The unions in the UK are calling for re-nationalization of railways after the House of Commons’ report, on what was possibly the most severe disruption of British railways in peacetime in May this year, exposed the incompetence of privatized railway companies plying trains on publicly owned tracks. According to polls, this call is supported by 76% of Brits.
Since the privatization of the British railways, there has been an absence of sufficient centralized command. The competing private train operators have disintegrated the railway system to such an extent that the implementation of the necessary large-scale changes that were planned in the month of May has been rendered difficult.
Changes in the timetable are implemented in the month of May and December every year in order to introduce new trains and infrastructure. This has been a long-established practice in the British railways. The scale of the changes scheduled for May 20 was about four times the typical half-yearly timetable change, with thousands of new services to be introduced to provide additional capacity to serve tens of thousands of passengers.
In the case of the Great North Rail project, the report states that the “changes planned for 20 May were to be a substantial step towards unlocking the benefits.. including more than 500 new carriages, room for 40,000 extra passengers and more than 2,800 extra services a week.”
On the main-line route Thameslink, which operates in London and the parts of England further to the south, the frequency of trains was to be upgraded to “every two or three minutes on new infrastructure through London.”
However, far from being the day when much-needed upgrades were put into place, May 20 and the weeks that followed will “live long in the memories of a large proportion of rail users as a prolonged period of intensely inconvenient, costly and, on occasions, when there were very late cancellations and platform changes, potentially dangerous disruption.”
Govia Thameslink Railway, the largest private franchise which operates the Thameslink, the Southern and Great Northern commuter brands, failed to run 470 trains per day on average, which is 12% of the scheduled 3880. Arriva North, which caters to the entire region of Northern England, failed to run 11% of its scheduled trains daily. While TransPennine Express (TPE), which connects the major cities in North England with cities in Scotland, performed better, even this franchise was affected due to disruptions in the other two services.
According to the Office of Rail and Road (ORR), these disruptions in the railways adversely impacted over 35% of the passengers financially by forcing them to pay for taxis, additional hours of childcare, etc. Delays and uncertainty about timings also affected numerous local businesses across England.
More than 80% of the passengers reported being late to work and in returning back home after work, which added “considerable strain on people’s mental health”. Last minute cancellations often resulted in overcrowding, which put the passengers on the platforms at physical risk.
According to the report placed before the parliament by St. Albans Commuter and Passenger Action Group, “Many reported that they couldn’t even get to the priority seating area to ask for a seat, such was the overcrowding. A profoundly deaf passenger couldn’t hear changes in information and found staff to be unhelpful. A number of passengers messaged us privately about mental health conditions, and the fact that the stress of delays/cancellations, overcrowding and poor information had triggered anxiety symptoms and/or panic attacks.”
Who was guilty?
Assessing the culpability of the private franchises, the report pointed out that Arriva North had essentially failed to understand “the full ramifications of the events leading up to the timetable change”. Thus, only 11 days before the new schedule was set to take off on May 20, the company was under the impression that it was very much in a position to implement the schedule by May 20, despite the lack of trained drivers to handle the additional load. However, two days before the date, the company notified its stakeholders that “some localized disruption at potentially very short-notice” was to be expected. The passengers were not informed about this even after it became apparent to the franchise, thus leaving them with no time to prepare for the impact. But what followed after May 20 was a widespread chaos, and not mere localized disruptions as was stated before.
The Managing Director of Arriva Rail North, David Brown, later admitted that “the full impact only became apparent when the timetable went live.” The ORR cited this admission as a clear evidence of Arriva North’s failure to comprehend the magnitude of the situation.
According to ORR’s assessment, the GTR’s failure was a far greater mark of inefficiency as it “had a much greater ability to prepare and test their plans” than Arriva North. The lack of trained drivers was a fact known to GTR as early as 2014 when it signed the franchise agreement. It was already clear to GTR two years before the new timetable was set to take effect that it would not have sufficient number of fully-trained drivers to operate May 2018’s new schedule.
The GTR, being a private enterprise bound by cost-cutting imperatives necessary for profiting, did not undertake the essential expenditure to hire new trainers and trained drivers. Instead, it resorted to overworking the existing drivers and making ‘pilot’ drivers, who are not fully trained, run the trains.
A month before the new schedule had to be put into operation, GTR resorted to transferring its Southern and Northern drivers to Thameslink. Trainers were made to serve as drivers, resulting in a shortfall of the training staff necessary to prepare new drivers to take on the additional load.
The May 2018 report by the Transport Committee does not blame only the private franchises for the failure. The “May 2018 timetable change was a collective, system-wide failure, across the publicly-owned infrastructure owner and manager, Network Rail, privately-owned train operating companies, Arriva Rail North and Govia Thameslink Railway, the Department for Transport and the ORR itself. The governance and decision-making structures were fundamentally flawed.”
The “astonishing complexity of a disaggregated railway in which the interrelated private train companies operating on publicly-owned and managed infrastructure have competing commercial interests” was a key factor resulting in the failure.
“In a fragmented, over-complicated system, with competing contractual interests, only the Secretary of State had the ultimate authority to judge the inevitable trade-offs and halt the implementation in good time but at no point was he given all the information he needed to make that decision,” the report states, calling for a “root and branch” review, “in which a broad range of options for reform are considered.”
The government, however, refused to take measures to address this problem of disaggregation and competing contractual interests that was at the root of the Britain’s railways problem. The unions argued that the problem could be solved only through a complete nationalization. Recounting the history of British rail post second world war serves as a testimony to the need for nationalization.
From nationalization to reprivatization: 1948 to 1994
British Railways had been a nationalized body under the control of the British Railways Board since 1948, when the four big companies operating the railways were taken over the by then Labour government. At the time, it was understood that if a majority of the population had to be catered to, the railways cannot recover the full costs of operation, let alone make a profit, from the money collected as ticket prices from the passengers.
“The logic of nationalization.. was that British Rail, as with other strategic nationalised industries, would provide a cheap service for the rest of the productive economy, with operating losses tolerated because profit was not a privileged indicator of performance,” wrote Andrew Bowman in the journal Accounting Forum. The railways were to be financed from the taxes on profits and incomes in the other industries whose productivity was raised by cheap railway.
However, having started on that logic, confusion about the purpose of railways set in soon. Only eight years after nationalization, the then Transport Minister, Harold Watkinson, vowed to “turn the railways away from being just another nationalised industry into an organisation that functions on normal and sensible business lines.”
The lawmakers came to increasingly view the railways not just as a crucial utility provider at cheap costs, but also as a market-disrupting industry that artificially charges low prices to its customers. In 1961, a white paper introduced financial targets for state-owned enterprises.
In order to meet the target, costs recovered from passengers had to be increased. But the majority of the passengers could not afford the high price of the tickets. Thus, in order to meet the new goal set for the railways, the number of people and the areas it catered to was reduced. Between 1963 and 1965, the rail network was downsized by a third of its previous size by shutting down 2,363 stations and suspending 266 services.
By 1979, after excluding a large portion of the English population from access to the railways, the British Railways reached 14% higher “efficiency” than the average of eight other comparable railways in Europe. With the neoliberal rhetoric of “efficiency” increasingly influencing the lawmakers under the Thatcher government, subsidies to railways were reduced by 25% between 1983 and 1986, thus starving it of the investment that was needed to cater to the population dependent on it. However, the “efficiency” rose further to 40% higher than the eight other railways by 1989.
The government read this disaster as a success and began privatization of the railways in 1994, when Railtrack – the company that managed the tracks, tunnels, signalling and other infrastructure – was privatized.
The debacle of privatization
The privatized railway was not expected to depend on public funding for operation. It was assumed that Railtrack will finance itself by collecting charges from private train operators for using their infrastructure. These operators, in turn, were expected to cough up the charges from the fares collected by the passengers. What followed, however, was a massive increase in public subsidies from 3,718 million pounds just prior to the privatization to 7,415 million pounds by 2006.
Railways, like most other capital intensive industries, has rarely been able to recover the high costs of operation directly from its customers since increasing prices accordingly reduces the number of customers using the service. Unable to pay the charges to Railtrack for using its tracks, the train operators had to be subsidized using public funds, in order to allow them to pay the charges necessary to keep Railtrack afloat.
Between 1994 and 2001, 92% of the charges paid by train operators to Railtrack came from public subsidies. Apart from indirect subsidies channelized through the train operator companies, direct subsidies were also paid to Railtrack after 2000. In 2001, the company made a pre-tax loss of 534 million pounds. Nevertheless, after 1.5 billion pounds were handed over to the company from public funds, it paid 138 million pounds in dividends to its shareholders.
However, despite the huge public subsidies, the privatized Railtrack was not unbound from the cost-cutting imperative. A significant portion of the senior experienced staff was laid off and replaced by ones with lesser experience, who were willing to work for lesser pay. Excessive outsourcing drove the real cost of new investment 2-3 times higher than what it was under the previous nationalized railways. A chronic underinvestment in infrastructure such as tracks and signalling were exposed in enquiries that were conducted after a series of fatal train accidents between 1997 and 2002.
In 2001, when Railtrack yet again requested the government for funds, the newly elected Labour government had the opportunity to re-nationalize the railways, as it had promised to do on the 1997 election platform. However, when the time came, the government led by Tony Blair took the half-hearted measure of transforming Railtrack into a “not-for-dividend” infrastructure company called Network Rail in 2002.
Network Rail was still legally owned by private members who acted as shareholders. The government, however, tightened its control over the company by assuming the authority to appoint its director and increasing the regulations.
More importantly, while the previous Railtrack raised capital from equity markets, Network Rail had to issue bonds whose repayment was guaranteed by the government. This arrangement, where the capital raised by a technically private company was backed by the government, proved itself to be a disaster. This became evident in the rate at which its debt accumulation increased.
The debt of 9.7 billion pounds in 2003 rose to 33 billion pounds by 2014, and was projected to reach 50 billion by 2019. It was at this point, after having incurred such huge losses of public funds even as the infrastructure and quality of service deteriorated, that the government had to yet again change the legal status of the Network Rail from a private sector body to a public sector body under the control of the central government.
However, the train operating companies continued to remain in the hands of private enterprises who competed with each other for franchises to run passenger trains on tracks owned by Network Rail. Despite the demonstrated failure of privatization of the rail tracks and infrastructure, many lawmakers still defend the existence of private train operators on the grounds that competition increases the quality of service, provides incentives to work without subsidies, and reduces fares.
The data shows otherwise. Compared to the state-owned railways in Germany, France, and even in the crisis-hit countries of Italy and Spain, UK’s railways are slower and far more overcrowded. Just as in the case of Railtrack, private train operating companies have proved themselves to be incapable of operating without heavy subsidies. Between 2007 and 2011, the British taxpayers coughed up almost 3 billion pounds in subsidies for the top five private operators, while its shareholders reaped a total profit of 504 million pounds. The fares paid by passengers in the UK are the highest in Europe. The beginning of this year saw a further 3.4% hike in average fares across UK – the highest increase in the last five years.
When the timetable change had to be implemented in May, the ORR and House of Commons reports that came out admitted the incompetence of a disaggregated railway as a result of the absence of centralized control and presence of competing private interests within. The government, however, instead of considering re-nationalization – as recommended by unions including Transport Salaried Staffs’ Association (TSSA), National Union of Rail, Maritime and Transport Workers (RMT) and Associated Society of Locomotive Engineers and Firemen (ASLEF) – has chosen to give a gentle rap on the knuckles of GTR by asking it to pay an amount of 15 million pounds for “passenger enhancement”.
TSSA General Secretary, Manuel Cortes, said that this amount “won’t even scratch the surface [of the problem]. The truth is only a nationalised railway will put passengers first.” The railway network, he said, “needs to be reintegrated and that will mean putting the railways back in public hands. Privatisation has failed on its own terms. It has not brought better services, increased competition and lower prices which were promised; quite the opposite.. A system which sees private train companies operating on publicly-owned infrastructure is not only incompatible, it’s tarnished and broken beyond repair. The public good now requires a public railway and everyone in the industry know this.”