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Wolmar: The franchising omnishambles

6 November 2012

We knew it was bad, but Christian Wolmar asks just how the West Coast franchising process came to be so flawed.

Pendolino Blank
Unbranded Pendolinos were expect to appear if Virgin had been forced to give up the franchise

The West Coast fiasco would have been rejected as a script for the political satire show ‘The Thick of it’ as too outlandish. Never in my years of criticising the franchising system and asking the question ‘what is franchising for?’ would I have dreamt that it could get this bad.

To argue, as some in the industry suggest, that this is just a temporary blip in the wonderfully successful history of franchising is to be living in a dreamland ruled by Thomas the Tank Engine. Franchising will never be the same again, not least because the wider public has, again, been exposed to the failings of the privatised rail industry. The key point is that this omnishambles – such an apt new word used by the Alistair Campbell figure, Malcolm Tucker, in the show – has resulted precisely from the way that the franchise system has developed and that’s why the system is unrepairable.

The franchising system, created at privatisation when the disastrous decision to separate the infrastructure from operations was made, has always suffered from the fact that ministers have been unclear about its purpose. Ostensibly, it is to attract private sector innovation and to stimulate competition during the bidding process, but, in fact, neither of these aims has been achieved. Sure, there have been some improvements to rail services since privatisation but very few of these can be attributed to private sector innovation – British Rail, remember, created ‘The Age of the Train’ and while its front man, Jimmy Savile, may have been discredited, the HST 125s that it heralded still pound up and down the tracks reliably and comfortably.

As for competition, the potential bidders are now only a handful of transport companies, created out of the bus deregulation of the 1980s, and European state owned railways – no one else is interested in taking on franchises, which is hardly surprising given the complexity of the system. And it is that complexity which has been at the root of the problem. Initially, franchise deals were relatively simple – the first Gatwick Express successful bid by National Express was just eight pages long – but ministers were worried about franchises going bust or making superprofits.

It was this mad urge to privatise and yet retain control that directly led to this mess. In the West Coast franchise, two extra features were introduced, adding a further overlay of complexity into the process. First, because passenger numbers have traditionally gone up or down according to the economy, there was to be an adjustment to the premiums paid back to the government on the basis of the overall economic situation. So if there were another prolonged recession, the premium payments would have been reduced and in a boom the operator would have had to pay more.

Secondly, the bond payment – the supposed security against the operator not being able to fulfil the contract – was made variable in accordance with the risk; in other words, if a franchise were more likely to fail, which was clearly the case with FirstGroup’s bigger bid, then the bond would have to be larger. In both cases, apparently, these calculations proved faulty and that’s why ministers, not daring to risk putting the model up in the court case brought by Virgin, decided to scrap the whole process.

Singling out the three civil servants who were suspended was completely unfair. As The Independent (October 15) showed, there had been major cuts in the Department with 20 or more senior officials being made redundant. Moreover, there was no single person in the DfT left in charge of the railways – a clear mistake.

The most depressing aspect of this tale is that the lessons are not being learned. Sitting at a lunch next to Norman Baker, the Lib Dem junior transport minister recently, it was depressing to hear the same old neoliberal mantra being trotted out. When I suggested that the franchises could, at least, be let out on the basis of concessions as with the very successful London Overground – in other words with the government taking all the ticket revenue and the franchisee merely running the trains on a contract basis – he said it would ‘take away the incentive from the private companies to boost revenue’. This is just nonsense. Hundreds of contracts are run on this basis and the incentive, surely, is for a company to do well so that it wins future deals. Yet, somehow, the old gramophone record is stuck with the notion that the only way to run things is through private companies motivated by greed and personal gain. That idea, in fact, is rather insulting to the private firms, as well as disregarding the very successful examples of public enterprise throughout history. Therefore, while a ‘review’ of franchising is to take place headed by Eurostar chairman Richard Brown, abandoning the whole concept will clearly not be within his remit.

As for full scale nationalisation, which actually can be done for free by letting the franchises run their course, the Coalition, of course, was never going to go near it, but there is clearly an opportunity for Labour, here. Promising to end the ‘franchising fiasco’ and simply take back franchises into public ownership would not only save money but make sense politically since it has widespread public support. It was noticeable that on Any Questions recently a largely Tory supporting audience clapped spontaneously when Mark Serwotka, the PCS union leader, suggested renationalisation. And there is already an example to show it works. Since East Coast was taken into public ownership in 2009, it has returned more than £416m to the Exchequer through profitable running and has improved performance. Moreover, the move has been immensely popular with staff: sickness is down from an annual average of 14 days to just 9 while nearly 70 per cent of staff have taken part in the annual ‘engagement’ survey, much higher than under private ownership. In fact Directly Operated Railways, which runs East Coast, was all ready to take over West Coast when Patrick McLoughlin pulled the franchise process.

As it now appears likely that the West Coast franchise will still not have been let permanently by the time of the next general election, Labour has a good opportunity to show that it has really abandoned the old neo-liberal agenda favoured by the Blairites by promising to bring it into public ownership. It would be the perfect response to the omnishambles.

Christian Wolmar is seeking to be Labour candidate for the 2016 London mayoral election – see www.wolmarforlondon.co.uk. If you would like him to come to speak at a branch meeting, contact him via christian.wolmar@gmail.com.

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