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Private good, public bad?

4 January 2013

Christian Wolmar takes issue with the claim from FirstGroup’s Tim O’Toole that the complexity and profit-motive in the current system are the main drivers of growth.

Hoxton

In his George Bradshaw lecture given at the Institution of Civil Engineers in October, Tim O’Toole, the boss of FirstGroup emphasised that the key reason behind the growth of the railways in the past 15 years was the fact that they were in the private sector. Moreover, he argued that it was the very complexity of the system created by privatisation that has delivered that growth and therefore, the fragmentation created by the sell-off must be retained.

In the lecture he stressed: ‘The industry structure that best promotes the aspiration and drive for growth is one that involves private Train Operating Companies (TOCs). Private TOCs must deliver growth to survive; a monolithic, publicly-owned authority doesn’t have to.’ He said that the public sector had ‘a dated mindset that the railway is ours, that its residual purpose following the end of British Rail is to remain the sustaining-engine of the only thing to which some truly owe allegiance, the pension plan... In other words, growth is just a further burden instead of an ambition and reward.’ Gosh, bet he never said that to his workers and managers in London Underground, which he ran from 2002 to 2009.

He then spoke about how complexity had also been a source of growth: ‘Our industry has become very complex, with multiple TOCs and FOCs where once there was one authority, and its complexity is set to increase with Network Rail's devolution, but the greater complexity has generated and absorbed the greatest sustained growth in passengers in history.’

In other words, it is the mix of privatisation, coupled with the complexity which it caused, that has been the catalyst for the recent success of the railways. I could not disagree more with both propositions, even though Mr O’Toole is a man for whom I have enormous respect.

When Tim O’Toole ran London Underground, he did so with real dedication to public service and he did much to improve the service. It was a period of growth during which, for the first time, the London Underground reached the figure of 1bn users in a year – a number that has continued to rise.

During Mr O’Toole’s time at the Underground, I used to meet him regularly and he railed against the Public Private Partnership that had been created by the Labour government. This plan involved separating out the operations, which remained in public hands, from the infrastructure. When he left to go back, temporarily as it turned out, to the USA, I interviewed him for the Evening Standard (on my website, 17 April 2009) and he was strongly critical of the whole arrangement: ‘So many things about the PPP were wrong. Separating the track from the infrastructure was wrong. The theory was that these private companies would come in and introduce all this innovation, but fundamentally we have not had the level of innovation that justifies the extra cost of the PPP’ He added that far from innovating, the private companies had played safe and not introduced risky new technology but rather had milked the system for what they could get.

Now though, he suggests that public sector organisations lack the impetus and drive to grow, and only the private sector has the vision and desire to promote expansion. He said ‘there is a fundamental difference in mindsets between entities that are trying to make money and those whose central purpose is to spend it. Over time, the latter simply lack the day to day obsession with finding ways to grow’.

Let’s though, examine this proposition. Take, for example London Overground which while being run by a private company, works entirely to the specification of Transport for London. It is a concession rather than a franchise and thanks to investment, good marketing and re-staffing stations, it grew by a staggering 110 per cent in its first year. Already, extra coaches are having to be provided to meet demand.

East Coast


Then there is Directly Operated Railways which has been quietly running the East Coast franchise for the past three years and was on standby to run West Coast, until at the last minute a deal was reached with Virgin. DOR took over a poorly run franchise and has built up a number of notable successes. Passenger numbers between London and Edinburgh have risen by more than a third and recently the company celebrated the best-ever monthly punctuality figure of 93.3 per cent – a proportion that has consistently been higher than Virgin’s efforts on the West Coast. Highly profitable First Class passengers – presumably less of a priority in Tim O’Toole’s vision of public sector rail – have grown by 39 per cent between London and Edinburgh. Oddly, too, East Coast is top of the league table of complaints, but according to Passenger Focus many of these apparently relate to overzealous checking of tickets – something which is not supposed to happen in the O’Toole world of public sector management.

Possibly most interesting is the often forgotten example of Northern Ireland. Because of fears of potential political difficulties, the small railway of Northern Ireland has remained a publicly owned integrated operation which has recently benefitted from investment in both rolling stock and track.

Passenger numbers there have increased by 70 per cent over the past decade, an even higher rate than on the mainland, thanks in part to the investment programme. There are plans for further expansion which will doubtless bring yet more growth.

Mr O’Toole, who is also head of the bizarre Rail Delivery Group – the body meant to deliver the cost reductions required by the McNulty report – seems to be on an ideological path up the wrong track. The result of the West Coast omnishambles is that for the next two years Virgin will be running the line on the basis of a small management fee of just 1 per cent, with the company promising that the money will go to good causes (not, one hopes, for wildlife management on Branson’s personal Necker Island in the Caribbean). It will, therefore, not be a franchise but effectively a concession like London Overground which actually points the way forward. If the next Labour government proves to be too timid to actually take back the franchises into public ownership which is the obvious solution to this mess, the party could see concessions as the ideal compromise. No longer would we have the tortuous bidding process based on the voodoo science of futurology, but a much more easy process that would be far less costly aind complex.



Christian Wolmar is seeking the Labour nomination for the London Mayor election in 2016. If you would like him to address your branch meeting, email him at christian.wolmar@gmail.com.

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