Yahoo Finance How Britain’s railways became a cripplingly expensive laughing stock
Passengers on the c2c rail line into London’s Fenchurch Street station from Essex could hardly believe their luck.
As the rest of the country's commuters suffered the daily grind of delays and cancellations, those travelling into the capital from areas including Southend, Basildon and Grays were treated to a near-flawless service.
On average 98pc of trains arrived on time. Some days it was 100pc.
“Punctuality was so high that the only way of improving it was to run an advertising campaign to get people to eat breakfast and have a drink before getting on the train to prevent fainting and services being held at stations,” says a source involved with the running line.
That was seven years ago. “Now look at the state of the railways,” the person adds, pointing out that c2c’s on-time performance sunk as low as 53pc this month.
Britain’s train network has been rocked by Covid lockdowns. Keeping trains running during the pandemic cost the Exchequer an estimated £42bn and the subsidy bill remains painful. Over the last year the crisis has been compounded by the biggest wave of industrial action for a generation led by the militant Rail, Maritime, and Transport workers union (RMT).
Yet there is almost universal agreement that the railways’ problems are deep-rooted. The pandemic merely accelerated a crisis that has made Britain’s railways a laughing stock.
Bureaucracy
The number of passengers on the rails more than doubled between the mid-nineties and 2020. But with franchisees extracting large dividends in the noughties, services sagged following years of underinvestment, leading to more and more delayed services.
Financial mismanagement by operators was rife, timetable changes spectacularly backfired, and successive Tory leaders grappled with whether or not to spend tens of billions of pounds on HS2, a Y-shaped line from London to Birmingham, Manchester, and Leeds.
All the while, the RMT, with its mandate to bring down capitalism and replace it with a socialist order, resisted even the most minor changes to “archaic” working practices.
“The privatisation model could never work, simply because track and train are intimately related,” says Lord Alastair Darling, who served as transport secretary between 2002 and 2006.
“Whatever way you want to organise things, and whichever organisations you set up, ultimately it is the Government that runs the railways, and that's always going to be the case. In the same way that it is the only organisation that can run or operate a motorway.”
Others argue the precise opposite: that the failure of the railways can be blamed on the creeping hand of the state.
“The problem is that we've been stuck for 15 years with a very highly controlled, centrally run approach to the railways. And it's well past its sell-by date,” says John Penrose, MP for Weston-super-Mare, a former minister who now leads a group of Conservative backbench MPs urging the Government not to forget the role of the private sector.
“Embarrassingly, Britain is way behind the curve compared to countries like Italy. Their trains are being revolutionised by introducing more passenger choice and competition.
“We stuck to this centralised system for too long, until it eventually fell over just before, but not because of the pandemic.
“Far from being an agile customer-focused service that passengers enjoy using, Britain's railways have become centrally controlled by a bunch of bureaucrats in Whitehall who like playing with trains.”
Empty carriages
In the wake of the pandemic, empty train carriages are an all-too-familiar sight on Britain’s railways. Yet just as regular are dangerously packed platforms and standing-room only on-board.
These phenomena signal a fundamental disconnect between supply and demand. Bosses have been unable to adapt to changes in travelling habits, such as the rise of hybrid working, since Covid restrictions were eased.
The number of passengers using the railways to commute to work over the last year is at just 60pc of pre-pandemic levels. Yet the number of people travelling on the weekends is at 120pc of 2019 levels.
The net effect is that, since the start of April last year, passenger numbers are at 97pc of pre-pandemic levels, official figures show.
However, the revenue generated is only 90pc of that made in the year before Covid.
Although similar numbers are travelling compared with before the pandemic, journeys are being taken at off-peak rather than peak times. And with peak fares regularly more than double off-peak alternatives, the financial hit is startling.
The taxpayer subsidy to balance the books is projected to be £1.994bn for the year to the end of March 2023.
This begs the question: why have fares not been changed in reaction to such a seismic change in demand to limit the burden on British taxpayers?
The answer, some argue, is Whitehall mismanagement.
55 million rail fares
Lord Patrick McLoughlin remembers his first week as Transport Secretary in 2012 well.
“I found out what the difference was between being a minister in a government and the Secretary of State,” he says. “I arrived at the department, and within two days, we had an opposition debate on rail fares.
“I had all the officials around the table and they were taking me through the issues that might come up in the debate.”
Civil servants then presented him with the mind-boggling news that Britain has 55 million different rail fares.
“I looked at them, and I said: ‘God, the way we do rail fares is crazy in this country!’
“There was then a pause before one of the officials looked at me and said: ‘Well, you are the Secretary of State’.”
Lord McLoughlin would quickly find out that although the Transport Secretary is responsible for ticketing in theory, he was largely powerless to alter the hideously complicated status quo.
The Treasury, he explains, was “very nervous” about changing fares for fear that it would lead to a reduction in proceeds to the Exchequer.
“We got no agreement on what should be done about fares,” he says, resignedly. “Four years later, we hadn’t achieved anything.”
A Department for Transport source working under Epsom MP Chris Grayling – Lord McLoughlin’s successor – summarises the sentiment: “The trouble with simplifying tickets is that some people lose out if there is no new money. You either level up, or you level down. And the losers always make the biggest noise.”
British Airways, easyJet and Premier Inn
There is hope that Treasury opposition can be circumnavigated, however. Mark Harper, the incumbent Transport Secretary, has committed to create Great British Railways (GBR), a new quango designed to stop political meddling in the running of trains. Last week it was announced the body would be headquartered in Derby.
The formal launch of GBR is months if not years away, because it requires a change to legislation. In the meantime, work is being conducted to drag Britain’s fare regime into the 21st century by a specialist industry-led unit.
A key focus is what is known as revenue management: ensuring that supply meets demand.
“Revenue management is quite a big capability that companies take a while to build up,” explains a source involved. “Look at British Airways, or easyJet, or Premier Inn. There is proper revenue management. The ability to fill up space. In rail, we are not good at it.
“One of the major challenges for railway people and one of challenges for Department of Transport officials and Treasury is that they don't really understand that world in any shape or form.”
The person continues: “How do we actually bring that equivalent capability into the railway in a sensible form, because it just doesn't exist?
“The Treasury’s previous, very naive, position was: ‘Passengers will just turn up. You don't have to work to get people onto the train’. Which is just madness.”
Grant Shapps, Harper’s predecessor, launched flexible season tickets nearly two years ago. The initiative was designed to address the rise of hybrid working and commuters travelling only two or three days per week.
“The future of fares is flexible,” Shapps said at the time.
However, it was derided as offering only a “pitiful” discount on a full season ticket.
“I don't think flexible season tickets were constructive, because it was civil servants dreaming it up rather than professional pricing people coming up with the right answer,” says an industry source.
“It was a political thing with heavy involvement in the Treasury, which is ridiculous. What do they know about it?
“Proper revenue management is about making almost hourly decisions quite often by technology and algorithms. That's where empty trains get filled up.
“Do a flash sale. Or actually, give some discounts on quieter trains. You don't have to stick religiously to the price on any given day.”
Another of Shapps’ initiatives on ticketing and fares was more successful.
Last May’s “Great British Rail sale” offered heavily discounted fares – on average just £7.50 for trains running as far as London to Sheffield.
Senior industry figures have told this newspaper that the short-term sale generated “tens of millions of pounds” in profits for the Exchequer.
“It was a success. It did drive revenue. But it was a fairly blunt example of what we need to do,” one says.
Jonathan Edwards, European transport lead at consultancy GHD, adds that a shake-up of fares is all the more important with inflation at 40-year highs.
“Undoubtedly, affordability is the most important factor for British public transport users,” he says. “Value for money, particularly during a cost of living crisis and the 5.9pc uplift earlier this month in ticket prices, must be addressed.
“Passengers cannot and will not keep picking up the cost particularly when there is little to no enhancement to the passenger experience and hybrid work models offer alternatives to commuting.”
Return to British Rail?
Boris Johnson unequivocally agreed at the launch of GBR in May 2021.
“For too long passengers have not had the level of service they deserve,” he said.
“By creating Great British Railways and investing in the future of the network, this government will deliver a rail system the country can be proud of.”
The quango, the brainchild of former British Airways boss Keith Williams, was intended to remove government meddling and address problems that predated the pandemic.
Critics, however, argued that the creation of a body bringing the operation of track and trains together for the first time was little more than “nationalisation by the back door”.
Others drew parallels with New Labour’s disastrous creation of the Strategic Rail Authority, a body that was abolished by Alastair Darling in 2006 just six years after being enshrined in law.
“I took control of the railways back into the Department of Transport, it did the franchising. But I still hoped that franchising would actually continue to bring innovations and so on,” Lord Darling says.
It was supposed to be a temporary measure, but the remnants of the decision remain to this day.
Lord Darling says: “I don't think government departments are good at operating things, because that's not what they're set up to do. They are policy, they are advisory. Which is why when they do things they do [them] through an agency.
“It is also undeniably the fact that, certainly in the early days of privatisation, there were some examples of innovation which made the railways much more attractive for passengers to use.
“If by licensing, services or franchises, you get innovation and get better customer service, so be it, that would be very welcome.
“The problem is you've got too many franchises where that’s not happening. You take Avanti West Coast – for a long time they simply have not had enough drivers.”
However, absolving the Government of responsibility entirely is impossible, Lord Darling says.
“There is no railway service in the world that is self-sufficient, that doesn't need support from whatever government happens to be in charge,” he says. “The market can never actually generate the money you need to run a railway.
“What the railways need is long-term investment. Stay off the trophy projects like HS2 and concentrate on basically the day-to-day stuff to make the trains run on time.
“[We] should recognise that [we need to] set up a body to run the railways, because I don't think civil servants are suited to do it. If you're looking for significant capital it is going to come out of government capital, rather than generating off fares.”
Penrose is wary of GBR ballooning into a state behemoth bogged down in red tape.
“Is GBR basically going to be the same people who move from Whitehall to Derby and carry on behaving in the same way, with the same culture and attitudes? Or is it going to be a bright new change in future? The jury's still out,” he says.
Paul Maynard, a rail minister under Theresa May and Boris Johnson, is also concerned GBR would not solve the problem of the railways having to fight for a share of funding from the Treasury.
He says: “The big risk is that by moving down the pathway, it crowds out private sector investment and leaves the railways competing with health and education for a slice of the Treasury pot.
“It has always been my big concern that you are removing the incentive for the private sector to invest, which was the key point of franchising in the first place. We have to try to retain that element.
“They need to design it so that the operator has the opportunity to make as much profit as possible.
“On suburban services, the emphasis is on timeliness, and reliability.
“On regional or longer distances, there must be more scope to drive up passenger numbers. You would want to encourage those companies to invest in a network and to get a better return if passenger numbers increase.”
Labour looms
The debate over Great British Railways could well be academic, however.
Lord Darling says: “As far as I can see, nothing's happened since. It was announced with great fanfare with the Secretary of State’s name on the front of it… but the legislation just hasn't gone through.”
In the meantime, the railway is staggering along with a “patch and mend system”, he says.
GBR needs to be enshrined in statute in order to take control of timetabling and ticketing – responsibility of which currently sits with the Department for Transport.
With the possibility of a Labour government looming large, time is running out to hand over the power.
“Labour in power will bring our railways back into public ownership,” Louise Haigh, shadow transport secretary, told the party’s conference last autumn.
The tone behind the scenes is more business-friendly and less populist. Rachel Reeves, the shadow chancellor, told rail industry chiefs at a top secret briefing at the end of last year that state-owned train operators are “not a panacea”.
Either way, many in Whitehall believe that setting up GBR over the next 18 months may ultimately prove futile.
One former minister says: “At this stage in the political cycle, there's always tension between ministers who want to get things done as an election is looming… and officials who wonder whether or not they're going to have to unpick stuff.”
Lord Darling urges Haigh and Sir Keir Starmer to think twice about rolling back GBR if they come to power late next year, as the polls suggest.
“I would strongly advise the Labour Party, if I was asked to do so, to go for something that has a chance of working,” he says. “I would not be in favour of a government department running it. We did that, and it was a stopgap.”
Labour's renationalisation plans may hit the buffers for another reason, says a senior figure who previously worked at the Department for Transport.
“If they renationalise, they will almost certainly have to take all of the debt costs for trains back onto the public books, as the ONS will probably judge that the leases are a public liability and should be on the national debt,” they say.
That would add £20bn to public borrowing overnight.
“They will not be in a position to nationalise the whole of the industry if they win – they cannot afford to.”
Sadiq Khan could run trains to Brighton
Among the varying opinions of Britain’s rail crisis, there is a broad consensus that a dividing line must be drawn between intercity services and shorter metro commuting routes.
Higher-speed services between London and Glasgow are fundamentally different to shuttles between Leeds and York, for example.
Where airline-style fares that react to supply and demand may work on the former, pay-as-you-go alternatives that are largely fixed may be more suitable for the latter.
“With the more local services, we've got to involve the Metro mayors much more than we presently do,” says Lord McLoughlin.
“On the big intercity routes, that's got to be a source of national responsibility. And that's where the whole concept of the Great British Railways comes into being.”
Under this vision of operating the railways, London’s Labour mayor Sadiq Khan would have power over running services between the capital as far as Brighton, for instance.
Lord McLoughlin, the former chairman of the Conservative party, is in favour of this solution, as long as the Department for Transport retains a right of veto.
“I think there needs to be safeguards, because Sadiq Khan is not elected by the people of Sussex,” he says.
Accountability remains the fundamental problem. There is little sense that the railways will stop being a political football.
Maynard says: “We are the wrong people to run the railway. But inevitably, the reality is we will still be responsible for it. Ministers are always accountable, every time the 7:40 from Woking is delayed [for example].
“The best comparison that I have is NHS England. The Government spun out NHS England to remove operational obligations for ministers. As they found during the pandemic, they had no levers to pull for improvement for patients.
“So there is a democratic deficit, the more you distance politicians from the railway.”
Another former cabinet minister adds: “The challenge is that if something goes wrong it is the Government that gets the blame.
“The public has bought the myth that all would be better if it was all run by the Government, which makes it even more difficult.”
Self-professed “ultra” free-marketeers such as Penrose highlight that the railways would have been even further up the political agenda had Britain not been plunged into an energy crisis.
He says: “There are two fiscal black holes that Jeremy Hunt is currently facing. One is enormous great big energy subsidies.
“But the second one, which would be taking up all his time if it wasn't for the energy crisis, is subsidy to the railway. It ballooned to billions of pounds during the pandemic and it is just not sustainable at all.
“They know that they can't carry on like this. And that basically the system is bust and the business model is broken.”
For passengers still braving the daily commute into London from Essex, a return to the exemplary service levels of years gone by still looks as far away as ever.
