A Total Public Rip-Off: The Great Train Robbery, Mark II

Jun 12, 2013   //   by Keith McDonald   //   Commentary / Editorial  //  Comments Off on A Total Public Rip-Off: The Great Train Robbery, Mark II

First Great Western. Image: Phil Scott / Wikipedia

  • Highest fares in Europe, with cramped conditions and old carriages.
  • Biggest rail companies pay out 90% of operating profits to shareholders.
  • Private companies neglecting investment in railways.
  • Easily manipulated franchising system, at huge cost to taxpayers.
  • Public rail bosses rewarded despite failing to meet modest punctuality targets.
  • Return to public railways at no extra cost, new report suggests.

Just as we were thinking about how far private interests had separated from public advantage, a damning new study into the UK’s railways has revealed how privatisation has led to rip-off fares and a gross underinvestment in services.

The report by the Centre for Research on Socio-Cultural Change (CRESC) at the University of Manchester said that since the privatisation of the railways, train companies have relied heavily on the taxpayer to run services while farming off almost all of their profits to shareholders.

Those which received the largest state subsidies between 2007 and 2011 farmed out 90% of their half-billion pound profits to shareholders, the report said, while the public has been left to pick up the bill for the majority of new rail investments, such as the tilting Pendolino trains.

Highest Prices in Europe

Despite a lowering by Network Rail of the track access or ‘rent’ charges to operating companies, rail passengers have had to endure the highest prices in Europe while suffering in cramped conditions on old carriages, the report continued.

Our initial report last year, The Great Train Robbery, found that ‘walk-on’ train fares were the most expensive form of transport for several of the major routes out of London.

Great Train Robbery

For routes between London and Newcastle, Birmingham and Manchester, the cost of train travel was double the cost of driving. From London to Birmingham, travelling by coach proved to be just one sixth of the cost of travelling by train.

There’s also the issue of annual fare increases, which are always guaranteed to provide an additional New Year hangover. The table below shows the increases in annual travelcard prices which came into effect in January. (We don’t just focus on London. Our December post includes more operators around the country.)

To / From LondonOperator2012 Price2013 Price% Change
BanburyChiltern£4,744£5,0285.99%
BasingstokeSouth West Trains£3,792£3,9524.22%
CanterburySouthEastern£4,588£4,8124.88%
ColchesterGreater Anglia£4,376£4,5564.11%
East GrinsteadSouthern£2,268£2,3604.06%
LutonFirst Capital Connect£3,604£3,7203.22%
Milton KeynesVirgin£4,408£4,6204.81%
OxfordFirst Great Western£4,348£4,5324.23%
PeterboroughEast Coast£5,600£5,8003.57%
Southend CentralC2C£3,012£3,1364.12%
Tunbridge WellsSouthEastern£3,968£4,1324.13%
Zones 1-6 (London)TFL£2,136£2,2244.12%

Fares have gone up by over a quarter between 2008 and 2012, according to the TUC, despite the UK’s almost constant flirtation with recession during that period.

But despite this, conditions and basic service are sorely lacking. A report from the Department for Transport based on August 2011 found that some services were running at almost double their seating capacity. We’ve also highlighted a few instances of shoddy service. (If you’ve more to add, you’re welcome to get in touch!)

A Warped Franchise System

Virgin Pendolino (Image: Network Rail)

The report attacked the franchise bidding scheme which has become heavily weighted in favour of privately run train operating companies (TOCs) over taxpayers.

The existing scheme, as many readers may remember following the recent debacle involving FirstGroup and Virgin, requires operating companies to bid for a franchise over periods that can extend up to 15 years.

However, the system can be fiddled – as the report points out – by “back-loaded” bids, whereby companies commit to larger payments towards the later years of their contracts, anticipating greater passenger numbers by that time.

They are then allowed to walk out of these agreements before these large premium payments are due with just a nominal penalty whilst keeping all of the previously accumulated profits.

This loophole was exploited by FirstGroup in 2011, when it refused a three-year option that would have cost it £800 million before reapplying almost immediately to take the franchise again from 2013.

The bidding process, which featured National Express, Stagecoach, and Arriva, was scrapped in January by Transport Secretary Patrick McLoughlin, who granted First two additional years as he undertook “a more fundamental review of the franchise proposition.”

But then came the West Coast mainline fiasco, which initially saw First announced as winners of the bid, only to see the decision overturned after major flaws were discovered in the vetting process.

This is set to have cost taxpayers at least £50 million, a figure which could prove to be much larger, according to the Public Accounts Committee. Not only is the franchise model warped, it’s proven itself to be fundamentally broken.

Rewards for Getting Us In Late!

Where public/private partnerships are concerned, the link between performance and reward seems to become rather imaginative.

Within six months of the creation of Network Rail in 2002, directors were sharing out more than £1.5 million in bonuses as trains continued to run late and company losses mounted.

Ten years on, and despite moving further away from punctuality targets this year, bonuses in the Network Rail boardroom are to range from £60,000 to £100,000. We’ve had our jibes at MPs and bankers, but this is no small reward for failure either.

Rail bosses continue to fare remarkably well from poor performance (pun intended).

Track Works (Image: Network Rail)

Over 70,000 (13%) of long-distance services failed to arrive within 10 minutes of their scheduled arrival time in 2012/13, according to the Office of Rail Regulation. Performance is getting worse, not better, it said, while the company’s poor record keeping, like previous incumbent, Railtrack, is making railway maintenance inefficient.

The Office of Rail Regulation has recently threatened Network Rail with a fine of £75 million if it fails to improve on modest punctuality targets.

Network Rail believes it’s a victim of its own success, as more people want to use more trains more often. (Nothing to do with the exorbitant cost of running a car, then?) But evidently, there are no victims in its own boardroom. As poor and profligate taxpayer-funded services rank, Network Rail is right up there. (See David Mitchell’s witty repartee of rail chief rewards.)

Move Back to Public Ownership

The CRESC report concluded strongly in favour of moving back to a public railway, which New Labour repeatedly pledged to do ahead of their 1997 election victory.

In contrast to private TOCs, the state-owned ‘Directly Operated Railways’, which currently operates East Coast, has performed ‘commendably’, it said. Unlike private operators, this model had seen operating profits reinvested back into the railways.

This showed the benefits of a public sector railway, said the report’s co-author, Professor Karel Williams. The government could gradually reclaim control of the railways at no additional cost to the taxpayer if it assumed control of services as private franchises expired, he suggested.

It would make sense to abolish the train operating companies and it would cost the taxpayer nothing if it were done as the franchises expired. Train and track operation could then be integrated under a new not-for-profit company.

Professor Karel Williams, University of Manchester

The chief executive of the Association of Train Operating Companies, Michael Roberts, believes competition is a major benefit of the current system.

“By introducing competition between train companies to run services, the government has ensured operators have played a crucial role in reversing the fortunes of the railway by motivating them to attract more passengers,” he said.

But it’s almost impossible to see how the increase in passenger numbers can be attributed to the high-cost, poorly-run, delay-ridden private-favouring rail system and its dividend-casting operators.

Circumstances have driven people towards a railway system that is barely fit for purpose. We can’t be too far away from calling the whole thing a total embarrassment to the nation.

See the full Great Train Robbery report at the CRESC website.

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