Amazing but true: private rail is on track

Hated, ridiculed and very late, almost nothing can now stop the privatisation of Britain's railways, says Christian Wolmar
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If the newly privatised trains run to the same schedule as the privatisation process, there are going to be a lot of angry passengers. It took more than three years between the launch of the policy in a White Paper in July 1992 to yesterday's announcement of the first private operators. Yet, when the White Paper was published, John MacGregor, then transport secretary, said the first privatised trains would be running in April 1994.

In fact it will be exactly two years later, in April 1996, when Stagecoach starts running South West Trains which, presumably, will soon be kitted out in its livery of white with an orange, blue and red stripe. At around the same time, the management buyout teams which successfully bid for Great Western trains and London, Tilbury and Southend will also be proudly painting their new logos to obliterate any mention of British Rail.

To say it has been a bumpy journey would be like saying a roller-coaster gives you a smooth and comfortable ride. The delays, legal setbacks and chaos, not to say panic, behind the scenes are testimony not only to the project's unpopularity but to its shaky basis. Rail privatisation has been driven through much like the poll tax, to which it has often been compared, with virtually no supporters outside the Government and many well-informed objectors.

The successful challenge last week by the campaigners turned out to be a Pyrrhic victory. Although the Appeal Court judges largely ruled in their favour, arguing that the minimum service levels - Passenger Service Requirements as Mr Salmon, the franchising director, has chosen to call them - had been set too low in contravention of Government guidelines, the judgment did nothing to stop the process. Hence on Monday Sir George Young simply issued new guidelines which, he argues, allow Mr Salmon more leeway. There may well be further legal challenges but the judiciary is reluctant to stop a process they see as having legitimately gone through Parliament, so privatisation is being bulldozed through.

Media coverage of the privatisation process has been so uniformly negative that the general public may have been confused into thinking it was not going ahead. In fact, despite the delays and the legal battles, which have seen campaigners successfully challenge the very basis of the franchise process by questioning the minimum standards set out in the agreements, the railways will have been largely privatised by the time of the next general election.

The franchise process is the key part of rail privatisation because it involves passenger trains and the public. It is a unique form of privatisation dreamt up by a Government that was keen to see competition between different train operators. BR was divided into 25 groups of lines, ranging from small self-contained railways such as Chiltern and London, Tilbury and Southend, to large groupings of commuter services such as South West trains, the rural and regional lines of Regional Railways and InterCity services such as East Coast and Great Western Railway.

Because of the extra money that operators now have to pay Railtrack and the train leasing companies, all of them will be loss making, even on InterCity which used to be profitable, and will therefore need subsidy. Mr Salmon has been putting these services out to tender with the winning bidder expected to be the one that requests least subsidy. So far seven have been put in the market, with three winners being announced this week and four expected in the spring.

Even supporters of privatisation have argued it should have been done a different way. There was a plethora of simpler models, but the Government chose this one for two reasons. First, it was obsessed with on-rail competition. It wanted competing train companies outbidding each other to provide quicker or cheaper services. In fact, with the odd exception like the shuttle service to Gatwick, there will be no such thing. Franchisees are being guaranteed by the rail regulator that new operators will not be allowed to come on to their patch to cherry-pick the best and most profitable services.

Second, the Government wanted to maximise revenue from the sale of the profitable bits of the network, the rolling stock companies and Railtrack. By channelling extra subsidy through the train operators, who then pay the rolling stock companies for leasing the trains and Railtrack for use of the track and stations, the latter become highly profitable companies, backed by guaranteed levels of subsidy and therefore eminently saleable.

Paradoxically, while the rail-travelling public is most interested in the franchising and what benefits or problems it will cause them, the Government - and the Chancellor in particular - has been most interested in the lucrative parts of the railway. Fattened up, via the franchising companies, with some pounds 500m extra subsidy for each of the next two years, the rolling stock companies and Railtrack will bring in a total of pounds 3bn. The rolling stock companies were sold last month for pounds 1.8bn and Railtrack is expected to attract at least pounds 1.5bn in late spring.

One source of concern to rail users is that, as the Independent reported on Monday, the pounds 500m extra subsidy runs out in 1997/98 when support to the railways returns to pre-privatisation levels. Rail experts such as Richard Hope, an adviser to the Transport Select Committee, argue that such a steep cut in subsidy will either lead to reduced services or severe financial difficulties for the operators. However, yesterday Mr Salmon pointed to the fact that Stagecoach will receive an average of pounds 49m per year over the seven-year life of the franchises, compared with the pounds 63.5m currently budgeted for BR. If all 25 franchises bring in savings like this, the Government will get away with the subsidy cut. This will be the key battleground. Stagecoach's only way of making that level of saving will be by taking on the unions and reducing staffing levels which it sees as far too high. Industrial strife appears inevitable unless the unions cave in quickly. The drivers will be the key since they are irreplaceable, requiring nearly a year's training and specialised route knowledge before being allowed on the tracks.

Whatever the outcome, rail privatisation is becoming a reality. However, the campaigners against it can console themselves that the delay is a big setback for the Government. To prove itself, privatisation needed a couple of years of operation before a general election to show a sceptical public that private operators would bring improvements and, above all, investment. Indeed, this was the point made by a few troubled Tory MPs who met Sir George Young, the Transport Secretary, yesterday to express fears about reduced services.

The Government has no chance of meeting its latest target of privatising 51 per cent of the railway by April 1996 but it will draw some comfort from the fact that a large section of railway services will be in private hands by the election, unless the Grim Reaper hacks away the Tory majority before then.