The privatisation of the railways was a commitment in the 1992 manifesto and fleshed out in a White Paper published that summer.The plan implemented by the Railways Act 1993 is so complicated that ministers often make mistakes when trying to explain it to the public.
The railway has been broken up into a series of businesses. The train services are now being run by 25 broadly regional companies, called train operating companies which are to be franchised to the private sector. They have been split from the track and signalling, run by Railtrack, which is scheduled for flotation on the Stock Exchange.
Five freight companies are due to be sold as well as three rolling stock companies and 13 track renewal and maintenance companies.
Why is the Government doing this despite the unpopularity of the plans?
The Government says it wants to improve services and choice. But ministers realised it was very difficult to have two or more companies running competing services on the same track. Most services lose money and competition would only spread the loss, while in profitable areas it is difficult to find space on the tracks for extra trains. The rail regulator announced just before Christmas that he did not envisage such new competitors being allowed on to the rails before 1999.
Ministers now emphasise the advantage of having private-sector disciplines in the industry. The focus seems to have turned towards selling parts of the railway which will bring in money to the Treasury coffers.
When will this happen and how much are these companies worth?
First, none of this may happen. There have already been delays over the sale of franchises which were supposed to start being sold last Easter. Other parts of BR which were supposed to have gone to the private sector, such as Red Star and Freightliner, are still publicly owned because it has proved hard to find suitable buyers. Labour's opposition has helped to create a difficult climate for privatisation.
However, the Government wants Railtrack, which the City analysts Kleinwort Benson calculate could fetch as much as £4bn, to be sold by March 1996 to help it fund tax cuts. The rolling stock companies, with assets of around £1bn each, are also candidates for an early sale, possibly this autumn. So are the 13 track maintenance and renewal companies which have a turnover of over £1bn.
The Government is also committed to having half of the railway network in private hands by 1 April 1996, a target few in the industry feel is achievable. The franchises alone are worthless. If the current financial structure of the railway remains, all of them will need subsidy so it is a question of giving them away with the least possible subsidy
Is rail different from other privatisations?
Yes. The key point is that the railways need about £1bn subsidy per year. Therefore, profits distributed to the shareholders will be dependent on Treasury generosity. So most of the sell-off will be in the form of trade sales to institutions which will be looking carefully at what guarantees the Treasury is providing.
It is also the most complicated privatisation. It is being overseen by two regulators, the franchising director, who determines the level of services and allocates the subsidy, and the rail regulator who ensures there is fair competition and that passengers are not unfairly treated.
So what is likely to be the position at the next general election?
The main problem is that the precise form of the various privatisations is not yet known.Taking an educated guess, the rolling stock companies will probably be in private hands and so will many of the infrastructure companies.
Railtrack's privatisation is the most controversial aspect of the process and is being challenged in the courts by the main rail workers' union. The shares will only be attractive if Railtrack is able to earn a high rate of return, which means it will have to be allowed to charge a high price to the train operator. The rail regulator is about to pronounce on this issue after the Government initially set the charges very high. If he agrees to high charges, then prospects for Railtrack privatisation will be boosted. If he sets them low, the franchises may be easier to let out.
Assuming Railtrack, the rolling stock companies and some of the franchises have been sold, what could an incoming Labour government do?
The consensus among City and transport analysts is that a Labour government would not attempt to buy back the rolling stock or the infrastructure companies. The rolling stock would be on long-term leases of four or eight years and to try to break these contracts would cause a furore.
The privatisation of the infrastructure companies is also unlikely to be reversed because there is little reason why services such as catering or car parking should not be provided by the private sector.
That leaves Railtrack. Labour feels that public control and ownership of Railtrack is essential. How it achieves this depends on how, and how much of, Railtrack is privatised. If only 51 per cent is sold, buying a few shares on the Stock Exchange will return control to the government. If all of it is sold, Labour would be reluctant to spend £4bn on purchasing it even though there will be the advantage of being able to reduce the future level of subsidy.
Instead, Labour might try to play clever by reducing the track access charges being paid to Railtrack, making it less profitable and therefore making it cheaper to buy back. And by announcing such a policy before the privatisation, the whole sale may collapse.
What about services, fares and passengers?
Under the new structure of the railways, the franchising director will determine the level and frequency of services and will allocate the subsidy between lines. If the level of subsidy is cut, services are bound to suffer. However, the Government has said that, initially, services will be based on the existing timetable. A few services such as sleeper trains, Motorail and some Great Eastern trains are being cut but Dr Mawhinney has told British Rail he does not want to see any more cuts in this May's new timetable. The Government will also ensure that, at least in the short term, fares do not rise too sharply.
Passengers will notice little change at first except that the train operating companies are already tending not to advertise their rivals' services, even when they operate between the same two stations.Reuse content