Privatisation of British Rail

From Academic Kids

The privatisation of British Rail was the result of the Railways Act 1993 introduced by John Major's Conservative government. The operations of the British Railways Board (BRB) were broken up and sold off. Some "non-core" parts of the BRB's operations had already been disposed of, by the administration of Margaret Thatcher, as early as the first years of the 1980s.

Contents

Situation in 1979

Historically, the pre-nationalisation railway companies were almost entirely self-sufficient, including, for example, the production of the steel used in the manufacturing of rolling stock and rails. As a consequence of the nationalisation of the railways in 1948 some of these activities had been hived off to other nationalised industries and institutions, e.g. "Railway Air Services Limited" was one of the forerunners of British Airways; the railways’ road transport services, which had carried parcels and passengers' luggage to and from railheads became British Road Services, and ultimately part of the National Freight Company.

The preferred organisational structure in the 1970s was for the BRB to form wholly-owned subsidiaries which were run at an arms’-length relationship with the BRB, e.g. the railway engineering works became part of British Rail Engineering Limited (BREL) in 1973, the ferry operations which connected domestic rail services with Ireland, France, Belgium and the Netherlands were run by Sealink (U.K.) Ltd, part of the Sealink consortium which also used ferries owned by the French national railway, SNCF, the Belgian Maritime Transport Authority, Regie voor maritiem transport / Regie des transports maritimes (RMT/RTM), and the Dutch Zeeland Steamship Company. However, reflecting the paternalistic history of the industry, the BRB was still also directly responsible for a multitude of other functions, such as the British Transport Police, the British Rail Property Board (which was responsible not just for operational track and property, but also for thousands of miles of abandoned tracks and stations arising from the Beeching Axe and other closure programmes), a staff savings bank, convalescent homes for rail staff, and the internal railway telephone and data comms networks (the largest in the country after British Telecoms'), etc.

In 1979 the organisational structure of the BRB's railway operations still largely reflected that of the "Big Four" private railway companies which had been merged to create British Rail over thirty years previously. There were five Regions (Scotland being a separate region), each region being formed of several Divisions, and each division of several Areas. There was some duplication of resources in this structure, and in the early 1980s the divisional layer of management was abolished with its work being redistributed either upwards to the regions or downwards to the areas.

1980s developments

The Thatcher administration developed a policy of selling off the nationalised industries into private ownership, or privatisation as it came to be termed. As far as the railways were concerned, however, the government's policy had little effect during the whole period of the Thatcher administration except in relatively small areas, as it was considered that privatising the core railway operations would be too difficult.

The chain of British Transport Hotels was sold off, mainly one hotel at a time, in 1982; Sealink (U.K.) Limited was sold in 1984 to Sea Containers Limited, who ultimately sold the routes on to their current owner, Stena Line. In 1988 British Rail Engineering Limited was split between the major engineering works which became BREL (1988) Ltd, and the mostly smaller works which were used for day-to-day maintenance of rolling stock, which became British Rail Maintenance Limited (BRML). BREL (1988) Limited was soon sold to the Swiss-Swedish conglomerate, ASEA Brown-Boveri, who renamed the company ABB Transportation. A merger between ABB Transportation and Daimler Benz created ADtranz on 1 January 1996; ADtranz was subsequently taken over by the Canadian-owned conglomerate, Bombardier.

For reasons of efficiency, and to reduce the amount of subsidy required from government, British Rail undertook a comprehensive organisational restructuring in the late 1980s. The new management structure was based on business sectors rather than geographical regions, and first manifested itself in 1985 with the creation of Railfreight, which was the BRB's freight operation, and the creation of Network SouthEast in 1986, which covered all local passenger services in the London commuter area, including all of south-east England. Sectorisation was completed in 1987 with the creation of the InterCity, Provincial Railways (later renamed Regional Railways), Parcels, Departmental (civil engineering), Freightliner, and Central Services (e.g. research, and IT) sectors. The regional management structure continued in parallel for a few years before it was abolished. Sectorisation was generally regarded within the industry as a great success, and it was to have a considerable effect on the way in which privatisation would eventually be carried out.

In 1986 what may in retrospect be viewed as the harbinger of private rail operation occurred when the quarry company Foster Yeoman bought a small number of extremely powerful 3600 hp locomotives from General Motors' Electromotive Division (GM-EMD), designated British Rail Class 59, to operate their mineral trains between their quarry in Wiltshire and their customers. Although owned and maintained by Foster Yeoman, the Class 59's were manned by British Rail staff. During acceptance trials on 16 February 1986, locomotive 59001 hauled a train weighing 4639 tonnes – the heaviest load ever hauled by a single non-articulated traction unit. Foster Yeoman's class 59's proved extremely reliable, and it was not long before quarry company ARC and privatised power generator National Power also bought small numbers of Class 59's to haul their own trains.

Also in 1986, the possibility of breaking up British Rail was explored when discussions were held with Sea Containers Ltd, later the franchise operators of GNER, concerning the possible takeover of the railway on the Isle of Wight. However, the discussions proved abortive.

In Sweden in 1988 the State Railways, Statens Järnvägar, was split into two – Banverket to control the track network, and SJ to operate the trains. This was the first time a national railway had been split in this manner, and it allowed the local county authorities to tender for local passenger services to be provided by a number of new train operators who appeared. The Swedish system appeared to be very successful initially, although some train operators have subsequently gone bankrupt, and the Swedish experiment was watched with great interest in other countries. Some observers -- including no less an authority than the boss of the Swiss Federal Railways, widely regarded as one of the best railways in the world -- still argue that the whole idea of separating track from train operations in this way is fundamentally misconceived, being based on the model of air transport, where the infrastructure, engineering and operational considerations are entirely different. On this view, the rail/wheel interface is an integral entity at the heart of what makes the railways function, and hence the worst possible point at which to make a split, especially on an intensively-worked but multi-functional network such as Britain's.

The move to privatisation

In 1991, following the apparently successful Swedish example and wishing to create an environment where new rail operators could enter the market, the European Union issued EU Directive 91/440. This required of all European Union member states to separate 'the management of railway operation and infrastructure from the provision of railway transport services, separation of accounts being compulsory and organizational or institutional separation being optional', the idea being that the track operator would charge the train operator a transparent fee to run its trains over the network, and anyone else could also run trains under the same conditions (open access). Directive 91/440 did not, of itself, require that the railways be privatised; it was principally an accounting means of ensuring a level playing-field between incumbent train operators and new companies entering the rail transport market. However, Directive 91/440 provided the British government with a pretext for carrying out a far more dramatic reorganisation of the railway industry, while at the same time passing on some of the opprobrium to "Europe". As of 2004, Ireland and Greece have yet to comply with Directive 91/440 and its successor.

In Britain, Margaret Thatcher was replaced by John Major as leader of the Conservative Party at the end of 1990. The Thatcher administration had already sold off nearly all the former state-owned industries apart from the railways. In its manifesto for the 1992 General Election the Conservatives included a commitment to privatise the railways, but were not specific about how this objective was to be achieved. The Conservatives unexpectedly won the election on 9 April 1992, and consequently had to develop a plan to carry out the privatisation before the Railways Bill was published the next year. The management of British Rail strongly advocated privatisation as one entity, a British Rail plc in effect; Prime Minister John Major favoured the resurrection of something like the old "Big Four" geographical railway companies which had existed before 1948; however, the Treasury, under the influence of the Adam Smith Institute think tank advocated the creation of seven, later twenty-five, passenger railway franchises as a way of maximising revenue. As is usual in British politics, the Treasury view prevailed.

The Railways Act, 1993

The Railways Bill, published in 1993, established an extremely complex structure for the rail industry. British Rail was to be broken up into over 100 separate companies, with all relationships between the successor companies controlled by legal contracts and supervised by the Office of the Rail Regulator and, in the case of the passenger railway, the Office of Passenger Rail Franchising (OPRAF).

The passage of the Railways Bill was controversial. The public was unconvinced of the virtues of rail privatisation and there was much lobbying against the bill. Almost everybody with any actual experience of the railway industry, or understanding of transport economics, was against it. The Labour Party was implacably opposed to it and promised to renationalise the railways when they got back into office. Even the Conservative chairman of the House of Commons' Transport Committee, Robert Adley MP, one of the few Members of Parliament who actually understood how the railways operated, famously described the Bill as "a poll tax on wheels"; unfortunately Adley was viewed as "a rail enthusiast" and consequently his advice was ignored. Adley died suddenly before the Bill completed its passage through Parliament. The legislation fundamentally misunderstood the commercial environment in which the railways operated, splitting the unified railway into many competing organisations, when in fact the true competition to the railways came from the internal airlines, coastal freight shipping and, above all, road transport.

The Railways Bill became the Railways Act on 5 November 1993, and the organisational structure dictated by it came into effect on 1 April 1994. Initially, British Rail was broken up into various units frequently based on its own organisational sectors (Train Operating Units, Infrastructure Maintenance Units, etc.) which were still controlled by the British Railways Board, but which were subsequently sold off over the next few years.

Organisational structure created by the Railways Act

Among the units which came into existence on 1 April 1994 were:

  • Railtrack -- took over ownership of all track, signalling, and stations. In the original privatisation plan, Railtrack would have been the last part of British Rail to be sold, but with the approach of a General Election in 1997, Railtrack was hastily privatised in May 1996 in a successful attempt to make Labour's planned renationalisation of the railways impossible.
  • 25 Passenger Train Operating Units (later Train Operating Companies or TOCs) which split the country by geographical areas or service type. This meant that for example a major city terminus would be served by an InterCity TOU and one or more local "commuter" type TOU, with consequent competition for train paths into and out of the stations which had to be resolved by Railtrack and the regulatory authorities.
  • 3 Rolling Stock Leasing Companies (ROSCOs), Angel Trains, Porterbrook Leasing, and Eversholt Trains (later HSBC Rail), which were allocated all of British Rail's passenger coaches, locomotives, and multiple units. In theory, the ROSCOs would compete against each other to provide the Train Operating Companies with the rolling stock they required. In practice, in most cases the individual train companies required specific classes of trains to run their services, and often only one of the ROSCOs would have that class of train, resulting in their having to pay whatever the ROSCO concerned cared to charge for leasing the trains. Old rolling stock was extremely profitable to the ROSCOs, as they were able to charge substantial amounts for their hire even though British Rail had already written off their construction costs.
  • The main freight sector was split into 3 geographical units, Mainline Freight in the South-East, Load-Haul in the North, and Trans-Rail in the West. Despite going to the expense of setting up separate management structures for the three parts of the freight sector, on 24 February 1996 all three units were sold to "North & South Railways", a subsidiary of the American Wisconsin Central Railroad, which soon renamed the operation the "English, Welsh and Scottish Railway". EWS also later acquired the Rail Express Systems (Res) parcels and mail train business, freight operator Railfreight Distribution and National Power's rail freight operation.

Effects of privatisation

The privatisation has been widely criticised in terms of service to the consumer (traveller), and also on safety grounds in the aftermath of a few high-profile accidents (though the empirical evidence for the view that these could be attributed to the new structure of the industry is weak). It is a common view that the railways had been systematically starved of government investment in the 1980s, as the Thatcher administration openly favoured road transport. In financial terms, the government had been subsidising the railways: but of the three passenger sectors, inter-city, the South-East commuter region, and rural services, only the first could hope to be independently commercial; and the proportion of subsidy in a rail ticket price was quite low by European standards.

Railtrack, the company that was left with taking care of the railway infrastructure, was somewhat subsidised and regulated -- too much so, in the view of some free-market believers, but not nearly enough so, for those (including most transport economists) who take the view that public transport is not a service that can appropriately be left to the vagaries of pure market forces. It was hoped that the financing could have been fully organised by private parties (which could have been possible). The government also wanted to expand and renew the track even when it was not financially viable, and yet skim all the profits - effectively scaring all private investors away. The problem escalated with the environmental subsidies package that tore Railtrack in the opposite direction.

Fares and timetables were regulated, which meant that the companies had relatively little freedom of movement. The subsidisation and regulation was done in all good will. The government was afraid of windfall profits often associated with privatisation.

The architects of rail privatisation also hoped that rail traffic would increase as a result. Other things being equal, this could be presented as a potential gain for the environment, since rail transport (of both goods and passengers) is much more energy-efficient and somewhat less polluting than road transport and a fortiori air transport. As it turns out, rail traffic has indeed increased significantly, though how much of this can be ascribed to the new structure of the industry is open to dispute. Sceptics point out that travel and transport, in all modes, have been increasing sharply anyway.

It is sometimes claimed that when the railways were privatised they were already in bad shape and in need of renewal. This argument has been put repeatedly, for example, by Sir Richard Branson, the boss of one of the largest railway operators, Virgin Trains, as an explanation for his company's poor service. However, informed observers, notably the journalist Roger Ford in the industry trade magazine Modern Railways, have shown that this is largely a myth.

The Labour government (elected shortly after privatisation) completely reneged on its earlier commitment to renationalise the railways. Instead, it left the new structure in place, only intervening to avert total meltdown when the privatised Railtrack was collapsing and the industry was in deep crisis. Now -- critics might argue somewhat belatedly -- the government has taken back a greater degree of control, but the early demise of its creation, the Strategic Rail Authority, suggests that the situation is still in flux and the right formula for the long-term health of the rail industry has not yet been found.

Following the creation of the Strategic Rail Authority, and the financial collapse of Railtrack following the Hatfield rail crash in 2000, and the subsequent creation of the supposedly private but in practice government owned Network Rail to replace Railtrack, the service levels of most passenger train operating companies are now determined by the SRA (and after its abolition, the Office of Rail Regulation and the Department for Transport), with the TOCs operating to fixed contracts with no scope for individual initiatives. Ten years after the initial privatisations, it is clear that the exercise largely failed in its objectives for the passenger railway. The privatisation of the freight side of the railway has been much more successful, with EWS completely replacing its locomotive fleet within five years of privatisation, although market growth has not been as sustained as the first management of EWS planned. Freightliner and new operator GBRf are also providing effective competition. It is ironic that part of the freight railway was never privatised, with Direct Rail Services which was created in 1995 to run nuclear fuel transport trains for the government-owned British Nuclear Fuels and now owned by the State agency, the Nuclear Decommissioning Authority, now running some ordinary intermodal freight train services.

External links

  • EU Directive 91/440 (http://europa.eu.int/eur-lex/lex/LexUriServ/LexUriServ.do?uri=CELEX:31991L0440:EN:HTML)
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