One-track mind

12 Jun 09
Even before this week’s snowstorms, Britain’s railways were heading into heavy financial weather.
By Christian Wolmar

6 February 2009

Even before this week’s snowstorms, Britain’s railways were heading into heavy financial weather. But, as transport minister Lord Adonis tells Christian Wolmar, this should not derail plans for a high-speed system

A crisis is creeping up the tracks – and we’re not talking about the severe weather event that brought much of the rail network grinding to a halt. The railways are facing their most difficult year since privatisation in the mid-1990s because passenger numbers are set to fall in the face of the recession. The first company to get into trouble seems certain to be National Express. It was reported by the Financial Times this week as needing to renegotiate its East Coast franchise because its original bid, which involves paying £1.4bn in premium payments over seven years, was too aggressive, having been won at the height of the economic boom.

Rail minister Lord Adonis will be facing a grilling from MPs over the growing rail problems. The Commons transport select committee will want to know whether the government would bail out the industry if several train operators suddenly plunged into the red.

Yet, paradoxically, the short-term problems of the railways are mounting just as the government is showing more interest in major investment schemes than at any time since Labour was elected.

The railways are going to feature prominently in the news this year. There has already been the customary New Year fuss about the high fares increases. This year the howls of outrage were particularly loud because fares were raised by well above the current inflation rate amid threats from several operators to close ticket offices, pare down services and cut train sizes. The rises have been prompted by the government’s desire to transfer the burden of the railways from the taxpayer to the passenger as much as possible. Ministers decided in 2007 to try to make passengers pay at least two-thirds of the cost of the railways rather than the 50% they contribute at present.

But now this process is set to be derailed by the economic downturn. Railways do badly in recessions because they have high fixed costs and they are subject to losing quite significant levels of patronage once a downturn gathers momentum. Given that the rail companies are tied into long-term franchises based on continuing growth, it is only a matter of time before they come unstuck.

But there are other reasons why the railways are set to attract more media attention than usual this year. On the positive side, there is talk of greater investment, a modernisation programme that could include both electrification and plans for a high-speed line between London and the North. This represents a sharp U-turn in Labour policy. Only 18 months ago, a white paper that was supposed to set out a 30-year strategy knocked the idea of electrification on the head and said that a high-speed line should not even be considered. So what has changed? It is not, surprisingly, to do with the new Keynesian vision espoused by ministers, since railway investment would take a long time to gear up and most of the transport part of the package announced by Prime Minister Gordon Brown will be spent on roads.

It is, rather, that Labour has a new set of ministers at transport, headed by Geoff Hoon and featuring Lord Adonis as rail minister. Adonis is a one-time member of a local railway lobbying group, the Cotswold Line Promotion Group and he has a lifelong interest in trains. He has already travelled around Europe and Asia to look at rail systems and was deeply impressed by Japan’s high-speed Shinkansen services and the efficiency of the Tokyo metro system.

Adonis is a big hitter. An ex-journalist, he was head of Tony Blair’s policy unit at Number 10 for a couple of years but then was made a peer in 2005 so that he could take up a ministerial role in education. After three years pushing through educational reforms, he actually asked to be transferred to transport, a rare request among politicians, who normally try to keep as far away as possible from Marsham Street.

It is Adonis’s passion for rail that led him there and he is clearly a man with a mission. ‘The railways have improved over the past ten years but I am not satisfied with the level of service. I am not satisfied with 90% punctuality, stations that are regarded as inadequate, insufficient cycle parking and the like. We want to see constant improvements, which is perfectly realistic, and if that means making myself somewhat unpopular with the train operators, I don’t mind that,’ he tells Public Finance.

Indeed, the quiet-speaking Adonis has already bared his teeth, preventing South West Trains from closing several ticket offices because it would cause too much inconvenience to the public, a decision that the company, owned by Stagecoach, described as ‘disappointing’. First Capital Connect has made similar plans to cut back on ticket office opening hours and a passenger protest managed to force the current management of Southeastern to reinstate longer trains after carriages were removed from several peak hour services.

The railway minister recognises that one of the enduring complaints about the government’s involvement in the railways, from both the rail companies and political commentators, is it attempts to ‘micromanage’ the industry. Adonis is unapologetic: ‘In my first week in this job, I was told the worst thing I could do was to micro manage. It was only in week two that I realised that micromanagement was in the eyes of the beholder.’

Therefore, he is happy to pressure the train operators into meeting their obligations to the public: ‘Is it bad that we should be specifying that stations should be staffed to a later hour in commuterland, therefore improving public safety? My answer is that it is a good thing’. Both current train operators and franchise bidders can therefore expect a tougher time than hitherto.

Indeed, there is an implicit criticism by Adonis that past franchise agreements did not specify precisely what was required of the private companies. He intends to ensure the same mistake is not repeated. The only major franchise currently up for renewal, SouthCentral, is subject to much more detailed specifications for ticket office opening times, station staffing, cycle parking and the like. ‘I do not regard that as micromanagement but rather as protecting the public interest’, says Adonis, although on the other hand he has promised to relieve franchisees of much bureaucracy he regards as ‘a waste of time’.

But what of the coming crisis? Adonis says: ‘According to reports we have had so far, the downturn has constrained growth but not reduced passenger numbers. That being the case, it is too soon to talk about an impact on franchises.’

However, Mike Mitchell, the civil servant responsible for the railways, told a Commons committee on January 21 that several operators were causing concern. Indeed, just before Christmas, Keith Ludeman, the boss of one of the largest operators, Go-Ahead, revealed his concerns when he told the Guardian that: ‘People have this view that there is an absolutely fixed contract. That is not the case. We have the ability to negotiate with the department in the event that there is a downturn.’

In response, Adonis reiterates the government’s long established position of refusing to negotiate: ‘My working assumption is that contracts should be honoured.’ However, he does leave the door ever so slightly ajar: ‘If it did come to a situation where a train operator could not meet its obligations, there is no question of services not running. We would step in as we have done it in the past, and it is important that the public understands that we would do it again.’

In the past, ministers have stressed that if one of the large groups with several franchises – such as Arriva, National Express, FirstGroup, Go-Ahead or Stagecoach – threw the towel in on one loss-making franchise, they would forfeit all their contracts. Adonis falls slightly short of reiterating this point, but suggests that the penalty for any defaulter, in terms of lost reputation, would be severe: ‘I don’t want to look at it that way. This is a business that they want to be in and they want to be in for the long term. I accept they manifestly don’t take on all the risk, as there is an alternative, but there is a massive incentive to meet their obligations as not to do so would put their credibility into question.’

Nor, however, does he rule out a change in structure if franchises do start to go down like ninepins: ‘The whole purpose of having private companies contracted to run services is that they deliver them and deliver them better than if we had a nationalised outfit in their place. If that ceases to be the case, then the rationale for this arrangement would disappear. A lot would have to happen before the intervention power was used; it would only happen if there were a failure to deliver.’ There is an implied threat that Adonis would take a far more proactive line on any failings of the franchisees than his predecessors.

These short-term difficulties have, however, failed to dent the minister’s enthusiasm for the railways. Almost single-handedly, he has put both electrification and a high-speed line back on the agenda. Electrification is particularly interesting as Britain lags behind other European countries in the proportion of the network that is electrified, and it yields diverse benefits, ranging from lower operating costs to far better reliability. ‘I think we have to accept that if we are out of sync with every other Western European country, which have all electrified virtually their whole intercity network, it cannot mean they are all wrong.’ Adonis has identified the Midland Main Line between London and Sheffield, and the Great Western line between London and Bristol, and possibly right through to Swansea, as obvious candidates for electrification.

There is, though, the question of money. Government spending for the railways is fixed well in advance to fit in with Network Rail’s five-year control periods. Funding for the next one, which starts in April, has already been determined, with no money allocated for electrification. So extra cash would have to be found.

Adonis says: ‘Of course, you then have to find resources to carry out the work and I am in no position to commit any additional money. So I can’t be specific, about when the work should be carried out but as a statement of philosophy, it is quite clear.’ In fact, ideally Adonis would like to see a rolling programme of electrification involving both those lines – which would also include Glasgow to Edinburgh and various infills south of the border. This would lead to a drastic reduction in costs, echoing the kind of programme carried out by the Southern Railway between the wars.

There is no funding set aside for a high-speed line, either. Here it is apparent that Labour, which has until now ignored its manifesto commitment to study the idea, is playing catch-up with the Conservatives, who, in the autumn, gave a commitment – though unfunded – to build a line instead of a third runway at Heathrow.

Although Hoon announced a study into the potential of a line to be run by a new publicly owned company, High Speed 2, in the Heathrow announcement on the third runway, Adonis is clear that the two measures are largely separate. He says: ‘The argument about a high-speed line is not about Heathrow, but about the need to relieve congestion on the worst parts of the West Coast main line, which will reach saturation point by 2026. The issue of providing a relief line for the southern part of the West Coast main line is a pressing one and, as it takes a long time to build a rail line, it is worth looking at that now.’ It would go near Heathrow but its precise route will be considered by HS2, which is due to report by the end of the year. Indeed, the scale of Adonis’s ambitions is such that he has asked for the company names HS3–6 to be registered, too.

One project that he is confident will go ahead is London’s planned Crossrail scheme. Adonis says: ‘Our funding [of £5bn towards the £15.9bn cost] is firmly committed, Transport for London has promised its part. So has business. Canary Wharf, BAA and the City Corporation have agreed their commitment, with the exception of £100m which the corporation has promised will be raised by business, but that amounts to only £100m out of the private sector’s £750m contribution.

‘The big outstanding issue is the money raised from the supplementary business rate. The legislation is currently in Parliament and the mayor, Boris Johnson, has told me he is committed to raising this money and that he does understand that Crossrail will collapse otherwise.’ The supplementary business rate would allow the Greater London Authority to levy business for Crossrail.

Adonis is clear that it is up to the mayor and he must meet his commitment: ‘We are giving him access to taxation and the choice he has to make is about levying that tax. It is not an adequate excuse for him to come to us and say because it is politically difficult to raise that tax, he is not going to do it. If we cannot deliver Crossrail, how will we be credible in delivering any other major scheme through joint financing on an agreed basis?’

The hyperactive Adonis has 18 months at most to set in motion these schemes before the election that is likely to clear Labour out of office. He is clear that, unlike many of his predecessors, he wants to leave a legacy. He is so keen to ensure that the major investment schemes on the railways are realised that there has even been negotiations behind the scenes to get cross-party agreement so that they would not be derailed by a change in government.

Now that is a grand ambition, which would break the British mould of political infighting that has so often prevented the type of grand projet that our Continental neighbours embrace easily. But it might also founder, along with many of the schemes Adonis favours.

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