158 Merry-go-round

[whole diary]

[devon_metro]

Reading-Penzance is 110 max (Via B&H^▸ (Berks and Hants - railway line from Reading to Taunton via Westbury))

[CJ Harrison]

Presumably the "DafT" means government funding, i.e. the taxpayer. We all pay in the end, so it is a matter of trade offs between competing demands for a finite pot of cash (or increased subsidy through taxation). This is interesting, because we all believe that our own train service is the most demanding of public subsidy, especially if we have to put up with crowded trains or road congestion. Yet from my perspective as an FGW^▸ (First Great Western) commuter into central London, I suffer far less misery than my colleagues who use the underground or commuter services into Waterloo, Cannon Street etc. So we get into the debate as to who is more worthy of direct or cross subsidy from a general economic perspective. The reality is that some of us will pay one way or another - Discuss!

It^s not a matter of government providing subsidy. Indeed, the Greater Western franchise does not need subsidy ^ as a whole, it is profitable and financially viable.

The reason I advocate DafT paying for the class 180s is very simple. First Great Western are paying them well over a billion pounds to run the franchise. This is money that comes from us, the fare paying public; it is, in many ways, a stealth tax on rail travel in our region. I want my money to be used to better the rail services I use.

As a consequence of the amount FGW have to pay, they are financially restricted as to what they can do in regards to additional capacity ^ and this is exacerbated by the short nature of the franchise period. They can^t for example, take on significant additional leasing costs without it have an adverse impact on their financial performance. That only leaves DafT as a source of funding.

But be clear, this is not asking DafT for money. It is asking DafT to allow FGW to keep more of the money we give them on the condition it is spent on additional capacity. It may be a subtle distinction, but this isn^t subsidy.

[CJ Harrison]

We all pay in the end, so it is a matter of trade offs between competing demands for a finite pot of cash (or increased subsidy through taxation).

I want to address this point separately.

The pot of cash, so to speak, is limited because of the system.

Most private companies have very little difficulty in finding enough cash to expand and grow, even when this cannot come from their own internal reserves. The reason for this is because capital in the economy will flow to where it can make a return: provided a new venture appears profitable, there will be investors willing to fund it.

Despite the fact that many franchises are profitable and growing, the railways do not work in this way; and Greater Western is good a case in point. Capital does not flow to the railways as it could because of several reasons. First, many of the franchise periods are too short for a return to be made on large capital projects. Second, the government intervenes far too much which makes investment an unattractive option. Third, the government wants to use the railways as a cash cow to generate money for the state which stunts the level of return that can be made.

If you want to expand the railway then get government out of the equation. Make franchises longer and let TOCs^▸ (Train Operating Company) make more profit. I know people will often criticise profits. But where do you think expansion comes from? It can only come from surplus capital which can only be generated by making a profit. No profit, no surplus, no reason for investors to invest capital, no expansion, no growth.

It is no coincidence that most businesses run without unnecessary government interference are perfectly successful and, by and large, deliver on the needs of their customer, whereas most functions that are run or overseen by government are exceptionally bad value for money in that they cost a great deal and deliver a poor standard of service.

[BandHcommuter]

It^s not a matter of government providing subsidy. Indeed, the Greater Western franchise does not need subsidy ^ as a whole, it is profitable and financially viable.

It may appear that way, but to get the true picture of franchise subsidy/premium you really need to add back in the direct revenue grant paid by DfT^» (Department for Transport - about) to Network Rail to shore up the track access charges (about ^2bn per annum to the railway as a whole, which would be about ^15bn pv over the FGW^▸ (First Great Western) franchise term - not sure how much of that would be directly attributable to FGW, but it's probably a fair guess that it would wipe out most of that premium if included in track access charges)

But be clear, this is not asking DafT for money. It is asking DafT to allow FGW to keep more of the money we give them on the condition it is spent on additional capacity. It may be a subtle distinction, but this isn^t subsidy.

The premium paid by FGW to DfT provides part of the overall budget for supporting transport services in general (including that juicy revenue grant to Network Rail, plus several billion per year supporting other franchises). If the premium is reduced, then this reduces the amount available to support non-profitable public transport. If the net costs of running FGW increase, either someone somewhere else loses out - or total subsidy to the industry has to increase.

This is a big money go round, and whichever way you look at it there will be economic (and as someone else mentioned - political) trade offs to be made from any redistribution.

[CJ Harrison]

The point about the wider costs of the Greater Western infrastructure could be true. My gut feeling ^ and it is no more than that as I have not properly analysed the figures ^ is that if the system was organised in a commercially viable manner (i.e. longer franchise terms, vertical integration, etc.) then Greater Western would, as a whole, be a financially viable business. That does not mean to say, of course, that some reorganisation of the network would not be required. I think it would.

The system is the critical element in this. The way in which the railway is organised at the moment is not a particularly sensible commercial solution; it is certainly not the way that the business would be structured if it had been created by natural market forces rather than by government intervention. I have written quite extensively about this on my blog, so I won^t repeat the whole argument here. However, the most critical thing is that the short term nature of the railway limits capital investment because there isn^t sufficient time for a return to be made on that investment. This reduces what we have called the ^pot of cash^ available to the railway as a whole and means it is more reliant on government investment (or subsidy) than it otherwise would be. Rail is a long term game because it is a capitally intensive industry, but it is organised in a system which is short term by its very nature.

This is an argument which goes far wider than Greater Western; it applies to all franchises. The question is, how many franchises, if they were organised differently, would suddenly become profitable? I don^t know the answer, but I suspect that at least some would see a change in their financial status. For example, at the moment train leasing costs come straight off the bottom line. If franchises were longer (or permanent) then there would be more incentive for TOCs^▸ (Train Operating Company) to own their own rolling stock. This would mean that stock would be classed as an asset and only the depreciation costs would come off the balance sheet. Alternatively, finance leases could be used which would have a similar impact as they have a different financial treatment to operating leases which are the ones most commonly used today. Another example would be the use of assets. If there was vertical integration then I have no doubt that the railway companies could sweat their assets far more than they currently do. Stations, for example, are areas of prime footfall. They are, therefore, ideal for commercial development which would yield returns to their owners. This ^sweating^ doesn^t happen at the moment because most TOCs lease stations from Network Rail, so there is no incentive for them to implement extensive development programmes.

So, if some of the franchises could be financially restructured then that would reduce the overall subsidy required for the rail network. If course, it is likely that some subsidy may well remain. It^s fine to ask ^where will this come from?^ but, surely, the first question to ask is: should this be given? Appreciably this is a very wide question incorporating matters of political philosophy (the principles on which you believe a country should be run) and economics (the most effective way of organising the economy).

My personal answer is that no, subsidy should not be given. Subsidy, where it is granted in any industry, is a method of penalising the successful and efficient to prop up the inefficient and unsuccessful. Moreover, it is highly injurious to the natural mechanism of the market which, if left unhampered, operates in the best interest of consumers.

Take Greater Western as a case in point. If GW^▸ (Great Western) is financially viable and profitable then it should be left alone. Surplus capital (profit) can be invested back into the business to support growth in demand or, alternatively, can be put to other uses elsewhere. If the government takes money from GW to give to some other railway operation the impact is that that surplus capital is not flowing to an area where it can be put to productive use ^ i.e. where there is a natural demand for it. It is flowing to an operation which will not generate a return because, financially, it is simply not viable. The capital gets absorbed, no return is generated so there is no new surplus and, as a result, the economy as a whole is poorer. In other words, the capital seed has been consumed, and not invested.

GW is also poorer because it now has less money to invest back in its own services. This in turn can lead to a stunted level of investment which then leads to other problems. In practical terms what could happen, for example, is that GW suffers overcrowding because although demand is growing it doesn^t have the capital to buy new carriages; that capital has gone to some other operation where demand, in reality, is not great enough to sustain a rail service. So, resources have been misallocated against the stated preferences of consumers.

The other consideration is that rail, where it is subsidised, can have a crowding out effect on other services. For example, a subsidised rail service may mean there is a much lower incentive for more, better or faster bus services. Remove the rail service and other forms of transport will increase and improve.

At the end of the day, subsidy creates more problems than it solves. It is an extremely inefficient way to run an economy and, ultimately, to satisfy consumer demand. This, of course, is a much wider debate but it does have a very practical implication for the rail industry.

[Lee]

My personal answer is that no, subsidy should not be given. Subsidy, where it is granted in any industry, is a method of penalising the successful and efficient to prop up the inefficient and unsuccessful. Moreover, it is highly injurious to the natural mechanism of the market which, if left unhampered, operates in the best interest of consumers.

Do you not think that in some cases (Melksham being a good example , click on http://www.savethetrain.org.uk/open.html) an initial subsidy can be used to "kickstart" (as the DfT^» (Department for Transport - about) currently does with bus services) a viable rail service? In many cases , TOC^▸ (Train Operating Company)'s such as FGW^▸ (First Great Western) simply dont see the potential until it stares them in the face. In my view , this form of funding can seen as an investment rather than a subsidy.

The other consideration is that rail, where it is subsidised, can have a crowding out effect on other services. For example, a subsidised rail service may mean there is a much lower incentive for more, better or faster bus services. Remove the rail service and other forms of transport will increase and improve.

This may well be the case , but will the customer use these bus services? Extensive research suggests that passengers simply dont see the bus as an attractive alternative to the train or (say) light rail / tram , and would rather use their cars if heavy/ light rail is not an option. This , of course , has economic , environmental & social implications , all of which would also relate to increasing levels of congestion leading to higher levels of carbon emissions , pollution & road accidents.

Quotes from the original Beeching Report :

"It might pay to run railways at a loss in order to prevent the incidence of an even greater cost which would arise elsewhere if the railways were closed. Such other costs may be deemed to arise from congestion, provision of parking space, injury and death, additional road building, or a number of other causes."

"It is not thought that any of the firm proposals put forward in this Report would be altered by the introduction of new factors for the purpose of judging overall social benefit. Only in the case of suburban services around some of the larger cities is there clear likelihood that a purely commercial decision within the existing framework of judgment would conflict with a decision based upon total social benefit. Therefore, in those instances, no firm proposals have been made but attention has been drawn to the necessity for study and decision."

"Therefore, if the services are to be regarded as essential, the municipalities concerned must join with the railways and bus interests to evolve a co-ordinated system of services, with due regard to the economics of both forms of transport. It is, for example, illogical to operate subsidised municipal bus services in competition with unprofitable railway services, without any attempt to co-ordinate them.

If, on the other hand, the services are not regarded as essential and coordination is not found possible, the sound commercial course is for the railways to risk pricing themselves out of the business and then, if necessary, close the services."

I think , CJ , that you probably hit the nail on the head with the following quote :

So, if some of the franchises could be financially restructured then that would reduce the overall subsidy required for the rail network. If course, it is likely that some subsidy may well remain. It’s fine to ask ‘where will this come from?’ but, surely, the first question to ask is: should this be given? Appreciably this is a very wide question incorporating matters of political philosophy (the principles on which you believe a country should be run) and economics (the most effective way of organising the economy).

My personal view is that it is MORALLY wrong to withdraw subsidy from areas where there are overwhelming non - commercial factors that justify such subsidy. As inefficient & wasteful as such funding can be , it is a fundamental truth that the vast majority of people believe that such funding SHOULD be provided by the state.

Even Margaret Thatcher realised that , which is why she rejected the Serpell report , which would have gone far further than Beeching ever envisaged.

She also rejected the sell - off of the railways , commenting that it would be a privatisation too far.

[Lee]

I do think that FGW^▸ (First Great Western) do still have one bargaining chip to hand and that is the 180s. Say they were to go to Scotland, that would free up some 158s from up there that could come down south. The 180s have yet to be found a home and personally I think they would make excellent units to operate between Cardiff-Portsmouth. Dream on Tim I hear you say!

To be honest, it is not suprising lots of people are dreaming/want this! I would love it, especially 5 coaches to play with, instead of 2! The 100 MPH running wouldn't give too much of a timing advantage though IMO^▸ (in my opinion)

Well after making that comment Jim, I read in next month's Modern Railways that FGW are in discussion with Angel Trains about the possibility of keeping them. As much as we would like to see them operating Cardiff-Portsmouth, the line doesnt really give them much opportunity to run at their full potential as you say.

The short article goes onto highlight that the Dft is keen for FGW to retain the 180s to save it from the further embarrassment of perfectly good rolling stock being left in sidings whilst there is gross overcrowding. I think it was criminal SWT^▸ (South West Trains) being allowed to release 442s. These are wonderful pieces of rolling stock that aren't being used whilst Portsmouth-London passengers have to put up with 450s which weren't really meant for long distance services. Sorry going off topic again!

On a related note , isnt it great to learn that the newspaper readers of Oxford can count on such up-to-the-minute news (link below.)
http://www.rmtbristol.org.uk/2007/05/fgw_express_trains_in_line_for.html#more

[Lee]

The DfT^» (Department for Transport - about) has announced that London and Birmingham Railway Ltd (a subsidiary of Govia) has been awarded the contract to run the West Midlands franchise (links below.)
http://www.gnn.gov.uk/environment/fullDetail.asp?ReleaseID=293466&NewsAreaID=2&NavigatedFromDepartment=False

http://www.dft.gov.uk/press/speechesstatements/statements/westmidlands

http://www.dft.gov.uk/pgr/rail/passenger/franchises/wmfranchise

The new franchise will begin on 11th November 2007 and will run until 19th September 2015. The DfT has the right to terminate the franchise after six years if the operator is failing to meet agreed performance targets.

The West Midlands franchise combines the current Silverlink County services between London Euston and Northampton with the West Midlands local and regional service groups of Central Trains. The Department will pay a subsidy of ^1,127m (NPV) over the franchise of seven years and 10 months.

Among the list of improvements is the following :

"New class 172 diesel trains to replace the existing class 150 DMUs^▸ (Diesel Multiple Unit) operating on the Snow Hill line services in the Birmingham area by July 2010."

Can we in the FGW^▸ (First Great Western) area possibly have the Class 150's? I have a few ideas of where they could be put to good use (link below.)
http://www.savethetrain.org.uk/forum/index.php?topic=2569.msg5679#msg5679

However , the proposed fares policy is already causing controversy (link below.)
http://news.bbc.co.uk/1/hi/england/west_midlands/6225170.stm

[Jim]

There 150's have no end corridor connections