GENERAL CONSIDERATIONS  

  Long-term, stable but responsive, arrangements should be a prime goal in almost any area of government policy. They can maximise value from taxpayers' investments and allow people to go about their lives with confidence in the future. Short-term contracts look anomalous against a ten-year transport plan. In the case of the railways, the long timescales for achieving change mean that such contracts may offer the operators little or no return from investment. Major financial contributions by the private sector therefore become unlikely.

  However, huge amounts of public money have gone into the rail industry since privatisation, "fat cats" have been created, and in many areas of the country passengers get worse standards of service. It should by now be clear to all sides that things have gone badly wrong. A change of course looks inevitable, but the Government's new thinking will prove right only if it can offer both an escape route from past mistakes and a clear strategy for the future. It would be unwise to reject short-term arrangements out of hand. Some rail companies have now agreed to significant improvements in return for short term extensions of their contracts.

THE LESSONS OF THE PAST

The strengths of BR

  Opinion sampling by the media suggests there are significant public aspirations for re-nationalisation. BR was perceived by many as bureaucratic, over-staffed and unresponsive, but it had many strengths:

—  The public service ethos. It is a legendary anecdote that the late Sir Bob Reid, when Chairman of BR, would answer policy questions with the counter-question: "What's best for the passenger?" Sir Peter Parker popularised the national system by offering bargain Saturday excursions on quality trains used by business travellers during the week. Chris Green brought affordable off-peak travel to the populous South East through the Network Card.

—  Investment in electrification or new diesel trains often led to a major cascade of rolling stock with the oldest coaches being confined to the scrapheap. This meant that one scheme could bring far-flung advantages to taxpayers.

—  A national fare structure meant that experienced passengers could make a reasonable estimate of the cost of any journey, by taking account of distance, day of week, and time of day.

—  There were nationwide regulations which were generally unremarkable.

—  Standards of personal service were broadly predictable.

—  Timetables were recast over wide areas, ensuring journey opportunities were not sacrificed by unreliable or time-wasting connections.

—  Until the Clapham disaster, high safety standards were taken for granted.

The problems with privatisation

—  Passengers now feel that they are at the mercy of some private companies like South West Trains, which are seen as operations-driven and making big profits from big subsidies by providing an unreliable service.

—  There is no rolling stock cascade, so the quality gap between old and new carriages widens.

—  The fares structure is unintelligible and not even booking clerks always know whether someone is getting the cheapest fare for their needs.

—  Some passengers can buy their tickets in the comfort of a train seat, whilst others can get a penalty fare, and be made to feel criminal, just by going near a train without a ticket. There can be substantial problems for passengers required to use ticket machines. For example, how can a non-regular traveller be expected to know the difference between a travelcard (London zonal ticket) and railcard (pre-purchased pass giving entitlement to reduced fares)?

—  Personal service varies immensely, from Connex, where passengers can travel long-distances without seeing a member of staff, to good hotel standards on GNER.

—  Timetable changes can incur severe time penalties for "losers", as in SWT's recast of Waterloo-Weymouth line services from 1999, which brought slower journeys and older rolling stock for passengers using the major interchange at Clapham Junction. In addition, the decelerated off-peak services between Waterloo and Poole now block two of Southampton Central's four tracks for about 20 minutes of each hour, severely constraining capacity. The changes have thwarted Anglia Railways' plans to introduce Southampton-Norwich trains, linking with the Heathrow bus shuttle at Feltham. This is the rail equivalent of Stagecoach's behaviour to other bus operators which the Monopolies and Mergers Commission condemned as "predatory, deplorable, and against the public interest."

—  A series of disasters has drained passenger confidence, with Railtrack seen as putting profit before safety.

—  Overall, inconsistencies across the train operating companies mean that fewer passengers are likely to be totally content. For example, who wouldn't like new Virgin trains, GNER customer service, and Chiltern's long-distance day returns in combination?

Re-franchising: what went wrong?

  Re-franchising was supposed to procure big improvements for passengers through longer franchise contracts. Unfortunately, the exercise immediately followed two separate routes and derailed itself:

—  The Deputy Prime Minister made clear that the interests of passengers were paramount, and there would be no room in the rail industry for the worst performers. The Rail Passengers Committees went to great lengths to consult local government and rail users and compiled exhaustive lists of aspirations.

—  Sir Alistair Morton chose to be non-prescriptive, asking the train operators what they were prepared to offer.

—  These opposite approaches inevitably meant that no unified strategy emerged. The results have been bewildering for passengers. The first outcomes, the new long-term contract for Chiltern and the short extension for Midland seemed fairly uncontroversial. Both companies' tenures had reflected perceived strengths of BR, in particular by offering maximum benefit from new trains through full timetable recasts.

—  Connex's loss of their South Central franchise was no surprise, given their performance record. Rival bidder Govia was open and consistent in its intentions: commitment to new rolling stock and recast timetable, upgrading of the Mid-Sussex route, electrification of the Ashford-Hastings and Oxted-Uckfield lines, and long-term aspiration to reinstate the Uckfield-Lewes link. This sounded like classic BR, and likely to receive public acclaim. However, the lively public meeting of the Rail Passengers Committee at Lewes in May revealed that East Sussex residents would have preferred to keep Connex, with the Uckfield-Lewes link being given priority over the more westerly Mid-Sussex line, improving prospects for the ailing East Sussex economy. Lack of a unique strategic drive meant that Connex versus Govia had become East Sussex versus West Sussex.

—  In the case of the East Coast route, Virgin proposed a new relief route and GNER enhancement of the existing route. The SRA was seen to dither in choosing between such greatly different proposals, but users campaigned through the Yorkshire Post to keep GNER, and have succeeded, although initially only through a two-year extension.

—  Choice of Stagecoach as the preferred bidder for South West Trains was probably the greatest shock for passengers. In the January 2001 edition of "Inside Labour" the Deputy Prime Minister stated: "The Strategic Rail Authority has already shown its clout by taking action against one franchise for failing passengers". Similarly, "Choices for Britain" refers to the SRA's tough new powers, stating: "Already one rail company has been stripped of its franchise. This clearly refers to Connex South Central. Yet SWT's record had been abysmal in terms of both performance (always near the bottom) and the SRA's own latest findings on passenger satisfaction (20th place out of the 26 operating companies).

—  The treatment of Connex seems perfectly in accord with the Deputy Prime Minister's stated approach, but the success of Stagecoach on SWT is perceived by many commuters as a betrayal of their interests, and sending out a dreadful message to the rail industry that in future poor operators have little to fear.

—  Rival bidders for SWT (GNER and First Group) had their bids rejected, even though they had both achieved much higher passenger satisfaction ratings than Stagecoach. GNER (3rd place in the SRA's satisfaction ratings) and First Great Eastern (9th place) also shared the National Rail Award 2000 for best operator.

South West Trains re-franchising: passenger disillusion

—  History had been ignored. The original franchising of SWT to Stagecoach was the privatisation which the Conservative government came to regret. The company won the franchise, and a subsidy of £350 million from public funds over seven years, with a bid which was just £200,000 lower than that of the existing management.

—  After winning the franchise, Stagecoach quickly disposed of 125 middle managers and 71 train drivers. Within a year, the company was unable to run the advertised service. Some services were suspended and a permanently reduced service of local stopping trains was introduced in road-congested Southern Hampshire.

—  The public outcry was immense. Typical of the comments were those of the prospective parliamentary candidate for Southampton Test, Alan Whitehead, who is now a Parliamentary Under Secretary in DTLR: "We have the misfortune to live in the part of the country served by the worst single example of rail privatisation—South West Trains. Anybody who has travelled on the service recently will know that the whole system is in chaos, added to by South West Trains' recent decision to scrap more than 190 of its services in a week." (Southern Daily Echo, 8 March 1997).

—  Steven Norris, the Under Secretary of State for Transport at the time of the franchise exercise, has said, "Awarding the franchise to Stagecoach was really taking the fight to the enemy... It was the most aggressive decision we could take, and if we had to dress privatisation in its most acceptable form, it would have been better to award it to almost anyone else"

    and

    "We in the Conservative Party were very happy at the way rail privatisation was going—new investment, new ideas, new services. ... SWT instantly unwound all that. It was so obviously to the disadvantage of passengers, and so clearly an act committed by a private company. It left a bad taste instantly in people's mouths about SWT. Even now, the intelligent non-transport buff will remember SWT and it will take years to get SWT out of the political lexicon". (from the book "Stagecoach" by Christian Wolmar).

—  Who could have imagined that New Labour would tolerate and reward a private train operator which had earned the condemnation of the Conservatives?

—  Since 1997, SWT under Stagecoach has gained a reputation among regular passengers for:

—  soaring profits from public subsidy which are completely disproportionate compared with those of other operators;

—  increasingly huge fines for bad performance, running short trains, omitting scheduled stops and terminating trains short of destination;

—  use of ruthless clamping contractors at some station car parks, sometimes with cavalier treatment of disabled people;

—  refusal to hold vital connections for even a few seconds;

—  lack of information, particularly when things go wrong;

—  train fires;

—  poor maintenance leading to protracted absence of passenger facilities and non-functional information systems;

—  severe discomfort for passengers from broken seats and faulty air-conditioning on trains;

—  awards for "secure stations" where ticket gates are unattended and locked out of use in late evening when passenger security is a real issue;

—  poor industrial relations with recurrent strike action; and

—  a constantly high level of passenger discontent and anger manifested in huge numbers of letters of complaint, the replies to which in many cases take months to reach the writer and are usually in the form of unhelpful standard letters.

Remarkable chain of events after Stagecoach named preferred bidder for SWT

  The announcement of Stagecoach as preferred bidder has been followed by a series of events which have further shaken passenger confidence in re-franchising:

—  SWT's annual profit for 2000-01 soared further to £45 million, equivalent to some 80 to 90 per cent of taxpayers' subsidy for the year. This is hugely disproportionate to the profits of other operators. Stagecoach explained the profit in terms of its having being comparatively unaffected by the aftermath of the Hatfield crash (Evening Standard, 20th June 2001).

—  Despite its fortunate position post-Hatfield (and therefore presumably being owed only limited compensation from Railtrack for operating impediments), SWT's annual performance penalty soared to £11.5 million, compared with £3.9 million the previous year.

—  Stagecoach's pre-tax losses for the year amounted to well over £300 million, casting doubt on whether it could commit SWT to much investment beyond the hire of new rolling stock for the mandatory replacement of Mark I coaches.

—  Passengers cannot have an effective voice on rail issues when the full facts are not available to them. It became clear that, although the Government has long declared that rail passengers should have an effective voice, Stagecoach had deliberately spread confusion about the scale of its commitment. SWT Chairman, Graham Eccles, is quoted in the May edition of the journal Rail Professional as saying, "For the big PR hit, what you do is add up guaranteed outputs, the primary aspirations and the secondary aspirations, and then you shout loudly".

—  Consistent with this approach, SWT Managing Director, Andrew Haines, presented the whole package of commitments (£1.7 billion) and aspirations (£1.8 billion) in the Southern Daily Echo of 6 February as "real benefits for the people of Southampton" compared with Sea Containers' "vague promises". This clearly suggested that all the elements of the package were promises, and that people could therefore rely on full implementation if the Stagecoach bid proved successful. Subsequent letters from rail users to the Echo and other local papers are demonstrating confusion and disappointment.

—  Following the announcement of Stagecoach's successful bid, the Spring edition of SWT's Gold Service magazine for annual season ticket holders bore the following message from Mr Haines: "In all we plan to invest around £3.5 billion in delivering a better service to you. On paper that amount of money means little, but in terms of refurbished stations, passenger lounges, disabled access, state-of-the-art information systems, better security, new trains, extra staff, better ticketing facilities and improved performance it means an awful lot". In fact, the items outlined are broadly the components of SWT's £1.7 billion bid, so £3.5 billion would indeed provide an awful lot.

—  Glossy zonal leaflets, currently displayed on trains and at major stations, refer to an order of 785 new trains worth around £1 billion. In fact the order is for 785 new carriages with a purchase price of £640 million. The Advertising Standards Authority is looking at this.

Conclusions

—  The railways need a supremo to drive up standards in all areas of activity, including safety, infrastructure, timetabling, rolling stock procurement and maintenance, ticketing and customer service. While the industry relies on subsidies from taxpayers it must be prepared to accept control mechanisms comparable with those which operate in the public service.

—  Best practice should be robustly pursued in all areas. This will tend to bring some degree of uniformity to a fragmented industry and make it less likely that anything will go seriously wrong in some particular corner.

—  The two-pronged approach of seeking public aspirations and industry proposals as discrete exercises should end. The Government should identify taxpayers' aspirations, make strategic decisions, and negotiate with satisfactory operators. The worst operators should have no place in the industry, as the Deputy Prime Minister used to make clear.

—  In recognition of the problems for operators of long-term investment under short term contracts, the Government should negotiate with them to achieve its strategic aspirations. Instead of offering twenty year contracts in return for a mixture of committed outputs and long-term aspirations which may never materialise, the length of a contract should be relative to the scale of committed output. There should then be periodic reviews, perhaps every two years at which, subject to satisfactory performance and attainment of targets, the term of the contract could be rolled forward in return for additional commitments.

September 2001

September 2001