RAIL DEBATE: PUBLIC OR PRIVATE?
16 April 2015 | Author: David Fowler, Editor, Transport Times

Transport Times in association with KPMG hosted the Great Transport Debate last month, which invited transport experts to set out what they see as the main transport challenges the next Government must grapple with. 

The first of these debates focussed on rail and saw Rail Delivery Group director general Michael Roberts go head to head with Mick Whelan, general secretary of rail union Aslef.

Mr Roberts said the key question was the role of the public and private sector in the rail industry. He acknowledged that there were many areas where Network Rail and the operators could improve; but, he said, “my position is that we don’t have to introduce more public sector control. We have a system that is working well.”

He outlined five propositions. First, privatisation had not led to “a private sector free-for all”. The railway was “a public/private partnership in operation”.

The Government determines what services should be operated through the franchise system. It regulates fares, and through the five-year investment plans detailed in the high level output statement sets out what investment Network Rail should undertake, which is then overseen by the Office of Rail Regulation. Ministers frequently intervene. “It’s not an industry short of public control,” Mr Roberts said. Moreover, the private sector made only a modest return – this has been 3% against revenue since privatisation.

Second, satisfaction ratings had gone up steadily and are better than any other European railway. The UK network is also Europe’s safest railway. “Phenomenal” growth in passenger numbers, over and above what would be expected from population growth and continuing even when economic growth stalled, had outpaced Germany, France and the Netherlands.

Third, privatisation had not been a disaster for the taxpayer. Subsidy had fallen: on a passenger-kilometre basis it had dropped 30% over the past 10 years, against a background of major investment. The amount of revenue returned from the industry to the government had increased by a factor of five; £2bn annually is returned to the Government, which has been used to invest in the network.

Fourth, the industry was capable of acting and thinking together. The various parts of the industry had come together to plan for the next 30 years on aspects such as how to use digital technology to help to deal with a projected doubling of demand and to formulate a 30-year rolling stock strategy.

Fifth, the model needs to evolve: a revolution is not needed. “It’s not perfect but it’s not a busted model,” he said. “We don’t need the disruption of major structural change.”

Aslef’s Mick Whelan said that at the time of privatisation there had been three promises. First, competition would drive investment. In reality, he said, this has not happened “because there is no competition”. There is a single operator for Wales and for Scotland; elsewhere train operators do not genuinely compete. Subsidy had only fallen from £4bn annually to £3.8bn.

Second, competition was meant to drive down fares. Instead they had gone up by 65%. Third was innovation and long-term planning. He said: “We are the worst country in the world at looking 30 years ahead. In a franchise system, where is the incentive to look long-term?” He questioned “why do hundreds of millions of pounds go out of the industry” when, 20 years after privatisation, the average age of rolling stock in the UK was 40 years?

He argued that a state-owned rail operator should be allowed to bid for franchises. “Most of the major players are owned by state rail operators like DB or SNCF. Should we not have the opportunity for revenue to come back to us?”

Increased fares meant people were now less likely to go on a spontaneous day trip. “Unless you book three months in advance most people find it prohibitive,” he said.

“If we’re so sure about the effectiveness of what’s coming out of the system, having an extra bidder should help to bring out the best,” he added. With Network Rail’s borrowing now back on the government’s accounts, half the railway was back in the public sector. “Do me a favour and put the rest back,” said Mr Whelan.

Session chair Ed Thomas, a KPMG partner, asked the speakers “What do you get from a private operator you don’t from a public one?”

Mr Roberts answered: “Competition at the point the franchise is put to market and the keenness of the offering to the client. Private operators have something at stake in the way public sector operators don’t,” he said, citing as an example National Express which, at the time it relinquished the East Coast franchise, also lost its chief executive and suffered a dramatic fall in its share price.

Mr Whelan pointed to the £1bn that Directly Operated Railways had returned to the Treasury during its tenure and said “For us franchising hasn’t done what it should have done.”

Mr Roberts asked if a public sector operator should be allowed to bid for franchises, how other bidders could be convinced that all bids would be treated equally; without this assurance they would be reluctant to put the cost of a bid at risk.

Next week's blog will focus on the bus debate, to receive notifications of new blog posts sign up in the box to the right of the page.

Reference: Transport Times, April 2015 Issue

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