City AM: Full privatisation

[yorksrob]

The question is whether BR would have got it's hands on the money; there's no evidence to suggest that it would. The BR managers were stifled by BR; the private companies gave them more freedom to develop.

Stifled by BR or stifled by the Government ?

In many ways BR was pretty good at laying out to Government what investment needed to go where, particularly during the later part of the 1980's, making the case for investment in infrastructure renewals and new trains.

If Government chose not to make an appropriate level of investment, shouldn't we lay the blame squarely where it belongs i.e. on the Governments of the day ?

 

[anme]

It's not true that rail use has not grown in the rest of Europe.

Personally I think the role of privatisation in the growth of the UK rail industry is complex. I would agree it has had some positive impact, although I doubt for the reasons usually stated. But I still didn't see any explanation for the apparent success of central planning by Whitehall, or the fact that many franchises are run by public sector companies (although not British public sector companies). Or even what it is that the privatised parts of the railway do differently now compared to British Rail that has led to this growth.

 

[al.currie93]

LOL. It's being run by managers who've been trained by privatised TOCs pretty much on the same lines. A few years of being run 'not for profit' doesn't tell us much.

Fuel prices & population growth. France has both, but yet no similar increase in rail. Explain. If congestion in the SE is a major factor, then why has rail increased not only everywhere in the UK, but not in the rest of Europe?

The first point: it is nationalised and has it experienced growth since, so growth is due to things other than privatisation. Besides, claiming that all East Coast's growth is down to the mangerial influence from the former private TOCs is a bit tall given what happened to NXEC.

The latter point: firstly I said "especially" in the south east, I never implied that this hasn't been experienced everywhere. Also, as I said, many people say they choose the train becaudr it's cheaper than the road and has less congestion, which is nothing to do with privatisation. Secondly, as anme said:

It's not true that rail use has not grown in the rest of Europe.

It should be quite obvious that much growth is due to this.

I am not claiming that privatisation has had no effect on growth, I actually approve of things like open access operators and multiple private FTOCs, amd I definitely don't advocate banishing private companies from the railways. I'm just claiming that most of the growth is down to other factors as my evidence suggests. So what evidence is there that all this growth is down to privatisation?

 

[Greenback]

I think privatisation ha shad some benefits, but it has also had some negatives too. I think it was more the way that it was carried through franchising and the separation of wheel and rail rather than privatisation itself that has caused most of the problems.

I am against full privatisation as proposed in the original article, for the very good reasons that have been eloquently expressed earlier in this thread.

 

[Olaf]

Essay time :P

I'll start with the evidence:

If you want some clear evidence that growth in the railway is down to things other than privatisation, then look at East Coast... a train operating company that has experienced a passenger growth exactly the same as any other TOC (one such source http://www.mediacentre.eastcoast.co.uk/imagelibrary/downloadmedia.ashx?MediaDetailsID=571&SizeId=-1 and an older one http://www.rail-reg.gov.uk/upload/pd...ok-2010-11.pdf) and is nationalised. If, as you are suggesting, this growth is down to privatisation, then East Coast would not have achieved this.

The growth IS down to the company having been run as a private enterprise, with the current operator benefiting from the previous hard work done in the private sector to reduce costs; the same way that Labour in 1997 benefited from the hard work done by the previous administration.

 

[Railsigns]

The growth IS down to the company having been run as a private enterprise, with the current operator benefiting from the previous hard work done in the private sector to reduce costs; the same way that Labour in 1997 benefited from the hard work done by the previous administration.

Proof by assertion.

Yes it IS. It really IS!!

 

[Olaf]

If you want more, let's look at the external (as in, not railway related) factors that may have also affected passenger growth. Since 1997, fuel prices have risen far more drastically than ever before (in fact, almost doubled; source http://www.petrolprices.com/the-price-of-fuel.html) and road congestion has also risen, especially around London and South East England. Many people have publicly said that, since then, they choose to use the train because of these reasons; driving is too expensive, congested or takes too long (something which was heard far less often before the turn of the millennium). In addition, and the fact that there has been a big population increase will obviously lead to more rail usage, which should be unquestionable and need no proof. This is passenger growth that is not down to privatisation, but due to rising fuel prices, congestion and population increase.

That is correct so far as costs for road travel have increased across the board, and as far as road congestion has increased, however without the work to reduce costs and add new services to reflect market demand by the private companies, the increase in rail costs under public sector bodies would have increased in-line with road costs. The congestion on rail has increased even more than on the road, but it is only the better customer service offered by private companies compared to BR that has enabled rail to attract and retain those additional PAX.

 

[yorksrob]

The growth IS down to the company having been run as a private enterprise, with the current operator benefiting from the previous hard work done in the private sector to reduce costs; the same way that Labour in 1997 benefited from the hard work done by the previous administration.

Just as GNER benefited from investment in new rolling stock, infrastructure upgrades and speed improvements undertaken by InterCity.

 

[Railsigns]

The growth IS down to the company having been run as a private enterprise, with the current operator benefiting from the previous hard work done in the private sector to reduce costs; the same way that Labour in 1997 benefited from the hard work done by the previous administration.

Do you think the present government is doing a fine job or is it just benefitting from the hard work done by the previous Labour administration?

 

[Olaf]

Furthermore, we have seen a change of attitude leading to more investment in the railways. This actually coincided with with the first increase in passenger numbers, suggesting that the increase in passenger numbers was the cause of this attitude change. It should be fairly obvious to see that this increased investment brought about a further increase in passenger numbers (the ORR even stated this in a report this year found at http://orr.gov.uk/__data/assets/pdf...r-rail-usage-quality-report-2013-02-20-q4.pdf at the bottom of page 5). This shows that further passenger growth is due to investment. The VAST majority of this has been carried out by Network Rail, so we can therefore conclude that a lot of the passenger growth from investment is down to this. Whatever way people look at it, they have effectively been nationalised since Railtrack went (and will be officially from Monday). Therefore the vast majority of passenger growth due to investment is not down to privatisation, but a government spending and subsidies... privatisation actually had the opposite effect on passenger growth due to investment, as Railtrack proved (shoddy maintenance leading to crashes which drove passenger away?)...

Again, partially correct: Investment has provided the capability to handle demand.

The change was brought about in the late 80s and early 90s as evidence accumulated, in part arising from the M25 project, that it would be too expensive to provide transport capacity through new build/enhancements to the road infrastructure, so government policy shifted to emphasis on rail, especially for the large urban areas. This change of policy for example lead to the cancellation of all but two or three of the planned road capacity projects in south London.

In order to facilitate investment over the long time-scales and to the magnitude required it was recognised that this could only be achieved through asset-backed involvement in the financial markets so that is why the private company entities where set-up. Government funding for capital works is not reliable and ongoing funding for rail investment could not be guaranteed, and this position has not changed. This is the reason why the change in status of NR is only a short term expedient, otherwise funding will more than likely disappear after 2020. With the government finances currently out of control and interest rate rises shortly to increase government borrowing costs it is now questionable if all the current CP projects will get started.

In short, investment has only been possible because it was against the assets of the private body. If NR and the ORR remain in public ownership, current investment plans are more than likely to be curtailed.

 

[yorksrob]

In order to facilitate investment over the long time-scales and to the magnitude required it was recognised that this could only be achieved through asset-backed involvement in the financial markets so that is why the private company entities where set-up.

This sounds rather less like private enterprise and more like creative book keeping to me.

 

[anme]

That is correct so far as costs for road travel have increased across the board, and as far as road congestion has increased, however without the work to reduce costs and add new services to reflect market demand by the private companies, the increase in rail costs under public sector bodies would have increased in-line with road costs. The congestion on rail has increased even more than on the road, but it is only the better customer service offered by private companies compared to BR that has enabled rail to attract and retain those additional PAX.

I would like your view on my points:
- Rail planning is currently largely done by civil servants in Whitehall, not by private companies.
- Rail investment comes mostly from the taxpayer or from public (or NR) borrowing.
- Many of the allegedly private TOCs are actually public sector companies, although not part of the UK public sector.

Btw, I'm not necessarily for or against privatisation itself. I just don't think UK rail "privatisation" did what you think it did. Hence my question. I would also like you to justify with real examples your claim of improved customer service (please exclude any improvements imposed by government as part of franchise contracts).

 

[Railsigns]

The congestion on rail has increased even more than on the road, but it is only the better customer service offered by private companies compared to BR that has enabled rail to attract and retain those additional PAX.

How is it that the publicly owned railways in Northern Ireland managed to attract and retain additional passengers - rising to record numbers - during the same period?

 

[Olaf]

So, to sum up, why has this growth been down to things other than privatisation? Because East Coast, a nationalised company, have achieved the same growth. Because fuel prices and road congestion have risen and people have said they choose to take the train because of this, meaning more passengers. Because population has risen and this would undoubtedly mean more passengers. And because a further passenger growth has come from increased investment, mostly from a nationalised company.

East Coast would not be experiencing the level of growth without the groundwork of the private sector, which itself was undermined by the public sector incompetence. Public sector entities do not work in the interests of the public due to the undermining of the destruction between the authority and the executive. The result is that they are incapable of meeting customer expectations.

This is all evidence that the growth that the railway has experienced is down to things other than privatisation, and that privatisation has simply been able to take credit from these external factors. The only evidence I have been given for privatisation being the cause of passenger numbers increasing because they have increased under privatisation and didn't under BR.

It is not possible to prove that numbers would have increased if BR had continued to exist, but evidence of BRs poor service record indicate that it would not automatically be the case. Further, it has been new ideas, such as the DLR that have been the foundation of that growth. The Liverpool Street redevelopment would not have been possible without private sector involvement and that was the baseline for a number of future projects. Had BR never existed, it is unlikely that passenger numbers would have fallen so low, instead there would have been a focused effort to restore the industry and provide it with professional management.

In short, the involvement of public sector bureaucrats and jobs-worths in any sector of the economy is self-serving, destructive in the long-term and against the demands of the market.

Under that umbrella, I could also say that fully privatised railways would still use steam powered trains, as BR fully replaced them and the LNER, LMS, GWR and SR didn't. This claim would obviously be madness. Now I've presented my evidence, please enlighten me as to how privatisation specifically has brought about this railway growth?

Steam engine construction only continued after the war because of governemnt interference, like-wise it was public sector diktats that continued to procure slam-door stock and and undermine customer service.

All of your evidence for that comes from free market theory that I have heard many times before; more financially efficient and better services due to the profit incentive, lack of state intervention means they can try what they want, while competition between private companies means that they drive the prices as low as possible. It makes sense, but is however all theory.

Free economies are the most successful in the world - there is no proof needed, just a bit of education concerning the merits of hard work for those that think otherwise. For examples of statism look to the former soviets, the Eurozone, any of a number of latin america nations, and former communist nations in asia. All have undermined customer service through economic manipulation and state control. Again, no furtehr proof needed.

It does not cover the fact that the railways are not profitable ...

Rail is operating at break-even if not profitable in the L&SE and long-distance sectors. It is provincial services that are only meeting around 50% of their operation costs that is preventing them from becoming profitable overall. So your premise is flawed.

However, elimination of staff costs will address problems with provincial services so long as there is no further statist intervention. The result will be that the consumer gets a high quality service at lower cost than at present, with reduced input from government.

BR was not perfect, but it was also around when the railway was seen in a different eye and unions were so powerful, and it also achieved so much in light of that (the HST? The replacement of steam?). A future nationalised railway would probably be different; East Coast is a bit of proof for that.

I was around t the time, and the service was abysmal; trains halted partway through journeys with staff walking off work, wild-cat strikes, passengers having to travel in cabs to make sure the driver competed the services, etc, etc. Under private control, managers can manager, and Bolsheviks are less able to sabotage customer service, though there are still a good few of them about.

East Coast has not proved anything as far as I can see.

 

[Gareth Marston]

I'm on the I pad with the other half watching big brothers bit on the side and Emma Willis looks very gorgeous thankfully I haven't got an ideologically driven problem with reality which try's to defend the indefensible.

 

[Olaf]

Poor old Michael Roberts from RDG was trying to spin the TOCs take credit for growth line in a letter to today's Observer. Given the bulk of the growth has occurred since Whitehall took so much control over the railways after the private sector failed ie Railtrack perhaps it should be Sir Humphrey who gets credit?

Network Rail was a private entity until this week, and it was public sector incompetents that made a hash of the franchise work - how hard can it been to fill in the spreadsheets. That is before you get to the rolling stock plan, long-term planning, timely reporting, and general lack of understand of the rail industry.

Full privatisation is empty rhetoric based on pure free market theory that won't survive 5 minutes of contact with the real world...

BA, P&O, American Airlines, First Bus, Telecoms providers, supermarkets, health care, etc, etc.

Yes there is government regulation, and policy intervention, but it is private sector operation that makes a success of these industries. Public sector statism just blurs the line between the authority and the executive in favour of self-serving groups which undermines customer service; for examples look at services provision in any of a number of countries in the Eurozone.

 

[Railsigns]

Rail is operating at break-even if not profitable in the L&SE and long-distance sectors. It is provincial services that are only meeting around 50% of their operation costs that is preventing them from becoming profitable overall. So your premise is flawed.

It's your argument that's flawed, because you ignore the indirect subsidies given to the TOCs by virtue of the reduced track access charges they pay to Network Rail.

By manipulating track access charges to a lower level (and increasing the public subsidy given to Network Rail to compensate), the government can make the TOCs appear as profitable as they like - then make much of the fact that, overall, the TOCs are now paying more back into the public till than what they receive. Meanwhile, Network Rail's debt isn't getting any smaller. It's a deception that has obviously got some people fooled.

 

[Olaf]

Stifled by BR or stifled by the Government ?

In many ways BR was pretty good at laying out to Government what investment needed to go where, particularly during the later part of the 1980's, making the case for investment in infrastructure renewals and new trains.

If Government chose not to make an appropriate level of investment, shouldn't we lay the blame squarely where it belongs i.e. on the Governments of the day ?

Government investment was crippled for much of the post-war period up until the early 80s when the finances were finally sorted out. Even so, transport is not as high a priority as social and health care, and will drop below defence again going forward. In short government capital investment and funding of the railways is subject to political priorities.

The sooner it is fully independent of statist intervention, investment will match the quality of the business assets and will map to the long-term needs of the business.
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It's not true that rail use has not grown in the rest of Europe.

Yes, Europe has not been without growth, but the stands of service are much lower, with declining and poor service in some sectors. However, that growth has not match that observed in the UK over a long time period, all other matters considered.
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... I'm just claiming that most of the growth is down to other factors as my evidence suggests. So what evidence is there that all this growth is down to privatisation?

You have not given any evidence, only anecdotes, and have not show that most of the growth is down to other factors.

For evidence of growth due to privatisation look at the figures published by the ORR.

 

[Railsigns]

For evidence of growth due to privatisation look at the figures published by the ORR.

The figures prove only correlation, not causation.

Flawed reasoning.

 

[WelshBluebird]

You have not given any evidence

Neither have you though!

 

[Olaf]

I think privatisation ha shad some benefits, but it has also had some negatives too. I think it was more the way that it was carried through franchising and the separation of wheel and rail rather than privatisation itself that has caused most of the problems.

I am against full privatisation as proposed in the original article, for the very good reasons that have been eloquently expressed earlier in this thread.

I can imagine that it would be difficult to understand for those that have had little or no experience of running a significant business, but a key problem is the finding long-term finance. This is the key reason for the consolidation of the infrastructure assets into a separate entity from the operators; it is designed to attract long-term capital investment - a different requirement from that of service providers.
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Just as GNER benefited from investment in new rolling stock, infrastructure upgrades and speed improvements undertaken by InterCity.

No; undertaken by the government with the intention of future privatisation. There was no basis for the investment otherwise.
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Do you think the present government is doing a fine job or is it just benefitting from the hard work done by the previous Labour administration?

The current administration has done an excellent job of finding funding for the unfunded election commitments of the previous administration while the economy was in recession.

However that can not continue with government expenditure out of control as it is now, and the anticipated rise in rates, plus other external difficulties. Government expenditure will have to be cut by this or the next administration. While NR sources its capital investment from government revenues it too will be subject to those cuts. So the sooner it is sold off the better, otherwise it will have to cancel projects, possibly starting with CP5. Even so, NR will be close to it's borrowing limit by the end of CP5, so I'm not sure what will happen in CP6/7.
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This sounds rather less like private enterprise and more like creative book keeping to me.

It is really basic stuff - rather like first-grade arithmetic - it is fundamental to the characteristics of a business such as an infrastructure company like NR. Think of Government Bonds; they are essentially long-term capital borrowings against the reputation of the UK PLC for repayment of the bonds.
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I would like your view on my points:
- Rail planning is currently largely done by civil servants in Whitehall, not by private companies.

it is handled by NR. ORR and DfT get involved around funding, policy, and regulation.

- Rail investment comes mostly from the taxpayer or from public (or NR) borrowing.

Capital investment in NR projects largely comes from Government funds, however the structure of NR and the level of capital investment were designed to ensure that NR would take that debt with it on full privatisation but would not be so high as to adversely affect its credit rating.

- Many of the allegedly private TOCs are actually public sector companies, although not part of the UK public sector.

They are 100% privately owned entities in based in the UK, but yes some are partially foreign owned.

Btw, I'm not necessarily for or against privatisation itself. I just don't think UK rail "privatisation" did what you think it did. Hence my question. I would also like you to justify with real examples your claim of improved customer service (please exclude any improvements imposed by government as part of franchise contracts).

See my other posts.

 

[EM2]

Olaf, do you know of any passenger railway, anywhere in the world, whether in public or private ownership, that is profitable solely from fare income?
If no such system exists, how would you expect the system in Great Britain to manage it?

 

[Olaf]

How is it that the publicly owned railways in Northern Ireland managed to attract and retain additional passengers - rising to record numbers - during the same period?

See my other posts.

 

[Railsigns]

The growth IS down to the company having been run as a private enterprise, with the current operator benefiting from the previous hard work done in the private sector to reduce costs; the same way that Labour in 1997 benefited from the hard work done by the previous administration.

Do you think the present government is doing a fine job or is it just benefitting from the hard work done by the previous Labour administration?

The current administration has done an excellent job of finding funding for the unfunded election commitments of the previous administration while the economy was in recession.

Oh, so it only works one way?

Good performance from an incoming left-wing government is down to reaping the benefit of hard work done by the previous right-wing government that just got booted out by the electorate, whereas good performance from an incoming right-wing government is solely the result of their own steadfast competence? Riiiight.

 

[Olaf]

I'm on the I pad with the other half watching big brothers bit on the side and Emma Willis looks very gorgeous thankfully I haven't got an ideologically driven problem with reality which try's to defend the indefensible.

I am open to evidence-based argument, but most of what it is posted here resembles unsubstantiated political dogma.

As to your quoted comment; That is more of a reflection of yourself and your attitude towards others than any reasoned contribution to the subject of this thread.

Myself; I am posting late because I work long days.

 

[Manchester77]

BA, P&O, American Airlines, First Bus, Telecoms providers, supermarkets, health care, etc, etc.

Yes there is government regulation, and policy intervention, but it is private sector operation that makes a success of these industries. Public sector statism just blurs the line between the authority and the executive in favour of self-serving groups which undermines customer service; for examples look at services provision in any of a number of countries in the Eurozone.

Hahaha full privatisation of healthcare is good is it? Would you care to explain why in America, with the government regulation you describe, they were rated by an independant body (called the commonwealth fund based in NY) the worst healthcare system in the westernised world and yet our nationalised NHS was rated the best for efficiency, quality etc.? The study was carried out in 2012 before the H&SC act came into force with its compulsory outsourcing.

Privatisation has been nothing but bad news, private health firms botching operations and overcharging the NHS CCGs while staff are underpaid and exploited, short changing the taxpayer millions at every flotation, national assets practically given away to business men and worst of all the mass rise in unemployment as our nationalised assets were broken up and sold off. Privatisation is a disease, a very british one which has latched onto every government following Thatcher like a cancer on the nations key assets.

 

[Olaf]

It's your argument that's flawed, because you ignore the indirect subsidies given to the TOCs by virtue of the reduced track access charges they pay to Network Rail.

By manipulating track access charges to a lower level (and increasing the public subsidy given to Network Rail to compensate), the government can make the TOCs appear as profitable as they like - then make much of the fact that, overall, the TOCs are now paying more back into the public till than what they receive. Meanwhile, Network Rail's debt isn't getting any smaller. It's a deception that has obviously got some people fooled.

I am fully aware of the nett payments made to some ATOCs, but that is in line with the real costs of providing the network service. And yes, the debt accumulated by NR is rising but it is currently at about 75% of it's borrowing limits. That however is the intended funding model and not designed to deceive - that is how it is done.

However, on the point of the level of debt you are right - NR will be, on current trends, approaching it's borrowing limits around the end of CP5/into CP6, and that is why I am not clear on how future investment will be funded beyond that time-line, if not sooner - see my other posts.

 

[Railsigns]

most of what it is posted here resembles unsubstantiated political dogma.

You said it.
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I am fully aware of the nett payments made to some ATOCs, but that is in line with the real costs of providing the network service. And yes, the debt accumulated by NR is rising but it is current at about 75% of it's borrowing limits. However, on that point you are right - NR will be, on current trends, approaching it's borrowing limits around the end of CP5/into CP6.

Apostrophe abuse overload.

 

[Olaf]

The figures prove only correlation, not causation.

Flawed reasoning.

Go back and read what is in the reports about investment.
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Neither have you though!

I'm not making the unsubstantiated claim.
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Olaf, do you know of any passenger railway, anywhere in the world, whether in public or private ownership, that is profitable solely from fare income?
If no such system exists, how would you expect the system in Great Britain to manage it?

A number of the ATOCs in the L&SE region make nett payments to the governemnt for operation of the rail services. If NR was privatised it would be able to get its funding from teh markets which are more reliable than government funding. If the companies were allowed to operate the businesses without statist interference, the other operators are also likely to be profitable - or at least very close to that.
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Hahaha full privatisation of healthcare is good is it? Would you care to explain why in America, with the government regulation you describe, they were rated by an independant body (called the commonwealth fund based in NY) the worst healthcare system in the westernised world and yet our nationalised NHS was rated the best for efficiency, quality etc.? The study was carried out in 2012 before the H&SC act came into force with its compulsory outsourcing.
.

Way off topic, but personal experience is that the NHS is very poor compared with other countries, especially with the level of service I, and colleagues, have received in the USA. Also that report on the NHS is not universal.
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You said it.
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Apostrophe abuse overload.

SPAM.

 

[Manchester77]

Way off topic, but personal experience is that the NHS is very poor compared with other countries, especially with the level of service I, and colleagues, have received in the USA. Also that report on the NHS is not universal.

So you'd genuinely rather have a healthcare system that prioritises profit for insurance companies than one which is totally universal to all residents and doesn't have the primary focus of making a profit for its shareholders?! The NHS have got to be on of the best things about the UK, the fact I can walk into A&E and receive a wide range of medical treatments without any up front costs not discriminating against you, me or any other citizen!