Scottish Affairs CommitteeWritten evidence submitted by The National Union of Rail, Maritime and Transport Workers
1.1 The National Union of Rail, Maritime and Transport Workers represent 80,000 members in the Transport Sector and is the UK’s largest rail union.
1.2 We would ask the Committee to note that we will only be able to respond to the following aspect of this inquiry.
Public-sector comparators for the West Coast Main Line.
The East Coast Mainline which is currently operated in the public sector has record levels of satisfaction and is providing a better value for money than the privately operated West Coast mainline.
There is a wealth of evidence to show that the perceived benefits of rail privatisation are a myth.
Instead of retendering the West Coast Mainline to the private sector at the end of the current two year interim contract with Virgin, the West Coast should be returned to the public sector.
3. East Coast/West Coast Comparison
3.1 It clearly cannot be in the public interest that Government policy currently precludes any alternative to franchising when the recent debacle surrounding the West Coast Mainline means that the entire rail franchising process has been significantly. It is now the case that sixteen of the UK’s seventeen rail franchises will all now expire within three years of the 2015 General Election.
3.2 The East Coast Main Line, which is currently in the public sector has, according to its most recent annual report performed particularly well. Turnover amounted to £665.8 million, an increase of £20 million, leaving a profit before tax and service payments to the Department for Transport of £195.7 million, an increase of £13 million.
3.3 Passenger journeys at East Coast, which runs trains from London to Yorkshire, the North East and Scotland, increased by 2.1%. In addition customer satisfaction at East Coast rose by 2%, and the latest punctuality figures were its best since records began in 1999.
3.4 In addition according to research by the TUC/Joint Rail Union Action for Rail Campaign net subsidy per passenger mile for East Coast, when funding to Network Rail is taken into account, is substantially less than that provided to the West Coast Main Line. The research showed that the taxpayer subsidy given to Virgin is seven times higher than that awarded to state-run East Coast Mainline.1
3.5 So although Virgin Trains were right to say they paid a hefty premium payment as part of their franchise, around 5.7p per passenger mile, they got back not only 1.2p in “revenue support” but another 8.8p per passenger mile in Network Grant. This gives them a net subsidy of 3.6p per passenger mile, a net gain over the year of around £133m.
“Four of five years ago they changed the centre of government grants, so instead of many subsidies going to the TOCs they gave a massive great slice to Network Rail. In return NR cut the track access charges. So now Virgin is paying far less in track access charges for West Coast Main Line. Hence, it is now paying a premium. And it’s all because of the allocation of where government funds go.
If you’re trying to show that the private sector TOCs are viable entities then you don’t want them receiving subsidies—it’s much better if they are paying premiums. So rather than give them government funds, give the funds to Network Rail. That is what is happening. As a result TOCS such as Virgin can more easily extract considerable funds from the rail industry in the form of dividends—which otherwise could have been reinvested in the industry”
3.7 According to the Action for Rail Research this massive subsidy means Virgin last year made a £133m net gain from taxpayers’ subsidies which helped the company achieve pre-tax profits of nearly £40m, of which £29m went to shareholders. In contrast East Coasts profits will be reinvested in the railway.
3.8 The case for public ownership is not just supported by looking at the comparison between East Coast and West Coast. There is a substantial body of evidence that have exposed the myths of the benefits of rail privatisation.
4. Myths of Rail Privatisation
Myth: Privatisation has resulted in passenger growth
4.1 Proponents of privatisation claim privatisation has increased passenger numbers by 59% since 1994. Yet there is no evidence that privatisation has created growth in passenger numbers.
4.2 An RMT analyst of the publicly owned London Underground report and accounts (which carries as many passengers as the entire national railway) show that passenger numbers on the London Underground increased by 60% in the same period. Moreover most of passenger growth on the railways in this period took place in London and the South East. 3
4.3 These facts indicate that increased passenger numbers are in fact related to sustained GDP growth rather than the benefits of privatisation. A fact acknowledged by the Government in the Department for Transport Response to Reforming Rail Franchising consultation, (19.01.11), which found:
“A significant part of revenue growth that has occurred on past franchises has been due to macroeconomic growth rather than solely a result of good management on the part of the operator.”
4.4 The 59% increase in passenger growth on the UK railways has also obviously been stimulated by the 300% increase in public subsidy since privatisation. It is also the case that while there has been passenger growth there has been no corresponding increase in rail’s modal share compared to other forms of transport. That is to say the proportion of people using trains has not changed.
Myth: Privatisation has resulted in new investment and innovation
4.5 The Rebuilding Rail report also highlights the myth of private investment by arguing genuine at-risk private investment in the railway in 2010–11 lay somewhere in the range £100 million—£380 million, with the figure most probably lying at the lower end of this range, that is, around £100 million. In the same year, other sources of income for the railway, public money and the fare box, contributed £10.6 billion.
4.6 Rebuilding Rail concludes private investment represents just 1% of all the the money that is going into the railway and quote the former Secretary of State for Transport Andrew Adonis to make the point:
“In so far as there has been private sector investment by TOCs, that investment has been funded, let’s be clear, by the state and by passengers, either through revenue support or through fares.”
4.7 Virgin is again a case in point. Virgin claimed to have invested significant sums in the railway. For example in 2011 the Virgin media office issued a “fact” sheet saying: “Investment in trains by Virgin Trains was £1.2bn for Pendolinos and £1.06bn for Voyagers” ’60. But none of these trains were purchased with money invested by Virgin and none of them are owned by Virgin (indeed the Voyager trains are now operated by Arriva). The Pendolino trains used by Virgin on West Coast Main Line are owned by the ROSCO Angel Trains and their purchase was underwritten by the tax payer.
4.8 It is also hard to find one example of private sector innovation that could not have been carried out by the public sector. Indeed the Governments own 2011 McNulty report into the cost of UK railways and Rebuilding Rail agreed that fragmentation of the railway mitigates against industry innovation as companies seek to operate in their own short term interests.4
4.9 A good example of this short termism and self interest has been the privately owned Train Operating Companies opposing for some time the publicly owned Transport for London’s proposals to extend the oyster card (a card that allows through ticketing on rail, tube and bus journeys) from London Underground services to mainline rail services. 5
Myth: Privatisation has resulted in cheaper better services
4.10 Privatisation has also created a less reliable, more expensive service. Comparing the last 20 years of publicly owned British Rail with the last 19 years of private train operating companies, British Rail services were nearly 3% more punctual than privately run passenger rail services.i
4.11 Since rail privatisation in 1995 the average ticket price has increased by 22% in real terms according to the A Fare Return report by the Just Economics think tank6, resulting in Britain having Europe’s highest commuter fares for both day returns and season tickets.
4.12 Privatisation has made the railway more difficult to use. 35% of train users and 64% of non-users don’t understand the rail ticketing system.7
4.13 Yet the most expensive fares in Europe have not translated into better services. According to the 2011 report by the Just Economics Report think tank A fare return, GB railways are slower and more overcrowded than publicly owned rail services in Germany, France, Italy and Spain. This is borne out by the fact that according to Eurostat these countries have eight times more coverage of high speed rail and GB rail is also bottom of the European league for electrification coverage.
4.14 It is perhaps no surprise that in February 2013 the Consumer group Which found that more than half of train companies have a customer satisfaction score of 50% or lower in the UK.
Myth: Privatisation is a better deal for the taxpayer
4.15 Privatisation has cost the tax payer more. According to the Rebuilding rail Report the cost of running the railway has more than doubled in real terms since privatisation from £2.4bn during the five year period 1990/91 to 1994/95 to around 5.4bn per year during 2005–10.iii It is estimated that privatization costs the equivalent of £1.2bn a year compared to public ownership.
Even the UK Governments own McNulty report into the UK railways which supported privatisation admitted that UK railways are 30% less efficient than publicly owned railways in Europe.
5.1 The evidence in respect of the performance of the East Coast mainline compared to the West Coast mainline and the wealth of evidence with regards to the failures of privatisation demonstrate that the West Coast mainline should be returned to the public sector as a first step towards public ownership of our railways.
i GB Transport statistics 1974-1987 and 1992-1998; British Rail Board annual report 1988-89; Booz Allan Hamilton: Report for the Rail Regulator, Railtrack’s Performance in Control Period 1995-2001; National Year Trends 2001-02 to 2011-12. Calculating the punctuality figures quoted in these sources gave the following averages: between 1974 and 1992, 89.7% of British Rail services were recorded as punctual, compared to 87% for privatised TOCs from 1993 to 2012.
3 See London Underground report and accounts 19942011.
7 DFT statistics 2012.