Nationalisation isn't he answer to government failure

Chris Grayling has decided to take the East Coast franchise back into government ownership. Seems an entirely sensible thing to do. Someone who leases such an asset screws up then why not take it off them according to that original contract? It’s the next bit of the lesson which is going to be misunderstood. We’re going to have the most almighty shouting that this means that all train sets should be taken back into government ownership. Which isn’t the correct answer at all.

For it is the government owned Network Rail which has screwed up here. Government screws up is not an argument that government should do more:

The government will renationalise the East Coast mainline following a string of failures, it was announced on Wednesday.

Transport Secretary Chris Grayling has confirmed that he will be terminating the contract for one of Britain’s busiest railway lines on June 24, bringing the line back into public ownership.

Virgin Trains East Coast – a joint venture between Stagecoach (90%) and
Virgin (10%) – was awarded the franchise to run trains between London King’s Cross and Edinburgh for eight years in 2014.

The service will be renamed London and North Eastern Railway (LNER).

There’s nowt wrong with this at all, it’s the reason why it’s happening which is important to understand. For, of course, why it is happening will give us a good clue as to what to do next:

The east coast rail line will be temporarily renationalised, the government has decided, after operators Virgin and Stagecoach could no longer meet the promised payments in the £3.3bn contract.

The franchisees agreed to pay a certain amount of rent to the government for the right to run the East Coast line. That amount was predicated on what number of what sort of trains they could run along that line. Well, obviously so. That then depends on what Network Rail – recall, government owned and run – says it’s going to do about upgrades upon that very railway line. They agree to upgrade it so that more trains can be run faster then obviously the franchise is worth more, the payments will be higher.

Labour used the announcement to call for other parts of the railway system to be taken back into public ownership.

No, that’s the wrong answer.

For what has happened is that Network Rail hasn’t made the upgrades it said it would. Therefore the franchisees are paying too much for what railway they’re getting – recall, they bid on the basis of upgrades happening. As Richard Branson is saying:

The Virgin owner did not dispute the £2bn figure in his blog but stated his company’s initial bid was based on a “number of key assumptions and a promise of a huge upgrade of the infrastructure” by Network Rail, which has been dogged by delays. These have, Sir Richard argued, impeded Virgin Trains East Coast from running more trains and carrying more passengers.

“The considerable delays to this upgrade, to new trains, as well as poor track reliability will cost us significant lost revenue (amounting to hundreds of millions of pounds) and torpedoed the assumptions of our original bid,” he said.

So, our basic analysis says government, in the form of Network Rail, screwed up. This is not an argument in favour of government now taking over all of the railways, is it?

Well, OK, it is the way the Labour Party is using events but then charlatanry in the pursuit of power isn’t limited just to that quadrant of politics now, is it?

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13 COMMENTS

  1. Incompetent privatization caused this. Major’s plan assumed railways compete against railways. They don’t or rather not only against rail but also cars, buses and planes.

    Time to concrete them over. Run trucks and buses on them. Autonomous only, maybe. Or, and this is a really brave one, pull the plug and let somebody run their own railway without subsidy.

  2. “Chris Grayling has confirmed that he will be…bringing the line back into public ownership.” — Of course, ownership has been public all along; it’s operation that got privatized. The problem was with ownership (upkeep and upgrade). And yes, this does argue that the entity that defaulted (HM Government) should not thereby be given control of the operation as well.

    No, Rhoda, not necessarily “time to concrete them over,” as we never had a conclusive test to show that no one can own and operate the trains and their tracks. Trucks and buses can be re-routed when rider preferences change (for instance, a popular new site two miles to the side of the existing route). But selling the trains and the tracks (real privatization) is an attractive option.

  3. Why must it be a train on tracks? Why not a dedicated freight/pax service provided by rolling stock which can use normal roads at the beginning and end?

    Admission: I don’t like trains. I find most arguments in favour of trains to be stretched to the limit of credibility by people who DO like trains on an emotional level. And, of course, they should not be a political football nor a resource for troughers.

    • There’s no practical solution to transport that can run on both road and rail. The nearest is dedicated guided bus lanes (as a sort of roaming tram), and they have been a failure where they’ve been tried in the UK (Luton).

      Rails offer far less friction than roads (which is why they can’t tackle much more than a 3% gradient), so they’re useful for bulk transport of freight and passengers. Their drawback is that they take you “from where you aren’t to where you don’t want to be”, which means they’re at their best over a medium range of distances – too short and the car wins, too far and a plane is better.

      • I know nothing about Luton, but commercial failure, under government ownership, in one city, is not a disproof.

        Aye to the unsuitability of station-to-station travel; but again, the drawback is not just that the rail stations are “where you don’t want to be” (perhaps where people no longer want to be) but that the entire route is inherently inflexible.

  4. We are violently in agreement! Tho’ I liked English trains. A bit less so when I closed out a London pub and had to watch people vomit on the hourly back to Reading. But I have never ridden Amtrak; there’s service into Boston from 6 miles away from home, but they don’t take cash.

  5. @Rhoda:
    Major’s plan was to *prevent* railways competing against railways by creating a series of local monopolies; rail freight — where there is direct competition — receives no [1] subsidy.
    You’ll find that trucks and buses have a much larger dynamic envelope than trains (they wobble more), so the width of a 2-track railway would often struggle to be a two-lane (one each way) road, and certainly not one which allowed the same speeds. Whatever the DfT was called back in the ’80s looked at converting the railway out of Marylebone into a high speed bus route only to work out that the buses wouldn’t fit.

    Agree entirely on not being a resource for troughers, and it’s the combination of unions, overweening elf-n-safety and disability regulations that mean that railways are so slow and expensive to build and costly to operate. If trucks, buses and their operators had to comply with the same ridiculous regulations that the railways do, there wouldn’t be any.

    @Spike
    Vertical integration (operation of trains and track by the same organisation) is banned by the EU with derogations for metros and heritage/preserved railways.

    [1] Track access is provided to all rail services below cost, but road haulage is similarly subsidised. Combined road and fuel taxes from HGVs do not come close to covering the cost or repairing the damage HGVs do to roads: most 38t trucks are liable for less road tax than my 1.5t car is.

    • Conceding your physics, the resource here is not the railway but the easement; implementing Rhoda’s plan would mean not just removing the tracks and ties but laying down a proper roadway. Or retaining the tracks and doing something like America’s multi-modal thing where a rail car can be lifted onto a semi-trailer (or a container ship, though I would prefer not to cross the Channel in the hold).

      The EU bans vertical integration? (With an exception, of course, for government.) Who believes anyone in Athens knows best how British railways should be structured or who should own each piece? If such are the immutable assumptions, how will people ever stumble onto correct solutions?

      • I once had an interesting discussion with the President of my (then) company – a Fortune 500 based in NJ. He wondered why intermodal didn’t seem to work in the UK (idle speculation, it was a financial sector business). The answer is distance – in the US it can make perfect sense to haul a container 100 miles to a railhead, load it onto a train for the next 1,000 miles and reverse the operation at the other end. In the UK, very few journeys are more than 200 miles, so there’s no benefit in this type of operation.

        UK (and most European) container trains move shiploads from seaports to inland ‘ports’, where they can be switched to trucks. There is bulk freight loads between two points that can justify the cost of direct rail links, but they’re largely historic and diminishing.

      • Spike, my plan does indeed envisage a full-width roadway but it falls down on bridges and tunnels, the so-called gauge, in which the UK has a first-mover disadvantage which limits the size of wagons. That’s one reason our tanks were so crap in WW2.

  6. One of my best ever rail journeys was on Amtrak, Poughkeepsie to NYC, which runs down the east bank of the Hudson with fine views of West Point and the remarkably secure Ossining station.

    The first much-vaunted Japanese train was an hour late due to wind.

    I commuted into London for a few years, that made me hate trains and the sheer helplessness of the rail traveller when things go wrong.

    • United Airlines once put me on the bullet train when it was unable to fly me from Tokyo to Osaka after getting me into the country. And last year, my baseball club chartered a fan bus for the playoffs: an unprecedented chance to gaze out the windows at the Berkshire Mountains as the driver endured the excruciating drive to Pittsfield, Massachusetts. But the enjoyment of travel when you don’t have to look straight ahead is not specific to rail; and when government runs it, the rulebook and not the customer comes first.