Memorandum by TSSA (PRF 04)
PASSENGER RAIL FRANCHISING
The present quality of train services is difficult
to defend, particularly as punctuality is currently inferior in
comparison to British Rail
and we agree with Sir Alistair Morton that it will require a decade
of significant investment to raise performance to continental
standards. Nonetheless this does not mean that real improvements
in service quality can not be delivered sooner, but we are sceptical
that the Governments proposed "directions and guidance"
to the SRA will result in outcomes that will satisfy the expectations
of passenger, railway employees and the needs of the country.
We passionately believe that unless there is
radical reform of the industry's structure, the SRA's actions,
however sincere and professional, will only have a cosmetic and
not the dramatic effect that is necessary to positively change
industry performance and public perception.
Therefore we agree with the conclusion of the
independent report "A New Deal for the Railways? "
that the re-franchising programme should be postponed until robust
conclusions following a full debate on the appropriate structure
for the industry in the light of the causes of the Hatfield crash
and the recommendations of the Cullen Inquiry Part 1 and subsequent
publication of Part 2. This structural debate must deal with issues
Horizontal or vertical integration.
Fragmentation / no. of companies.
Before advocating a solution it is necessary
to describe the problems generated by the current system.
"The explanation of the present mess [is]
the particular scheme adopted by John Major in the mid-1990s.
It is impossible to cope with a crisis when management, ownership
and operation are divided between numerous uncooperative institutions
with drifting lines of authorityRailtrack, the operating
companies, the strategic rail authority, the Transport Department,
the franchising director, the Railways Inspectorate and so on.
The scheme was chosen because of a fleeting intellectual
fashion of the early 1990s which favoured the invention of artificial
pseudo-markets, even in situations where market competition had
never worked in the past. "
These "serious flaws" have manifested
themselves in the following fashion:
fragmented structures and responsibilities
with inconsistent messages about safety priorities, and divergence
in the interpretation and application of working practices and
companies with conflicting commercial
and operational interests and fewer incentives to co-operate together
voluntarily, particularly in the training and development of skilled
an exponential increase in interfaces
and duplication of roles resulting in stifling bureaucracy and
"privatisation inflation" increased costs and
increasing reliance on sub-contractors,
particularly for maintenance, the rigidity, bureaucracy and lack
of clear lines of accountability;
lack of safety in contractual relationships,
compared with the accountability of a unified command structure,
leading to a blame and claim culture; and
short term maintenance contracts
that do not encourage long term safety investment.
These developments are a direct consequence
of the erroneous assumption that the rail industry would benefit
from market disciplines, when in practice, these disciplines often
have pernicious effects. Privatisation has created a paradoxa
government perceived as responsible for a privatised industry
that receives significant public subsidy but remains unaccountable.
The rationale for privatisation was threefold:
1. Divest government of liability (financial
2. Manage decline of demand/usage.
3. Introduce market disciplines to generate
the benefits of competition and the dynamism of private management
Government cannot divest itselfie
continued subsidy, public perception of responsibility and control,
city perception that government will not allow this core public
utility to fail and the government realise that rail is intrinsic
to their transport plans.
Rail demand at a post-war peakpatronage
closely correlated with GDP (the Conservative privatisation was
premised on stagnation not expansion, the structure was not intended
or designed to cope with growth).
Market disciplines irreconcilable with the
exigencies of the rail industry:
Industry needs cooperation and collaboration
and not competition and fragmentation is inferior to vertical
Market forces are not applicable
to the rail industry (passengers cannot exert market pressuresthey
can only use a particular line or an alternative mode, and they
cannot select another TOC. TOCs must co-operate because of the
national/inter-regional demands of the industry such as effective
Private managers are not inherently
superior (Railtrack have 60 per cent of staff employed post-1995).
Paradox: rail vital for public policy
but privately owned and operated it cannot be directed by government
[despite massive public subsidy] therefore subject to micro-management
by the ORR and SRA (Government) but this negates the rationale
for privatisation and created an inferior industry structure,
ie market disciplines, private finance and divestment of government
Fragmentation & "privatisation inflation"
There is considerable evidence that post-privatisation
expenditure will not result in the quantity of work that a BR
(vertically integrated) structure facilitated.
"Every time you sub-contract work, there
are mark ups on overheads. There are other costs the private signalling
companies have to find which were previously lost in the vertically
integrated railway. It costs money to manage processes, such as
possessions, to hire works trains and plant. A prudent contractor
adds in provisions against possession overruns and vagueness in
the specification. Bidding itself has become more expensiveespecially
given Railtrack's tendency to ask if you have added in the phone
number and please come up with a cheaper offer. Even prequalification
includes a mass of documentation which all costs money to prepare
. . . one of my signalling chums of long experience reckons that
a scheme like the recently completed Woking costs twice as much
as it would have done in the 1960s and takes twice as long.
We consider the best structure for the industry
is an appropriate form of public ownershipnot for ideological
reasons but because we passionately believe it is in the best
interests of passengers, the railways and the country. The TSSA
is not intrinsically hostile to the private sector and believes
private enterprise has an important role to play but public ownership
is a vital reform that is pre-requisite for reversing the malign
affects of privatisation. Effects that the Government and the
majority of commentators do not dispute:
"In many respects privatisation was seriously
flawed [and] has been compounded by the fragmentation of the industry
into a large number of separate businesses (including train operators
and rolling stock companies, Railtrack and its contractors) which
have distinct commercial interests to protect. "
Returning Railtrack to the public sector and
then ensuring that it possesses a directly employed renewal and
maintenance workforce will begin to rectify the deleterious effects
of fragmentation and will presage further necessary industry reintegration.
The longer-term objective must be to reconnect the vital relationship
between rail and wheel and end the damaging estrangement between
infrastructure controller and train operator.
The TSSA fears that the expansion of the rail
network and the introduction of sophisticated signalling and train
control technologies will be impaired unless the skill shortage
in qualified engineering staff is properly addressed.
We believe that contracting out maintenance
and renewal work leads to a reduction in the overall skills of
the workforce as companies decline to invest sufficiently in the
training and development of staff because of the uncertainty about
long term involvement created by the existing short term contracts.
We propose that only a publicly owned Railtrack
will possess the leadership, vision and strategic direction to
enable it to provide an effective training and development programme
for skilled railway engineers.
The post-privatised structure does not always
facilitate good industrial relations. Within the industry there
are some good examples of employment practices but there are also
situations that need urgent improvement.
Railtrack's resistance to recognising the TSSA
for management grades is another example of the malign effects
of fragmentation. Individual contracts are divisive and inimical
to staff morale and the effective team working that a modern company
requires to be successful. Collective representation fosters the
spirit of collaboration and co-operation that is a pre-requisite
for business success for the knowledge-based companies that comprise
the railway industry. As a modern and progressive trade union,
the TSSA's agenda is to help the industry invest in, train and
develop their most important assettheir people and our
The prevalence of short-term contracts both
at the individual level and between companies within the industry
is not conducive to training and investment. Such an environment
does not encourage employees to identify with a company or industry
and is the antithesis of the public service ethos nurtured by
BR. The maintenance, renewal and other engineering sectors personify
these detrimental trends. The "directors and guidance"
emphasis of short-term franchises and its silence on other crucial
intra-industry relationships will do nothing to address these
problems. Indeed, the Government's support for further fragmentation
via SPV's and other third party financing and project management
vehicles will only exacerbate this problem.
Given the configuration of the industry and
what Lord Bradshaw has described as an "adversarial structure"
which is the "root cause of the problem" because it
prevents the "close teamwork" that is an imperative
for the railways we doubt that "dialogue and persuasion"
from the SRA will prove effective. The SRA's statutory powers
over the privatised industry also do not provide the necessary
powers to successfully direct the disparate companies whose commercial
incentives often preclude the collaboration and co-ordination
that is vital for the industry to function efficaciously. This
tension illustrates the fundamental dichotomy of the privatised
railwayit is well recognised that fragmentation, particularly
separating the wheel from the rail, is inimical to efficiency
and that the privatised railway required strategic co-ordinationhence
the creation of the SRA. However, the necessity of government
direction is a tacit admission that the market disciplines introduced
by privatisation are inappropriate for the rail industry but without
radical restructuring the SRA's ability to direct the privatised
industry is inherently compromised. The result is a failing privatised
industry receiving substantial public subsidy because it is a
vital public utility but resistant to public control though correctly
perceived by passengers and the City as ultimately the responsibility
of Government. Ironically, a micro-managed privatised industry
has produced an environment where the advantages of the public
and private enterprise become counter-productive.
The TSSA welcomes the duty on the SRA to produce
a "first overall strategy in November 2001" but believes
that the SRA's inability to publish one earlier demonstrates the
analysis made previously. We also believe for a strategy to be
robust and credible it must include plans for re-integrating the
system as proposed above.
We consider that the objectives of the Government's
transport policy should dictate the resources needed to achieve
them. The original wording in the SRA's "directions and guidance"
(Paragraph 7.3.) will mean that the SRA's strategy will remain
a wish-list rather than an action list.
We note that since the 10-year Plan was published
last July the financial situation the plans were based on have
seriously deteriorated with Railtrack's share price collapse and
the dramatic escalation in costs for the WCML and ECML upgrades.
It does not seem credible to oblige the SRA with delivering a
plan that financially now appears to be overtaken by events.
Paragraphs 9.6 and 10.1 raise the important
question whether current EU regulations will limit the SRA's ability
to award longer-term contracts and it is imperative to establish
what derogations are available to permit the letting of longer-term
The instructions in paragraph 10.3 further highlight
the inherent problems of franchising and privatisation. The SRA
is naturally struggling with the problem that the rationale for
privatisation is that commercial initiative and market disciplines
require minimal regulatory touch. But reality that the SRA (and
ironically the industry itself) desires a more prescriptive approach
to ensure co-ordination, consistency and the maintenance of minimum
standards. However, this then negates the alleged benefits of
commercial freedom. The long running controversy of the ECML franchise
vividly demonstrates this contradiction.
The TSSA welcomes the recognition (Annex A,
objective No. 6) that a fares policy must be used to stimulate
patronage and that "commercial judgement" is not only
factor in setting fare levels. Therefore we are opposed to using
fare increases as a mechanism for inhibiting demand (Annex B,
No. 6.2). This we believe contradicts the Government's objective
to increase rail patronage. Increasing capacity is the only justifiable
We strongly suggest the thrust of paragraph
No. 8 in Annex A and believe that increasing capacity is vital
for the future prosperity of the industry and the acknowledgement
that the private sector is unsuitable for realising certain vital
The TSSA is concerned that capacity allocation
is not merely confined to TOC usage (Annex A, No. 9). With the
infrastructure/operator split there is a danger that the interests
of both will be poorly accommodated. The challenge is to maintain
and enhance the network whilst delivering adequate services.
The objective described in Annex A, No. 12 whilst
laudable appears unrealistic in light of the present structure.
We do not believe it is feasible for the SRA to provide "leadership
and ensure that different parts of the industry work co-operatively
towards common goals" when:
The privatised industry has conflicting
The SRA is expected both to exercise
its powers lightly as well as "actively manage" franchises.
The SRA must rely on convoluted and
protracted contract enforcement rather than managerial control.
The TSSA supports the objective of increased
personal security (Annex B, No. 6) but would rather see it as
a "Directive" rather than "Guidance" to reflect
the importance of this issue.
The TSSA totally agrees that competition policy
(No. 7.2) must not compromise the industry's ability to maintain
and promote integrated services and that this tacitly recognises
that collaboration and co-ordination are intrinsic to successful
railway operation and that competition impedes efficiency.
We propose that the SRA should conduct a property
audit (Annex B, No. 9.1) and publish the results and invite consultation
and feedback from relevant parties prior to producing a strategy
for rail land usage.
2 Independent, "Punctuality is worse than under
British Rail" (28 July 2001) Back
A "new deal for the railways?-The SRA's Refranchising programme:
Dr Jon Shaw (March 2001) Back
30 November 2000, The Times-"Why Blair is making Major railway
errors" (A. Kaletsky) Back
Rail Business Intelligence-"Historic cost shows `privatisation
inflation'" (28 June, 2001) & Modern Railways, July 2001. Back
Modern Railways, July 1999. Back
DLTR-Directions & Guidance to the SRA (R73/131) 29 June 2001. Back
Financial Times, 15 August 2001, Lord Bradshaw letter. Back