The Rail Debate: Railways begin journey into unknown: Christian Wolmar, Transport Correspondent, explains how the network might operate after privatisation

THE 132 CLAUSES of the Railways Bill provide only a framework for how the railways will look if it becomes law in October. Its publication, as Sir Bob Reid, British Rail's chairman, said yesterday, is only the start of the debate and there are still many unanswered questions.

Government reports on the future of freight, the private financing of rolling stock and track charges are due in the next couple of months.

However, a number of recent speeches by John MacGregor, the Secretary of State for Transport, mean that the terms of the debate are, at last, becoming clear. The Bill's Second Reading in the Commons is expected on 1 February.

While the Bill's contents were largely as expected, its inclusion of all railways in Britain including metro and tram systems was unexpected. The Bill will also allow some private operators to take over the running of the track as well as the trains.

Mr MacGregor has emphasised that the proposals are relatively fluid because they depend on the interest expressed by the private sector. So far, there have been very few firm expressions of interest and most of these have come from relatively small bus companies rather than the major conglomerates with sufficient cash to make long-term investments.


The core idea of the proposals is to attract private operators to take out franchises, either with subsidy on unprofitable lines or by paying a fee on profitable ones. The infrastructure, such as track and signalling, would be handed over to what the Bill calls a 'network operator'. In most cases, this would be Railtrack, which initially at least would be in the hands of BR. But there is provision to allow operators to take on a 'vertical franchise', letting them have control of both the track and the train operations.

While some potential private operators, like Sea Containers, have said that they would only consider a vertical franchise, the Government has been reluctant to allow them control of the track because this would make long cross- country journeys complicated to organise.

The franchises would be allocated by a Franchise Director who would package lines or groups of lines and offer them for tender, specifying the type and level of service expected. Virtually all BR lines are loss making and therefore the winner would receive an annual subsidy. The length of franchise has been left open, but there are likely to be long-term 'thick' franchises - say 15 years - which would be granted on the basis that the winners would invest heavily in new rolling stock, and shorter, 'thinner' franchises where the winner would be expected to do little more than lease the rolling stock and run the trains.

BR would not be allowed to bid for franchises but if no suitable offer is received it would continue to run the services. The first groups of lines to be franchised are expected to be announced in the next few weeks.


The government has always stressed that it wants to allow free access to the lines for competing operators. However, there appeared to be a contradiction between that and letting out franchises, since the franchisees would not be able to work out the viability of their business if rivals were allowed to 'cherry pick' the most popular lines.

While the Bill still creates a Regulator, one of whose roles will be to ensure that competitors are able to obtain access to the tracks, Mr MacGregor conceded last week that many franchises would be let on an 'exclusive' basis because of these concerns expressed by many potential passenger franchisees. Such exclusivity is almost certain to be granted to operators of busy commuter lines which tend already to be run at full capacity in peak hours anyway.

This is likely to be a disappointment to potential operators like Richard Branson who have expressed an interest in running a few trains, rather than entire franchises. Freight operators, however, will be guaranteed access but the key questions of how much they would be charged has not yet been resolved.


Ministers recently accepted all 38 recommendations of a report by the Health and Safety Commission which would place stringent pre-entry requirements on new operators and ensure that they have worked out detailed safety plans before they can start running the trains. After privatisation, the Health and Safety Executive would take a more active role on safety, for which at the moment it shares responsibility with the BR board.

Operators would be forced to co-operate in accident investigations, irrespective of liability. The commission was concerned that an increase in the number of organisations providing services would lead to problems of co-ordination and have the potential of making them less safe.

It said: 'Unless considerable care is taken to set up systems to ensure that new operators are properly equipped and organised, there can be no confidence that risk will be effectively controlled right from the start.'


The regulator would have the power to issue information about the running of trains. But whether there would still be a national timetable, incorporating all trains, remains open to question. Currently it is published twice a year but if franchisees are allowed to make changes to their services frequently, it would quickly become out of date. Operators are also unlikely to issue information about their rivals running trains on the same lines.


Private operators would not be forced by the Regulator to provide joint network benefits such as saver tickets and railcards. Instead, as Mr MacGregor reiterated yesterday, they would be encouraged to come to agreements, motivated, he hopes, by joint commercial concerns. However, there is no guarantee that rival companies would honour each other's tickets or even be able to sell each other's tickets for onward journeys which go into another company's area. Tickets issued by Stagecoach, which last year began a service between London and Aberdeen using a couple of coaches attached to a BR train, are not accepted on BR trains. One suggestion is that operators may issue cheaper tickets which are valid on their trains only.

Mr MacGregor said yesterday that fares would not be driven up faster than BR would have put them up anyway. In its introduction, the Bill says: 'Private-sector operation should, over time, allow railway services to be provided at a lower cost to the Exchequer than would otherwise would have been the case'.

This implies that there would be less government grant and private-sector operators would expect to make a profit. While Mr MacGregor says there is overmanning which needs to be reduced, there are also bound to be extra costs in creating the new bureaucracy to regulate the railways. Fare reductions would, in effect, be ruled out and fare rises would be likely to follow the recent pattern of being higher than the rate of inflation. Fares in areas where the franchisee has a monopoly would be controlled by the Regulator.


Freight is the only part of the network that can be privatised in the conventional way by sale to the private sector. However, coal is virtually the only profitable sector and this is under threat from the pits closure programme. Therefore, most of BR's freight operations are unlikely to find ready buyers, though the Bill allows BR to break up its existing freight sector into smaller companies. The open access would also guarantee the right of freight operators to run their own trains and earlier this week two companies said they intended to take advantage of this provision. The Bill extends previous provisions for grants to private freight hauliers, allowing them to invest in new facilities to relieve road congestion.


The bill includes all railways and tramways including the London Underground and the metro systems in Newcastle and Glasgow in its provisions, but Mr MacGregor said yesterday that this was a parliamentary 'technicality'. However, an expert on railway legislation, William James, of the solicitors Theodore Goddard, said yesterday: 'It would only take a simple enabling Bill, rather than fully fledged primary legislation, to allow a future government to privatise these other railways.'

There are also complications for London Underground because some BR services run over its tracks and under the new regime it would have to come to an agreement with any private operator taking over the services.


Closure procedures similar to those in existing legislation have been retained in the Bill. The Government has consistently said it will continue paying subsidies to socially necessary lines but it also thinks money will be saved by the privatisation process. BR is under constant financial pressure and is likely to lose more than double last year's total of pounds 145m.

The Bill proposes to make BR's finances much more transparent. Losses on individual lines would be much easier to identify, creating pressure on marginal lines where losses are particularly high. Private operators would not be allowed to close lines without going through the procedures and if they went bankrupt, the services could be taken on by alternative operators.


There is nothing in the Bill's provisions to encourage investment in railways. The Government has promised BR that it will be able to continue investing at the rate of pounds 1bn per year over the next three years, but with revenue falling it is hard to see how BR will be able to meet that target as most of its investment is dependent on its income. The Bill does not clarify the length or breadth of franchises, although some are likely to be allocated for long enough to encourage franchisees to invest. New operators are very unlikely to place orders for new trains until they are well established and confident that they can make a profit out of the business.


The new framework for BR would probably have to be introduced at the beginning of a financial year and it will be a race against time to meet the deadline of 1 April 1994. Previously, the Government had said that this would also be the starting date for the first franchises but this is now impossible as the Bill will not become law until October this year at the earliest. The first franchises are therefore expected 'some time in 1994' and Mr MacGregor has said that the whole privatisation, which will eventually include the track and infrastructure, could take 12 years.

(Photograph omitted)

Leading article, page 14

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