had with the Great Western in the past 20 years since it was franchised has actually been down to infrastructure or the trains being too old.

I wonder if anyone has the numbers on how much it is going to cost GWR^▸ (Great Western Railway) to lease trains, staff/management costs, operating costs, and income for the 2015 -2019 franchise.  As all I know is that they are paying £68 million to the government to operate it. It would be interesting to work out how much income is made by passenger and freight traffic and what is going out.

Privatisation worked for BA^» (British Airways - about).  It works on the freight railway.  It was a failure in the bus industry. On the infrastructure front it was tried once (Railtrack) and failed with a loss of both money and lives.

On the passenger railway I'd suggest that privatisation has only really been tried with the Open Access operators which are a success although a very limited one.  The Franchised railway was not a proper privatisation and so the jury is still out on whether privatisation works on the passenger railway.

Privatisation is not a panacea, but it can work to bring improvements if there is an element of competition (proper consumer-driven competition but the pseudo-competition of franchise bidding).

The only thing I am sure of is that the current franchise system is hugely wasteful of tax payers and farepayers money and that it really is the worse of both world and would be better if replaced by either proper privatisation or renationalisation.  Actually, the best option might be a bit of both with some TOCs nationalised and at the same time an expansion of open access operations. 

[ellendune]

If privatisation was a success what would it look like?

a) More people use the railway?  Yes - and on that basis it is a success

b) The total costs (to both government and fare payers) would be reduced? Well perhaps not if the number of passengers has increased. So how about the cost per passenger mile is reduced?  Not sure where we are on that one.

c) Good customer service - Still a along way to go here.

d) Growth is accommodated - well to some extent at last orders for new trains to come with increased demand do seem to be starting.  Lets say the Jury is still out on this one. 

[IndustryInsider]

Most of the problems we have had with the Great Western in the past 20 years since it was franchised has actually been down to infrastructure or the trains being too old.

I don't personally pretend that privatisation is perfect, far from it, but can I ask you what you think would have happened to the current GWR^▸ (Great Western Railway) fleet had privatisation not taken place?  In my opinion, BR^▸ (British Rail(ways)) would have not been able to justify replacing anything until the magic 35 years old mark was reached, and so we'd have had exactly the same fleet we've got now. To justify that opinion:

1) Back in 1996 the current fleet of Turbos was around 5 years old, Class 158s only slightly older, the other DMU^▸ (Diesel Multiple Unit) units (143/150/153s) had only just turned 10 years old. 
2) HST^▸ (High Speed Train)'s were 10-15 years old, and the Class 180s were five years away from being realised.
3) Most of those units built between 1985 and 1992 were replacing old first generation DMUs (101s, 117s and the like) that had been built in the late 50s and early 60s and had reached the 35-40 year maximum shelf life of a typical diesel train.
4) None of the units currently in use have been in service more than 32 years.  Some of the oldest are about to be replaced by the cascade plan.
5) HSTs (a wonderful success story for the railways) have now reached the magic 35-40 years old, but are in the process of being replaced.