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Any review of rail’s successes and failures over the past 20 years or so must start with a brief recap of what those changes were. I guess we can all just about remember that back in the early 1990s the European economic and political climate strongly favoured vertical separation of infrastructure and operations. The drive was to create conditions enabling more competition within countries and across national borders within the European Union.
BR Board Chief Executive John Welsby presided over a unified, nationalised organisation that owned all the assets you need to run a railway - trains, stations and infrastructure. Yes, there were business units shaped around the different markets served, but there was still a single line of command right to the top of the organisation, and hence directly to government.
As we all know, the British public has a love-hate relationship with its railways. With strong trade unions, what was seen as generally poor levels of customer service and reliability, and with what seemed like bottomless demands for more money to operate, maintain and improve the network, the British government was casting around for a mechanism to get ‘the railway problem’ off its hands once and for all.
The result was the Railways Act of 1993, which in summary separated out the twin key roles of infrastructure management and train operation. A single national infrastructure provider was created and a multiplicity of passenger and freight operating companies established, with the freight companies sold outright and the passenger businesses franchised.
In the event, the process of selling the franchises went extremely well, and Railtrack - originally intended to be a public sector company - was privatised. All appeared good for a time, but gradually cracks began to show.
Railtrack struggled to successfully deliver on its outsourced maintenance and renewals activities, and overreached itself on the West Coast Route Modernisation programme. Meanwhile, a series of major train accidents focused attention on the mounting deficiencies in the way that the network was being run. Eventually, the government of the day took the decision to push Railtrack into administration, and its successor Network Rail was established on a not-for-profit basis.
By 2006 the industry had regained some stability with the implementation of the 2005 Railways Act, which abolished the Strategic Rail Authority and moved its work into the Department for Transport. Structurally it has since remained largely unchanged, give or take the creation of the Rail Delivery Group in response to the McNulty Report, and so has effectively lasted ten years already. Quite a long time in railway organisational terms!
The passenger companies can be described as ‘asset light’. In other words, they don’t own the trains, they make little investment in infrastructure, and they are there to make a profit on the difference between revenue and costs over a defined period of time. In the passenger game, the competition has until now been largely for the market rather than in the market.
And franchising has been a highly competitive business. Margins that 20 years ago were typically 5%-7% are now down to an average of 2%. Many of today’s franchises are struggling to make a profit after paying the agreed premium or receiving the agreed subsidy from the Government.
But it’s fair to say that much of the past 20 years has been a railway success story.
- Train ridership, admittedly helped by road congestion and high fuel costs, has more than doubled.
- There has been major investment in increasing capacity on the network, and the majority of trains are now better maintained and more reliable than ever.
- The passenger experience - as seen through modernised stations, new or refurbished trains, and customer service - has been transformed, and customer satisfaction is at relatively high levels. Punctuality, while not as good as desired, is generally much better than in the last days of British Rail. And while fares vary hugely according to time of day and week, class of travel, degree of flexibility of ticket, and by operator, the average fare paid per mile travelled has increased slower than inflation, so many passengers are getting very good deals.
- Freight companies have survived the collapse of ‘King Coal’ and have aggressively moved into intermodal, as it has grown. They all compete effectively with road hauliers and all are just about making money in the process, although margins tend to be tight.
- Operational safety has been radically improved, with the last passenger fatality in a rail accident occurring over nine years ago and the British network now rated as the safest in Europe. Occupational health and safety has also improved, although perhaps not as much as many feel should be the case.
So there is much to be pleased about - perhaps even proud of - that has been accomplished over the past 20 years. But despite the booming revenues and soaring demand, railway finances remain a persistently difficult issue for government. So let’s take a look at the current high-level financial position of the industry.
The chart on the next page shows the principal money flows in the industry. Turnover has more than doubled in the past ten years or so, and the proportion of funding coming from the Government has reduced from around 60% to around 40% in that time. In total, however, and in cash terms, Britain’s railways are costing the Government roughly the same today - nearly £4 billion a year - as they did 20 years ago.
