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What will it take to get railways back on track?

About 20 years ago I had a dinner party argument with Archie Norman, the then boss of Asda.

I feared the imminent demise of British Rail while this dyed-in-the-wool free marketeer declared that privatisation would give us a modern rail network with cheaper fares and at a fraction of the cost to taxpayers. How I wish we'd made a bet.

What does he make of Britain's railways today, I wonder? Yes, after decades of cash starvation, there's been investment but the state subsidy has doubled in real terms and fares are the highest in Europe.

Someone who spends more than 10% of their income on fuel is called "fuel poor". By that yardstick, are my daughter and the many other commuters who spend 15% of their income on rail season tickets "transport poor"? And, though there are some good deals on long distance routes for those who have the luxury of being able to book weeks ahead, walk-up fares are ludicrously expensive. Yesterday a standard anytime one-way ticket from Glasgow to Euston was £162, while a British Airways flight (including taxes) would have set you back £50 less.

We ain't seen nothin' yet. Unless Virgin's Sir Richard Branson can derail it, FirstGroup will take over its West Coast mainline franchise in December. I've nothing against FirstGroup. (They've made a reasonable fist of the ScotRail franchise.) But why did the company's shares fall sharply after the announcement, unless its own shareholders thought it had bid too much?

At one point the Downing St e-petition urging the Government to re-examine the bid was garnering 1000 signatures an hour. These passengers aren't necessarily potty about the Virgin Pendolino service. Rather, like the boy who clung to nurse, they fear something worse is coming along the track.

Sir Richard may be a brash, bearded billionaire with a flair for publicity but he has a point when he says: "All we are saying is that these same civil servants got their maths wrong with National Express and GNER. We're absolutely convinced they've got their maths wrong with FirstGroup." That's a reference to the fact that Virgin was twice outbid for the east coast franchise, only for both those companies to pull out early, leaving the Government to pick up the pieces.

This contract effectively ties the hands of the next three parliaments. The structure of FirstGroup's bid is such that it will receive big subsidies in the first years on the promise of paying big premiums in the last phase of the contract. By that point it may pay the company to cough up the £235 million break fee and abandon the franchise, rather than hand over a much higher annual premium. Its £5.5 billion bid (£700m more than Virgin's) assumes compound annual revenue growth of 10.4%, an absurdly heroic figure in what even our Prime Minister has warned may be a "decade of austerity".

As the line is expected to reach full capacity by 2020, the only way FirstGroup will be able to increase revenue after that is by jacking up fares and cutting the quality of service.

It is hard to imagine a more Byzantine system or one that serves passengers any worse. As the TSSA transport staff union observed: "This crazy franchise lottery, where the highest bidder scoops the pot, means that passengers will have to pay inflation-busting fare increases on the busiest line in the UK for the next 14 years."

Like them I dream of renationalisation but realistically it isn't going to happen. Rather, the Government should be using this opportunity to reorganise our railways so that the companies that run the trains also own the track and stations, even if other companies' trains are allowed to use them. That would give passengers real choices, rather than the current state-supported private monopolies. The model of privatisation, dominated by the big four rail companies that existed before BR was born in 1947, was surely superior to the current fragmented mess, which serves the needs of neither passengers or taxpayers. LMS and LNER? We need you now.

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