Sunday, 27 September 2015

Choo Choo or Cuckoo?

I've been mulling over Labour's latest plans to "renationalise" the railways. Regular readers and friends will know that I'm not the type instinctively to support state ownership of services unless there is a compelling specific reason that regulation alone is insufficient to get the best service.

A Private Eye Classic
On the railways, though, I've always been more sympathetic to renationalisation. Maybe it's just that when I was reading The Railway Stories as a child, the post-nationalisation Fat Controller seemed a more jovial chap than his Fat Director predecessor. It does seem to be the case that fares outstrip general inflation, provide mediocre value for money compared to other forms of transport on short-haul, and even prove more expensive and time consuming than some flights between major cities. For example, if I were to book a couple of weeks in advance, I could travel from the centre of Glasgow to the centre of London and back by plane, including bus transfers at either side, for as little as £70 or so. Allowing for getting to and from airports, and check-in, the whole experience would typically take about 3 to 3.5 hours. By contrast, the cheapest train ticket from Glasgow Central to Euston, buying two singles, would be between £120 and £130, depending on how flexible I was prepared to be with the time of day. That journey would also take 4.5 hours. Even with a 16-25 Railcard, the airlines come in cheaper. If time and comfort were not a factor, I might as well be getting the 9.5 hour overnight Megabus and getting some change out of a £20 note.

It seems just instinctively ludicrous that rail travel has to be so uncompetitive with other forms of transport and, in Britain's rail's case, apparently so much less good value for money than that of other countries.

The case for renationalisation is, however, overstated. Virtually all of the ills of the British rail system seem to get blamed on it. Delays, cancellations, overcrowding, prices, cost to the taxpayer. Yet it all seems to ignore the fact that "privatisation" as we know it is actually quite a bit more complicated than people let on.

For instance, Andy Burnham blamed the fact he had to take a rail-replacement bus service to Labour Party conference on privatisation in a Tweet earlier today. I suspect he wasn't being entirely serious, but it is a myth that reliability problems are a consequence of privatisation. Rates of cancelled and late trains have fallen significantly since the era of British Rail, and in the small number of cases where the operators fail, they are heavily fined for it. This is part of the reason why, when franchise renewals come up, operators are so dependent on their reliability rates on other services, as any mismanagement significantly cuts their (narrow) profit margins, should fines become frequent. For my own part only once in my life have I been on a rail replacement bus service, and it was amusingly enough, while travelling to Munich from Prague on a state-owned DeutscheBahn express train! The grass is not always greener, it seems.

It's also worth pointing out that many cancellations and delays are not actually the responsibility of the train operators, like Virgin, Cross Country, Scotrail Abellio and the like. While these companies do run the services on a day-to-day basis, they are not in charge of two pretty big aspects of the railway system, namely the mechanical maintenance of the vehicles and the operation and maintenance of the rail infrastructure, like track, signalling and stations. If you're on a rail-replacement bus service, the chances are it has little if anything to do with the people whose franchises the Labour Party wants to end. It is more likely that it is an issue for which NetworkRail, a wholly state owned company, is responsible. If it is not a problem with the railway network itself, but with the rolling stock, that is primarily a failing on the part of a group of companies that, as far as I can see, Labour has not given any indication what they wish to do with. The people providing mechanical maintenance of trains are not Virgin Trains or Scotrail but Porterbrook and Eversholt. These are private companies with no franchising agreement with the government than can simply be "allowed to expire" before being replaced by a state-owned company.

If the Labour Party want to renationalise the railways, they'd have to either buy-out these companies or make their franchises refuse to lease their rolling stock in preference for a new state-owned supplier. This could create a litany of EU competition law problems for no real discernible benefit. One has to ask what the point is in remunerating up-front all these private investors when that money could instead go directly into rail expansion and electrification projects. Rolling stock isn't cheap, and there are legitimate arguments that the rolling stock companies are stuck with a business model that prevents prompt upgrading of rolling stock and that they extract profit from dated assets. But these companies are also heavily indentured in order to own this rolling stock in the first place. If they lack the capital to invest in new rolling stock, what good does it do to isolate them as a supplier before the government has the means to procure enough rolling stock of its own?

The best case for rail renationalisation for me is one of transparency. The system concocted by the Tories in the 1990s to try to generate an internal market was unnecessarily complex and seems to have lost the benefits of vertical integration of different parts of the supply chain. We probably wouldn't save much money in terms of subsidy of the operating companies if they were all state-owned, but bringing them back under public ownership would at least be a step in the direction of transparency about what parts of the system are profitable and what ones aren't. The drawback is, of course, that if part of the system is unprofitable, it's no longer the case that private companies are assuming part of the risk and the consequences, subsidy notwithstanding.

The gamble of renationalisation is that, with the best will in the world, some of the capital that makes new infrastructure possible will dry-up. Rail projects are extremely expensive at the best of times (see both HS2 and CrossRail) and if you start removing companies that own often debt-secured rolling stock, which are owned mostly by pension funds, from the picture, government has to make a much bigger contribution in the short-term to keep services running at their current levels. East Coast was a success in public ownership because it cut its cloth and had a new management system put in place. Sometimes governments will be a better arm's length manager for a particular franchise at a particular stage in a route's lifetime. Attempts to extrapolate that isolated success network-wide, without a clear answer to the question of how Labour proposes to change the other stages in the rail delivery process, however, is just populist and nostalgic.