SUMMARY

—  The UK scheme of rail franchising is unique in railway history. Independent operators before 1948 were based on a different model. When railways were in private hands previously, there was a body known as the Railway Clearing House (RCH) which oversaw their commercial and technical compatibility. (Section 2)

—  There is no such body today, despite a clear need. The Strategic Rail Authority did not fulfill this role despite privatisation having fragmented the railway. Historically, the RCH provided a link and authority between diverse companies. (Section 3)

—  Franchises have been awarded for very short periods. They do not compare well with the investment lifetime of the railway itself. (Section 4)

—  Franchising on the UK model has delivered poor value for money for all concerned. The quality of service is poor when compared with other developed countries. Whilst the franchise bids are subject to a measure of competitive tender, this does not apply to anything else on the railway. Hiring trains is not good for the taxpayer but a great way to generate profits for banks, who own the rolling stock companies. (Section 5)

—  The main competition for the railway is from the car and the aeroplane. Increasing rationalisation since Beeching has affected the ability of the railway to cope, both with competitors and out of course events, like breakdowns or busy periods. (Section 6)

—  There should be more incentives for innovative, enterprising operators. (Section 7)

—  Vertical integration makes for a more successful railway. It enables co-operation between the various departments of one organisation, rather than through the lawyers and accountants of separate companies. British Rail achieved a great deal on a limited budget and was respected throughout the world. Much indigenous engineering expertise has been discarded since privatisation. The lack of integration has meant increases in costs and engineering folly, such as trains that cannot couple together. Meanwhile, managers are relearning that integration is in fact necessary. (Section 8)

—  Since privatisation, costs have escalated, to the tune of £15 billion. There is a danger that the treasury may take fright and lines could close. Instead of a world class railway we might only have world class profits for private firms. The heritage sector might provide some cost indications for secondary and rural lines. (Section 9)

—  Conclusions are in Section 10.

1.  PREAMBLE: SARPA—WHO WE ARE . . .

  1.1  The Shrewsbury Aberystwyth Rail Passengers Association (SARPA) is the rail users group for the railway which runs through Mid Wales to the university town of Aberystwyth. For more information about us and the Shrewsbury Aberystwyth railway, please see our website: http://sarpa.info

2.  FRANCHISING: HISTORICAL BACKGROUND

  2.1  At the time of its inception in 1995, the scheme of passenger rail franchising was unique in railway history. The idea of a separate authority controlling the fixed railway infrastructure whilst allowing independent operators access to the system was mooted by the Stockton and Darlington Railway in the 1820s it was rejected because it was felt that to do otherwise could bring operational chaos. So the railway ran its own trains and this formed the norm for the industry in the intervening 170 years. A change after all this period to allow separate operators to run over a centrally controlled network, was brave in the extreme.

  2.2  In having to re-invent itself so dramatically, it is not surprising that many mistakes have been made and in many instances, the railway industry is starting again from scratch. Indeed, in recent years there have been accidents which have led to loss of life from causes that one might have expected to have been banished years ago. (Hatfield: Broken rail. Tebay: Runaway wagon)

  2.3  It would not be true to say that there were no independent train operators before 1995, though these tended to be in the minority. In fact they go back to the earlier part of the 20th century. The method was that they sourced the business themselves and then contracted the railway to operate the trains for them. The franchising system we have today is a completely new development.

  2.4  It was not unusual before rail nationalisation in 1948 for trains of different companies to run over the same stretch of track under a system of "running powers", whereby the trains of one operator were permitted use the tracks of another. When this took place extensively in some parts of the country, the railway was administered jointly. Fair play was overseen by an organisation known as the "Railway Clearing House" (RCH), which also dealt with revenue apportioning between the various operators and set standards for types of brake and couplings, buffer heights and other engineering matters. This latter was to ensure that the engines of one company could pull the carriages and wagons of another without problems.

3.  WORTHY SUCCESSORS TO THE RAILWAY CLEARING HOUSE?

  3.1  Now that the railway is privately operated by many players once again, there is a clear need for a renewed body that will take up the functions performed by the old Railway Clearing House. The Strategic Rail Authority may have been intended to fulfill this role but it is now no longer with us. Whether it was effective is open to debate. Some high profile fiascoes have resulted from this regulatory vacuum, such as the fleet of new trains for the South East that could not be run because to do so would have overloaded the electricity supply. The problem has since been solved, naturally at great expense.

  3.2  With the best will in the world, the transfer of such responsibilities to the Department for Transport (DfT) has potential for difficulty. Civil servants may indeed be highly motivated, professional people but it is probably fair to say that they don't have specialist railway knowledge or engineering expertise. That will of course, come in time via what we presume would be a very steep learning curve. Meanwhile the trains will not stand still while everybody waits for that to happen.

  3.3  Privatisation fragmented the railway industry in the UK in a way not seen for many years. There is considerable lack of co-ordination with regard to many things, from station cleaning to types of coupling. For instance, the Class 175 type of diesel unit, used by Arriva Trains cannot couple to any other type of train used in Wales. Conversely, since the disasters at Hatfield and Westbourne Park, safety measures have been implemented if anything too rigidly across the board with consequent increases in costs. Here on our line, the "Train Protection Warning System" (TPWS) was installed at great expense a few years ago, despite the last passenger fatality on the Cambrian being in 1921. The system may have to be removed again when a new signalling system is installed before 2010.

4.  FRANCHISING SIZE AND PERIOD

  4.1  Now that Wales has a modicum of self government, it is natural that the railways in Wales are under the control of Cardiff, so a nationwide railway operator makes sense. A similar situation persists in Scotland. In both cases, the railway is still divided because the fixed infrastructure is still owned by Network Rail. We are astonished at the number of franchises in England, presumably to provide some notion of competition. In practice, many are operated by just a few companies. That being said, size is not necessarily an indication of competence levels.

  4.2  It is sometimes understandably difficult for many people to grasp the timescale involved in railway operation. Typically, the lifespan of rolling stock is planned for around 25 years. The same goes for infrastructure projects, which are planned for a lifespan of over 30 years. The railways are therefore a long term business. Also, mistakes made now in planning and construction have to be lived with for a long time.

  4.3  It is therefore somewhat astonishing to us that franchises are awarded for relatively short periods. Admittedly, there has to be the prospect that a poor operator can be removed but provision has been made for this. The railway system as a whole performs much better when its employees and managers are able simply to get on with the business of running it, rather than being in a state of continual flux and reorganisation. Continuity is very important to a thriving railway business and we would point to the success of other franchises such as GNER and Chiltern Railways where long term duration has been a contributory factor. Conversely, our railway has had three franchisees in 10 years. Arriva Trains Wales are on their third Managing Director since 2003!

  4.4  It seems desirable to separate train types into operating sectors, whatever style of rail management and operation is used. British Rail discovered this when it "sectorised" its operations in the 1980s. Regional railways have very different requirements to inter city links.

5.  DO FRANCHISE HOLDERS DELIVER VALUE FOR MONEY TO PASSENGERS AND THE GOVERNMENT THROUGHOUT THE DURATION OF THEIR CONTRACTS? HOW WELL DOES THE PROCESS FOR AWARDING FRANCHISES WORK?

  5.1  In order to attract private businesses into the rail industry, the 1993 Railways Act produced the convoluted structure for the railways we have today. The idea appears to have been to guarantee profits which would not necessarily accrue just from collecting fares and running trains: a false market was created.

  5.2  We understand the bid process to be very arcane and franchisees are locked into certain obligations. One of the most disadvantageous of these from the point of view of the passenger and also the taxpayer is that the operator is required to lease trains of a given type from a given rolling stock company (ROSCO). There is no opportunity allowed to go and obtain the best price, or to buy trains or rolling stock outright. Indeed, this is a kind of command economy for capitalists. The real loser here is the taxpayer, who paid for many of the trains in the first place when they were built by British Rail and now has to pay for them all over again to be leased back to franchisees.

  5.3  In Wales, the total cost of hiring trains which were built by BR was reckoned to be around £15 million in 2005, which could have been spent improving trackwork and stations, or providing new trains. We would stress that this was not the full cost of Welsh train hire. About another £15 million was contributed by the Welsh taxpayer to the profits of Arriva Trains Wales. This means that there is a gap of more than £30 million between the Direct Operating Costs (DOCs) and what was actually paid out for the running of the railway. It would make much more sense if the trains were owned outright by those that operate them and the scam that is the ROSCO consigned to the dustbin of railway history.

  5.4  The whole bid process seems shrouded in mystery and confidentiality, though bids are at least nominally subject to competitive tender. From what we have been told, beyond this there is no requirement for ANY other activity on the railway AT ALL to be subject to such scrutiny, which is truly astonishing. The 1993 Railways Act was sold to the people with the promise it would bring better services and value for money. Given that in reality, the act has failed to deliver we are left wondering what is the point of franchising other than to make large profits for the franchisee and the ROSCO.

  5.5  However, we note the exception, where Chiltern Railways have achieved a tremendous success with their revival of the route between London and Birmingham Snow Hill, although this might have been done more cheaply but equally effectively by a unified and integrated railway.

  5.6  We note that in the past, some franchise bidders have been successfully awarded a contract on the basis of their low bid, which in the event proved not to have been costed accurately for the operating conditions. These companies have then asked and been granted more subsidy to run the trains. One of our members was involved in a franchise bid which was outbid by a lower tender. He told us that the company which won had missed items out of their quotations by mistake and had to go and ask for more money.

6.  DO WE NEED MORE COMPETITION?

  6.1  Do we need more cars? Do we need more transport aircraft? These are the real competitors for the railway industry today. However, it is clear that the promoters of the original 1993 Transport Act missed the point and thought that competition between rail operators was paramount. In order for the railway to be successful, it must have an attractive and usable product to sell. The problem is that the railway has been carrying more passengers than for many years without corresponding improvements in infrastructure. This means cramming too many trains along a rail network that was heavily rationalised from 1963 (Beeching) and remodelled in the period to 1980. Indeed, during the 1960s forecasts expected passenger numbers to fall but traffic overall to grow by around 4% per annum. In reality even the Cambrian section has seen passenger growth of 7% pa every year since 1995. The quality of the product is therefore likely to fall and service standards are increasingly unsatisfactory.

  6.2  The problem has been exacerbated here in Mid Wales by the progressive removal of important operational elements in the track and signalling since 1963. Quality of service is now unacceptable and the railway loses its attractiveness as a transport "product". Competitiveness of the railway in the transport market therefore relies on having sufficient infrastructure to cope with out of course events. This problem of operational flexibility being compromised by rationalisation is not unique to Mid Wales. There are numerous instances whereby this has happened throughout the UK. As an example, the Wolverhampton- Birmingham section is becoming a very srious bottleneck.

  6.3  One of the features of the Beeching programme was the elimination where possible of duplicated routes, so now only a few of these remain where one franchisee can take traffic from another. Train companies can try to compete against each other where they run over the same piece of track. On busy sections of railway they are keen to do this because under s system known as "ORCATS" they are all given a proportion of the revenue for that piece of the railway. However, in reality the prospect of them just getting in each other's way should not be discounted. Meanwhile "ORCATS" does not apportion revenue to the same degree of accuracy as the old Railway Clearing House, which made an actual tally of the collected tickets from travellers.

  6.4  One aspect arising from shortage of track space is that open access has been something of a non-starter thus far. In the main it has been limited to special trains and steam charters. These operators have been frustrated in many respects by the vagaries of Network Rail, who may on occasions give permission to run only at the last minute. In practice, franchising of the core network has meant few free paths available for true open access.

7.  INCENTIVES

  7.1  There does not appear to be much incentive for a franchisee to do other than fulfill the public service requirement (PSR). A glance out into the road in even quite rural locations which are served also by the railway would indicate that demand for travel and transport is quite healthy. There appears to be a dearth of operators who, casting an enterprising glance at our busy roads would like to grab as much traffic from them as they could.

  7.2  There is little incentive for a franchisee to provide more than the bare minimum of rolling stock given the high costs of leasing, especially where its use would be intermittent, such as for strengthening trains at busy periods. Recently this has been a serious problem, here in Mid Wales. There are also indications that the operator here has sought to save on maintenance with dire consequences for the timetable in the hot weather. Trains have frequently been up to an hour late.

8.  DO WE NEED MORE VERTICAL INTEGRATION?—SHOULD TRAIN, ROLLING STOCK AND TRACK OPERATION BE MORE CLOSELY INTEGRATED?

  8.1  More vertical integration of the railway industry is essential. Train and track operation should be integrated too. Rolling stock should be owned by the operators. On today's fragmented railway there are too many instances of the right hand not knowing what the left is doing.

  8.2  Historically, British Rail (BR) was respected throughout thel rail industry worldwide because it achieved a great deal on a budget of very little. This was partly because of the rather unfortunate financial restrains placed upon it. BR was not allowed to borrow money from independent financial providers, even where it had a clear cut business case for investment; it had to seek all its funding from the Treasury, which if that were not forthcoming, spelled an end to the project. This being said, there were many ingenious solutions to railway problems that were devised by British Rail engineers who were working on a very tight budget to equip and run the railway. The original High Speed Train (HST) fell into this category, as did the radio signalling system currently in use on the Cambrian. The non-radio based replacement of the latter is anticipated to cost £60 million, provided by an outside company, assuming it can actually be made to work.

  8.3  British Rail was a fully integrated railway. Until the advent of the Thatcher government it could also offer shipping services and hotel accommodation. These profitable sidelines were sold off in the 1980s, part of an asset stripping process that began in the years just prior to Beeching and is still going on today. Indeed, the asset stripping of the railways has been one of the scandals of our time, where the taxpayer has been short changed outrageously.

  8.4  When looking for integration in the railway industry it is not enough just to look at the track and signals on the one hand, with the train operators on the other. That is too simplistic a view. Across the board, fragmentation of the industry has proved a disaster. This country still held an eminent position in the field of railway engineering before privatisation but that has been thrown away. The mechanical engineering side of the business was sold off too. Recently, several workshops have closed with large job losses. Having so many short lived operators, running many different types of rolling stock means that they do not have the interest or incentive to maintain a research team or workshops capable of constructing new trains. Even the valued test track at Old Dalby has been threatened with closure. The nationwide integrated railway with its own engineering departments had the benefits of scale on its side, making it worthwhile to have such facilities.

  8.5  It would bring huge benefits to revive the vertically integrated railway. The benefits of scale and of people working together instead of trying to compete all seem so obvious. The question now is how to do it? On the passenger side, franchises could simply be taken back in house when they fall due for renewal and the whole combined with track and infrastructure operation. This would cost the government nothing and would probably be appreciated by the electorate. The problems start with freight operation, which is not franchised. A solution could be found in the "block train" concept which was used on British Rail. Private companies owned the freight wagons and also contracted BR to run a stipulated number of trains, for which the railway provided the motive power and the spaces in the timetable. Means must also be found to grow the freight business.

  8.6  Lack of integration causes problems and expense whilst making the railway less effective. It prevents people from running the railway. At the extremes, the lack of co-ordination and integration merely degenerates into a lack of common sense and an escalation of costs.

  8.7  There is a degree of "feral integration" taking place. When questioned about control centres, an Arriva Trains manager told us that train controllers from Network Rail and Arriva now "sit in the same room" GNER have moved in this direction too. This is a step forward but there is still duplication of workforce. On an integrated railway, you only need one set of controllers (or one set of lawyers, accountants, engineers etc). However, it indicates that rail mangers themselves are relearning that integration is desirable, even essential for the effective running of the railway.

9.  ESCALATION OF COSTS

  9.1  It would not be reasonable to write anything about the state of railways in the UK without adding something on costs, which have risen astronomically. The difference between what the privatised, franchised railway has received from government and the subsidy for BR, assuming it received the same amount as it did in the early 1990s has been calculated at c £15 billion; which is £15 billion which sadly has not been used to improve the railway. Franchising seems to be horribly expensive.

  9.2  To its credit, the Labour government has made available a generous financial package for investment in rail. The danger is that if this money is not spent wisely and costs are not controlled, instead of a world class railway, we will just have world class profits for private companies. Lines could even be closed too. The provisions of the 2005 Railways Act made this an easier possibility.

  9.3  A relatively unexplored area of financial control can be found in the heritage sector, which because they have much lower costs might be useful as a model for secondary lines. Whilst these operators use volunteers to drive the trains and pull the signals, so that element can be discounted. The major players have their own in house teams of paid professionals for things like track maintenance. Major civil engineering work like bridge repairs and building construction is handed to outside contractors on a tender basis. Whilst restricted to 25 mph for public passenger operations, the track is maintained to a much higher standard, capable of taking the heaviest steam locomotives. These are much more damaging to the track than the lightweight diesel trains used on secondary routes. These railways are also used for film location work and testing of main line rolling stock at speeds above the restriction for public operations. That they can control costs effectively we think is no coincidence because they are integrated railways, albeit on a small scale.

10.  CONCLUSIONS

  10.1  The railway must be returned to an integrated state so that the ownership of land, trackwork and signalling are vested in the same authority which operates the trains. This can be done in the main by bringing franchises back in house as they expire. The cost of this would be minimal.

  10.2  Ownership of rolling stock which is hired to the train operators has meant a poor deal for the taxpayer and must cease as soon as may be effected. The railway operator must own the passenger rolling stock and locomotives.

  10.3  Franchising in the UK has meant fragmentation and is in any case, not a true franchise. The franchisee has been hostage to fortune in so many fields that the system has been unworkable.

  10.4  This does not mean that we think all franchising is a bad thing: it could have been a useful tool in the 1960s to have saved some lines which closed and have since been seen as worthy of retention. The reopening of one such railway has been the subject of a bill in Parliament (Central Railway). It is, of course much more expensive to put back a railway when it has been dismantled than to keep it open in the first place so a mechanism should be devised to allow a franchisee to take over a whole railway if the national operator has no further interest in it.

  10.5  We would suggest that the national operator is independent of government or the DfT. A charter, in a similar vein to that of the BBC, to allow it to get on with the business of railway operating, might be a useful model.

  10.6  We had expected the 2005 Railways Act to tackle the anomalies of franchising and were disappointed. There must be a clear remit to develop the railway and the railway's business. We note this was absent from the 2005 Railways Act. We are not sure that the DfT or the government have a vision for the railways at all.

  10.7  There must be a clear remit to help develop the freight business and work sympathetically with freight operators, who are not franchised but still do not have ownership of the fixed infrastructure. Open access should be encouraged as it could bring valuable revenue ito the railways.

  10.8  A regulatory body similar to the Railway Clearing House for engineering standards, operating standards and other matters should be established to help the interests of independent operators and prevent fragmentation. That being said, it should not be so bureaucratic or expensive to maintain that it would stifle membership or industry growth. Moreover, as franchises will remain for some years, they will need some connectivity.

  10.9  A basic knowledge of railway history and practical operating procedures could have saved many costly errors and mistakes.

16 June 2006