What to do with Britain’s railways in the post-Covid era?

Troubles for governments rarely come alone. Another is hurtling along the track towards us like a high-speed train – what to do with Britain’s railways in the post-Covid era.

Recently I’ve been travelling by train quite a lot again. You generally have plenty of room. Passenger journeys are running at only about 55-60% of pre-Covid levels. Transport Secretary Grant Shapps has tried to talk up a return to the rails, but industry people think that even on an optimistic scenario, we can only expect 80% or so of the journey numbers we were used to before the pandemic.

Back in 2019, 47% of all passenger journeys were by commuters. While talk of a permanent across-the board switch to remote working is exaggerated, it seems likely that many office workers will permanently be working at home for a couple of days at least, using trains into London in particular far less frequently.

10% of all pre-Covid journeys were for business travel, including a large proportion of those people using expensive first-class facilities on long-distance trains. It seems unlikely that this part of the market will recover. Lockdown has shown that there is no need to travel from London up to Manchester or Edinburgh for an hour’s meeting when the same result can be achieved by a Zoom call.

5% of all journeys were for shopping trips, again probably much less frequent as online shopping becomes further established and our great shopping centres become shadows of their former shelves, with destination retailers folding and increasing numbers of boarded-up shops.

A big chunk of rail travel, then, will not return. So what now are the prospects for railways in Britain?

In May we saw publication of the long-awaited report by businessman Keith Williams. The government had been sitting on this since well before the pandemic. It was published with some extra, but pretty thin, narrative about the effects of Covid (the government has pumped in over £10 billion – in addition to the normal operating subsidies – to keep the trains running, and has scrapped the franchise system) and with Shapps’s name added to that of Williams.

The background to this? The considerable success of privatisation in boosting rail travel to unprecedented levels was overshadowed by franchise failures, delays and cost overruns in infrastructure projects, uncoordinated timetables, overcrowded and uncomfortable trains, poor timekeeping, high fares and a complicated fare structure, and rising subsidies.

Opinion polls suggested that an increasing proportion of the public was disillusioned and – with younger people having no memory of the problems of pre-privatisation British Rail – wanted the railways renationalised. The Labour Party went into the 2019 election proposing precisely this.

What these critics failed to note was that many of the problems of the passenger railways were largely the fault of the Department for Transport – with its absurd over-specifications of contracts, its acceptance of unrealistic franchise bids, and its flawed price controls on fares – and the state-owned Network Rail, the failings of which were responsible for most major delays and ultimately led to the failure of Virgin’s East Coast franchise.

But something clearly needed to be done. Those who wanted to see train operators remaining in the private sector split into two camps.

One view was that the divorce between ownership of the track and stations (which belonged to Network Rail) and the passenger services of the private Train Operating Companies (TOCs) created unnecessary complications, made responsibilities unclear to the general public, and increased costs. It was pointed out that no railway system, least of all that in Britain, had naturally evolved in this way. What was needed was a privatisation of the infrastructure such that the TOCs had responsibility for tracks as well as trains. Some tentative steps towards this were proposed on the revived Oxford-Cambridge line which is currently under construction.

The other approach, though, was radically different. Pointing to the success of ‘open access’ train companies such as Grand Central – which were outside the franchise system – it was argued that we ought to move to completely independent companies which would bid for journey slots (or ‘diagrams’) in the same way as independent airlines compete for landing slots at our airports. The infrastructure might remain in government hands, but private companies would compete to offer passengers a choice of routes, journey times and prices.

But what the Williams-Shapps report came out with was unlike either of these models. The report argued that we need a unified network, under full central government control (‘one guiding mind’ is the phrase Shapps used), with the hubristic title of ‘Great British Railways’ (GBR). Private sector involvement will continue, but in a strictly limited role. Instead of franchises, where TOCs took revenue and cost risks, GBR will allocate Passenger Service Contracts. These will specify timetables, prices and service levels. The model is the existing Transport for London and Merseyrail arrangements. The TOCs will be paid a fixed management fee and run no revenue risk. Most of them will therefore have little incentive to grow the market, although some longer-distance contracts may allow for a sharing arrangement for faster revenue growth.

Keith Williams’s thinking was formed before the pandemic, and Grant Shapps’s update is already outdated. It’s now clear that HS2 is an even bigger white elephant than was feared: people are just not going to be clamouring to travel to and from Birmingham in great numbers. It is likely to be a continual drain on government resources. The likely revenue from the existing network cannot support the current level of passenger services. Putting up prices significantly is going to be politically difficult, and in revenue terms possibly counterproductive. The government cannot afford to keep on subsidising trains at the level it has been doing.

The Williams-Shapps report was optimistically talking of opening new lines or reopening old ones; it’s far more likely that we will be trying to save money – the report was already calling for reducing costs by £1.5 billion – by reducing services and closing some routes down. If the government wants to save some elements of its politically important Northern Powerhouse Rail scheme, bigger cuts will have to be made elsewhere. This will be resisted by rail unions, which are powerful and militant, and will be considerably strengthened by coming together under the GBR umbrella.

The plan for rail decarbonisation by 2040, which depends partly on expensive electrification for many routes, and elsewhere reliance on battery technology (which increases the weight of trains and reduces their carrying capacity) or untested hydrogen trains, will require huge amounts of investment from the government. It is unlikely that the private sector will fund such investment, which will not lead to significant new revenue flows to service loans.

We may also need to reprioritise some infrastructure to support freight, which doesn’t feature much in the Williams-Shapps report, despite some encouraging noises. Private freight companies, which are not supported by government funds and simply buy diagrams from Network Rail, have done well during the pandemic and are back to 2019 levels of business. There are considerable opportunities, highlighted by the current lorry drivers shortage, for more long-distance haulage to switch to rail. But many crucial links between ports and main lines are poor, with trains trundling along single tracks under speed restrictions and facing lengthy diversions.

These problems are going to have to be faced. Looking forward, it seems we are on track to have a rather smaller passenger railway than many had hoped, and a smaller freight sector than we could have. The prospects for the railways would be greatly enhanced if the role of the private sector was enhanced, rather than diminished.

Passenger service contracts resemble local authority contracts to empty bins. The incentive is simply to cut costs. What is needed is arrangements which incentivise TOCs to expand markets, particularly in the growing areas of leisure travel and hybrid passenger/parcel services, taking advantage of the speed, comfort and low-carbon credentials of the railways. They should not simply be paid flat fees to conform to bureaucratically-determined timetables and collect government-determined fares.


Editorial and Research Fellow

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.

4 thoughts on “What to do with Britain’s railways in the post-Covid era?”

  1. Posted 18/10/2021 at 10:53 | Permalink

    HS2 will not just serve Birmingham but Manchester,Liverpool,Preston Carlisle Galasgow and Edinburgh.
    I have been to the North West from London three times in the last month and found them busy ,punctual and a very pleasant travel experience. I am told from a very reliable source that First Group sold more tickets August and September than in the same 2 months of 2019,before the pandemic.

  2. Posted 19/10/2021 at 10:31 | Permalink

    In response to the comment above, the DoT figures say that on the last date shown (11 October), rail travel was 60% of the equivalent day in 2019. In the previous week, daily usage had fluctuated between the upper 50s and lower 60s.

  3. Posted 19/10/2021 at 10:33 | Permalink

    On 11 October, rail usage was 60% of the equivalent day in 2019. For the previous week, daily usage fluctuated between the upper 50s and lower 60s. Obviously some parts of the network will have done better than others, but the comment above seems overly optimistic.

  4. Posted 24/10/2021 at 15:17 | Permalink

    It is to be noted that after a very rapid growth in rail travel for many years after (the quasi-) privatisation of rail, on the basis of ORR figures the market seemed to flat-line in the years prior to COVID. It is a feature that appears to have escaped much comment.

    Re the comment concerning high fares, is this looking through the wrong end of the telescope?
    Despite “high” fare levels, railways make huge losses. (Incidentally, the net debt of Network Rail, the infrastructure provider, is well in excess of £50bn.). Fundamentally, rail is a very expensive form of transport to provide (partly for reasons that are not entirely apparent). Arguably fares are not high enough. (Excuse another incidentally; train fares are zero rated for VAT, unlike some Continental railways).

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