The collapse in demand for rail transport heightens the need for sector-wide reform
12 January 2022
SUGGESTED
Markets and Morality
4 January 2022
Markets and Morality
Tax and Fiscal Policy
19 November 2024
Omicron, or the Government’s reaction to it, has damaged the economy in many ways. One which hasn’t been much discussed is its effect on the railways.
As with many businesses, self-isolation has produced staffing shortages – leading in this case to significant numbers of cancelled trains. But the more important effect has been to reverse the already very slow recovery in passenger numbers. After the ending of restrictions in July, daily rail journeys had snail-paced back up to 63% of pre-pandemic levels by the beginning of December. However, the Plan B advice to work at home again led within a week to a fall back to just 55% of the corresponding period in 2019.
The biggest fall was in commuting and business travel, historically the most lucrative categories of passenger journey. This was hardly surprising, given that Nikki Kanani from NHS England had helpfully said that ‘we need the trains as empty as possible’. The effect on revenue was dramatic: fare income was 43% of pre-Covid levels by December 13, down from 55% the previous week.
The railways are costing us a hair-raising amount of public money. In the admittedly difficult circumstances of the financial year 2020-21, the Department for Transport spent £26.4 billion on rail, a 46% increase on the previous year. With a long-term shift towards working from home, commuters are no longer a captive market, so little of this can be recouped from higher fares. And in any case, consumer resistance to paying a larger share of the cost of their travel was one of the factors leading Grant Shapps to effectively renationalise the railways. Regulated fares are going to rise by only 3.1% in March (incidentally, two months later than their normal hike in January), a figure which is likely to be well below inflation.
Last May saw the publication of the Shapps-Williams review, which announced the creation of Great British Railways (a moniker surely a hostage to fortune). Essentially this was a much-leaked report by businessman Keith Williams which the DfT had been sitting on for eighteen months or so. It was superficially updated by Shapps to take into account some aspects of the impact of the pandemic.
The report was commissioned because the considerable success of privatisation in boosting rail travel was overshadowed by franchise failures, rising subsidies, infrastructure delays and cost overruns, uncoordinated timetables, overcrowded and uncomfortable trains, poor timekeeping, high fares and a complicated fare structure. Opinion polls consistently showed a desire to renationalise the railways, a proposal which Jeremy Corbyn pushed at the last general election.
What critics failed to flag, however, was that many of the problems of the passenger railways were largely the fault of the DfT, which over-specified contracts, accepted unrealistic franchise bids, restricted competition and laid down an unimaginative pricing structure. And it was the state-owned Network Rail, rather than the private Train Operating Companies, which was responsible for most major delays (which, by the way, was a contributing factor to the collapse of Virgin’s East Coast franchise).
Those who wanted to see a continued role for the private sector split into two camps. One wanted to see an end to the divorce between train operation and ownership of the track and stations – a historical oddity – and a reversion to the older model which would obviate the need for complicated contractual arrangements, cut costs and make responsibilities clearer. The other, more radical, approach, was to develop the ‘open access’ principle which had produced successful passenger services operating outside the franchise system, such as Grand Central and Hull trains, and rail freight – which operated profitably without subsidies.
The idea here is that private companies would compete for timetable slots (railway folk call them ‘diagrams’) in the same way as airlines compete for landing slots. The Government would have only a residual role in buying a limited number of passenger services on unprofitable routes where there were plausible social reasons for such provision.
We got neither of these. Instead Shapps-Williams argued for ‘one guiding mind’ to centrally plan services across a unified network. Private sector involvement would continue, but only in a strictly limited role. Instead of franchises, where private companies took revenue and cost risks and had a keen financial interest in growing the market, Great British Railways will allocate Passenger Service Contracts. These will specify timetables, prices and service levels on the lines of services provided by Transport for London and Merseyrail. The Train Operating Companies will simply run trains and collect fares, for which they will receive a smallish management fee. They will have no direct incentive to increase passenger numbers or build new markets.
The Shapps-Williams report also had little to say about the future of open access passenger services or freight, where the growing problems of road haulage offer considerable opportunities for moving goods by rail. Yet freight infrastructure has been neglected, with some freight lines having very limited capacity and access to main lines limited to inconvenient diagrams.
The report was full of optimism about the future, with plans for building new routes and reopening many older ones. It also envisaged a massive move towards electrification plus new battery or untested hydrogen technology on routes where electric traction is too expensive or impractical. The costs of reaching Net Zero (the target is 2040) on the railways was unspecified, but would likely be enormous.
Since the report was published, little of substance has been done. In November we had an ‘Integrated Rail Plan’ which was largely an exercise in covering the government’s backside as it retreated from the eastern section of HS2. The centrepiece was a renewed emphasis on ‘Northern Powerhouse Rail’, which rebadges certain already planned schemes as part of the ‘Levelling Up’ agenda. The programme, however, lacks specificity in terms of dates and scale of changes. We have also seen an appeal for input into a consultation, closing next month, on a ‘Whole Industry Strategic Plan’.
It appears the Government has little clear idea of its own about how to take things forward. No legislation to create Great British Railways has yet emerged, and meanwhile the DfT and Network Rail are running the show, with Train Operating Companies on temporary contracts and unable to develop their own strategies for future involvement.
The scale of the problems the railways face is growing by the week. Even if Covid has, as we must hope, been tamed, it is clear that rail travel will not recover its pre-pandemic levels. At best, perhaps, we might get back up to perhaps 80% of journeys and 60-70% of revenues over the next two or three years.
The change in working patterns means greatly reduced commuter demand. This has implications for the timetable. There needs to be a much greater emphasis on attracting non-commuter passengers in the ‘leisure travel’ market, which means redesigning routes, offering better on-train services, altering carriage layouts (with comfort a greater priority) and marketing special deals – things which a centralised bureaucracy is unlikely to be adept at. It means thinking much more seriously about how far we can go towards full rail decarbonisation by an arbitrary date.
Most obviously, the scale of financial support currently provided will have to be cut back – which will mean hard decisions about closures, service cuts, the abandonment of planned investments and fanciful schemes for reopening lines. Without significant private sector involvement to reimagine the future of the railway post-Covid, it’s an unhappy prospect.
This article was first published on CapX.
As with many businesses, self-isolation has produced staffing shortages – leading in this case to significant numbers of cancelled trains. But the more important effect has been to reverse the already very slow recovery in passenger numbers. After the ending of restrictions in July, daily rail journeys had snail-paced back up to 63% of pre-pandemic levels by the beginning of December. However, the Plan B advice to work at home again led within a week to a fall back to just 55% of the corresponding period in 2019.
The biggest fall was in commuting and business travel, historically the most lucrative categories of passenger journey. This was hardly surprising, given that Nikki Kanani from NHS England had helpfully said that ‘we need the trains as empty as possible’. The effect on revenue was dramatic: fare income was 43% of pre-Covid levels by December 13, down from 55% the previous week.
The railways are costing us a hair-raising amount of public money. In the admittedly difficult circumstances of the financial year 2020-21, the Department for Transport spent £26.4 billion on rail, a 46% increase on the previous year. With a long-term shift towards working from home, commuters are no longer a captive market, so little of this can be recouped from higher fares. And in any case, consumer resistance to paying a larger share of the cost of their travel was one of the factors leading Grant Shapps to effectively renationalise the railways. Regulated fares are going to rise by only 3.1% in March (incidentally, two months later than their normal hike in January), a figure which is likely to be well below inflation.
Last May saw the publication of the Shapps-Williams review, which announced the creation of Great British Railways (a moniker surely a hostage to fortune). Essentially this was a much-leaked report by businessman Keith Williams which the DfT had been sitting on for eighteen months or so. It was superficially updated by Shapps to take into account some aspects of the impact of the pandemic.
The report was commissioned because the considerable success of privatisation in boosting rail travel was overshadowed by franchise failures, rising subsidies, infrastructure delays and cost overruns, uncoordinated timetables, overcrowded and uncomfortable trains, poor timekeeping, high fares and a complicated fare structure. Opinion polls consistently showed a desire to renationalise the railways, a proposal which Jeremy Corbyn pushed at the last general election.
What critics failed to flag, however, was that many of the problems of the passenger railways were largely the fault of the DfT, which over-specified contracts, accepted unrealistic franchise bids, restricted competition and laid down an unimaginative pricing structure. And it was the state-owned Network Rail, rather than the private Train Operating Companies, which was responsible for most major delays (which, by the way, was a contributing factor to the collapse of Virgin’s East Coast franchise).
Those who wanted to see a continued role for the private sector split into two camps. One wanted to see an end to the divorce between train operation and ownership of the track and stations – a historical oddity – and a reversion to the older model which would obviate the need for complicated contractual arrangements, cut costs and make responsibilities clearer. The other, more radical, approach, was to develop the ‘open access’ principle which had produced successful passenger services operating outside the franchise system, such as Grand Central and Hull trains, and rail freight – which operated profitably without subsidies.
The idea here is that private companies would compete for timetable slots (railway folk call them ‘diagrams’) in the same way as airlines compete for landing slots. The Government would have only a residual role in buying a limited number of passenger services on unprofitable routes where there were plausible social reasons for such provision.
We got neither of these. Instead Shapps-Williams argued for ‘one guiding mind’ to centrally plan services across a unified network. Private sector involvement would continue, but only in a strictly limited role. Instead of franchises, where private companies took revenue and cost risks and had a keen financial interest in growing the market, Great British Railways will allocate Passenger Service Contracts. These will specify timetables, prices and service levels on the lines of services provided by Transport for London and Merseyrail. The Train Operating Companies will simply run trains and collect fares, for which they will receive a smallish management fee. They will have no direct incentive to increase passenger numbers or build new markets.
The Shapps-Williams report also had little to say about the future of open access passenger services or freight, where the growing problems of road haulage offer considerable opportunities for moving goods by rail. Yet freight infrastructure has been neglected, with some freight lines having very limited capacity and access to main lines limited to inconvenient diagrams.
The report was full of optimism about the future, with plans for building new routes and reopening many older ones. It also envisaged a massive move towards electrification plus new battery or untested hydrogen technology on routes where electric traction is too expensive or impractical. The costs of reaching Net Zero (the target is 2040) on the railways was unspecified, but would likely be enormous.
Since the report was published, little of substance has been done. In November we had an ‘Integrated Rail Plan’ which was largely an exercise in covering the government’s backside as it retreated from the eastern section of HS2. The centrepiece was a renewed emphasis on ‘Northern Powerhouse Rail’, which rebadges certain already planned schemes as part of the ‘Levelling Up’ agenda. The programme, however, lacks specificity in terms of dates and scale of changes. We have also seen an appeal for input into a consultation, closing next month, on a ‘Whole Industry Strategic Plan’.
It appears the Government has little clear idea of its own about how to take things forward. No legislation to create Great British Railways has yet emerged, and meanwhile the DfT and Network Rail are running the show, with Train Operating Companies on temporary contracts and unable to develop their own strategies for future involvement.
The scale of the problems the railways face is growing by the week. Even if Covid has, as we must hope, been tamed, it is clear that rail travel will not recover its pre-pandemic levels. At best, perhaps, we might get back up to perhaps 80% of journeys and 60-70% of revenues over the next two or three years.
The change in working patterns means greatly reduced commuter demand. This has implications for the timetable. There needs to be a much greater emphasis on attracting non-commuter passengers in the ‘leisure travel’ market, which means redesigning routes, offering better on-train services, altering carriage layouts (with comfort a greater priority) and marketing special deals – things which a centralised bureaucracy is unlikely to be adept at. It means thinking much more seriously about how far we can go towards full rail decarbonisation by an arbitrary date.
Most obviously, the scale of financial support currently provided will have to be cut back – which will mean hard decisions about closures, service cuts, the abandonment of planned investments and fanciful schemes for reopening lines. Without significant private sector involvement to reimagine the future of the railway post-Covid, it’s an unhappy prospect.
This article was first published on CapX.
SHARE
