Britain - A decade of privatised railways

Mar/Apr 2006

Since the Tories finally managed to push through their privatisation of British Rail, 10 years ago, the railways have become a symbol of the disastrous consequences of privatising public services.

It was said that private enterprise would somehow deliver greater efficiency, better and cheaper services and the massive investment so desperately needed on the railway. But with one fiasco after another, rising fares and deteriorating services, that claim has been exposed for what it is.

Not that this has stopped Blair's Labour government from using the same arguments to justify further privatisations - for example, when it hived off Tube maintenance to private consortia involving the very same rail maintenance companies which had been discredited by their role in various train crashes.

Nowadays, the spin from the Department for Transport (DfT) is that, despite everything, the railway has "arrived in 2006 in remarkably good shape". Since this Labour government has no intention of stopping the capitalist class from making profits out of the railway, it blames the on-going scandals in the railways on the Tories' "botched" form of privatisation, while insisting that, thanks to its efforts, privatised rail has now become a success story. This, according to Labour ministers, is proved by the 33% increase of the number of passenger journeys since 1997, to over one billion last year. They also boast that they are now spending £87m per week on the railway - which is rather ironical, since one of the stated aims of all privatisation is that the "inefficiency" of state-ownership puts too much of a drain on public finances!

However, Blair and his ministers are not so eager to draw attention to the fact that standard fares have risen by three times the rate of inflation since privatisation and that punctuality is even worse than in the days of the much-maligned BR. As for the fate of the workforce, which has borne the brunt of this exercise in squeezing profits out of the railway - that, of course, does not figure at all in Labour's PR.

State intervention in all shapes and forms

Britain's railways started out as private ventures and expanded rapidly during the 19th century. Rail companies proliferated on the back of speculative investment. By 1843, there were 200 different companies, with many bankruptcies and takeovers, accompanied by a series of stock market bubbles and subsequent crashes. Rail share prices reached their first peak in 1840, then slumped. In response, Gladstone passed a Railway Act in 1844, which not only tried to impose some regulation on the industry, but also gave the state the option to buy any new railway line after 21 years of operation. Although the latter never happened, it amounted to backing up the rail companies with a state guarantee. This gave another boost to speculation on railway shares, to the extent that from 1846, until the bubble burst again in 1848, the chase for profits on the railways absorbed half of all investment in Britain.

As the economic difficulties of the rail companies increased between 1870 and World War I, they looked more and more towards the state for help. But the private operators remained unwilling to accept constraints imposed by the state - until their profits were hit by the post-war slump, that is. The Transport Act of 1921 grouped the existing 120 companies into 4 regional monopolies and granted them limited state subsidies. However, especially with the slump of the 1930s, this failed to get the rail companies to modernise the network.

During World War II, the centralisation of the railways as part of the war economy machinery, was a de facto recognition that the most efficient way of operating the rail network was to run it as an integrated national organisation. The post-war nationalisation of the railways merely institutionalised this state of affairs. But, above all, it freed the capitalist class of the burden of having to fork out the huge investment required to modernise a system which was vital for its own profits, while providing it with a fresh source of capital which it could use in more profitable spheres.

By the mid-1970s, though, the world economic crisis had returned with a vengeance and the picture had changed. The capitalist class looked to the state to provide it with new ways of maintaining, and preferably increasing, its profits. It was not that the railway was any less vital to the economy, but rather that the capitalists were no longer content with the indirect subsidy which the state-funded rail network amounted to. Instead, they wanted public funds channelled directly into their pockets.

But the project of privatising the railways hardly got off to a good start. It was not as straightforward as the selling off of other bits of "the family silver", like BT, British Gas, etc. For a start, it was difficult to see how profit could be squeezed out of a system which was so chronically under-invested. It was also a logistical nightmare. How could "competition" be introduced in such a highly integrated organisation? And how could train services, running on tracks with limited capacity, be run competitively?

Shadowy privatisation

Although the idea of privatising British Rail was first mooted in the 1980s, it was not until 1993 that a Railway Act was passed, laying the basis for the break-up of British Rail into dozens of different components, to be run eventually by competing private companies.

The problem was to make the railway attractive for business. Early on, it became clear that selling it off as a whole would not be practicable. Floating British Rail as a single organisation would have been taking the risk of destabilising the stock market if anything went wrong, given the enormous amounts of money involved. And no single consortia, not even the big banks, was likely to put down the cash to buy such a monster. But since the infrastructure required such huge levels of investment, it was decided that this costly part of the operation would be split off from the rest. The remainder of the railway would be carved up into many smaller parts, on the basis of geographical and functional divisions.

All these components were to be set up as autonomous "shadow companies", run as private businesses, each with their own separate managements, while they were still state-owned. Eventually they were to be sold or franchised once they had proved their viability. Then, they would buy and sell their services to one another (such as hiring out rolling stock, renting facilities or contracting maintenance, food preparation or cleaning services).

At least, that was the theory. But the first experiments in this direction were not without "hiccups". Red Star, BR's parcel division, was one of the first sections to be run as a "shadow company" under its BR management team - who (taking the idea of entrepreneurship a bit too seriously) were soon caught with their hands in the till! There was more embarrassment when the Travellers Fare network of food outlets on stations was sold to catering group Trusthouse Forte. When Travellers Fare subsequently went bust, Trusthouse Forte threatened to take the government to court for misleading them over the chain's financial viability!

It was obvious from the period of "shadow-running" what a mess would result from the process. Nevertheless, Major's Tory government pressed ahead. In 1994, Railtrack - a "state-owned plc" - was created, which was to be eventually floated on the stock market. Railtrack was meant to have overall responsibility for the infrastructure and charge train operators for access to the track. It was not to carry out maintenance and renewal directly. Instead, it was to contract out the work by area, to dozens of engineering and infrastructure companies.

Freight and passenger operations were dealt with differently - they were to be split up and franchised out. The advantage for their future private operators was that they would not have to put any money up front. In order to bid for their share of the railway cake, they would merely have to come up with a plan for how they would run a particular part of the network (including their plans for the fleet), and on what level of subsidy. There were to be 25 Train Operating Companies (TOCs) running passenger services and 3 freight companies. Another 3 companies were to be created which would own and maintain the rolling stock and lease it to the train operators - these became known as ROSCOs (Rolling Stock Companies). Parcels, preparation of food for sale on trains, retail outlets on stations, station toilets mail trains - you name it, every possible thing - was to be split off and sold or farmed out.

In all, more than 100 "shadow companies" were created. An army of managers, accountants and lawyers also sprang up, to deal with the innumerable contracts and related disputes between all these artificially separated concerns. In 1994/5, in addition to the £1bn government subsidy to BR, the government had to spend another £1bn just to plug the deficit resulting from the introduction of this "internal market".

Lastly, in order to oversee the franchising and regulate the operation of the new train companies, the Tories set up a so-called "independent" body, called OPRAF (Office of Passenger Rail Franchising) which was supposed to protect the interests of rail users and arbitrate conflicts between the various companies.

The first actual sale was that of Red Star, the parcels division. After attracting no interest from buyers, it was sold off for £1 to its management - not a very encouraging start! Later, it was to be taken over by Lynx and eventually disappeared altogether as Lynx switched all parcel deliveries to its existing road operations.

On April 1st 1996 (maybe someone in the Tory administration had a sense of humour?), Railtrack was floated on the stock market and sold for £2.5 billion - well below the value of Railtrack's assets, then estimated at £4.8 billion, which included a large amount of land around the stations and lines.

The 3 freight companies (consolidated as EWS - English, Welsh and Scottish) were sold together to Wisconsin Central Transportation Corporation, an American company, which had previously also acquired Rail Express Systems, which carried the mail. So much for competition! The rolling stock companies were sold very cheaply too, as it turned out. In 1996, bus operator Stagecoach bought one of them, Porterbrook, for £830m. They sold it in 2000 for £1.4bn to Abbey National. In fact, the rolling stock companies proved to be highly profitable, low-risk businesses - all 3 are now owned by banks. Building companies like Jarvis, Balfour Beatty, Amey and Amec moved into the maintenance market, bidding for Railtrack contracts and then sub-contracting the work to smaller companies, in their turn.

By May 1997, the last train operating franchises had been awarded. The government had had some difficulty drumming up enthusiasm among potential buyers. Many of the companies which showed interest were, in fact, bus companies. So rather than increasing competition, the idea of at least some of the franchise applicants was to eliminate the competition to their existing businesses from rail! After a bout of takeovers, most of the services ended up being controlled by 4 large groups - National Express, First Group, Connex and Virgin/Stagecoach.

The immediate result of the railway's "big-bang" was, predictably, enormous confusion, among passengers (who had overnight become "customers") as well as among the workforce. Signs sprouted all over the stations, with the logos of the multitude of companies who were now responsible for different aspects of the rail service.

For instance, in London's King's Cross mainline station, Railtrack was responsible for maintaining and securing the station. It leased office and concourse space to other companies using the station. Train services up the East Coast line to Scotland were run by Great North Eastern Railway (GNER), shorter distance services to Cambridge, Hertford, etc, by West Anglia Great Northern (WAGN). A third operator, Thameslink, ran services between Bedford and Brighton from an adjacent substation. All the operators had to pay Railtrack for the use of the tracks and lease their trains from one of the rolling stock companies. GNER paid another company, On Board Services, to prepare the food served on its trains. The station's shops, pub and food outlets were the responsibility of yet other companies. No wonder bureaucratic costs escalated!

Of course, this fragmentation also had a disruptive effect on the operational side - for instance, through the procedures for apportioning blame, and therefore fines, for delays. Previously the driver and the signalworker would communicate about what was happening when there was a delay. Now, with the signaller working for Railtrack and the driver working for a train operator or a freight company, and neither company wanting to be charged for the delay, the different managements put pressure on workers to be much more cagey about the information they gave in such situations. Fortunately for everyone concerned, though, the companies were not all that successful in instilling such loyalty in "their" workers.

Labour takes the baton

Major got the rail privatisation through by the skin of his teeth, just before the Tories were thrown out, when Labour won the 1997 general election. But if anyone had the illusion that Labour's mealy-mouthed formula "publicly controlled, publicly accountable" meant they would renationalise the railway, they were disappointed. Blair's new "business-friendly" government had no intention of doing any such thing, nor even of taking serious measures to protect passengers' safety against the profiteering of the rail companies.

The first demonstration of Labour's spinelessness in this field came after the Southall crash in 1997. This crash could have been prevented if a safety system called ATP, which stops a train automatically if it passes a signal at danger, had been installed. ATP had been recommended by the enquiry into the Clapham crash in 1988, but it was deemed too expensive. After Southall, Transport Secretary John Prescott promised ATP would finally be installed. However he stopped short of reading the riot act to the rail sharks. So that 2 years later, the same cause produced an even worse result, when a train coming out of Paddington station passed a red signal, causing a head-on collision, which killed 31 people.

The Paddington crash caused a scandal. This time, the government felt it had to be seen to do something. However, what was implemented was not ATP, but a cheaper system called TPWS, which only stops trains travelling at less than 70mph. ATP was supposed to be the next step but there was to be... no next step. To date, there is still no modern train protection system across the whole network.

In fact, the only changes introduced by Labour in the privatised railway have concerned the form of the regulatory structure - but not, however, its content. Though Labour planned to reduce the number of train operators, by merging franchises, particularly where they operated out of the same mainline station, there was to be no end to franchising itself, even when the terms of the existing franchises expired. So all they eliminated was some of the pretence of "competition", but not the effects of profiteering. There was no attempt to bring the railway under greater public control nor make the private companies any more accountable for the messes they created.

In 2000, Labour replaced the rail regulator set up by the Tories with a new Strategic Rail Authority (SRA). It was supposed to do much the same as OPRAF, with additional powers to direct investment. The fact that Richard Bowker, the first head of the SRA, came straight from the top management of Virgin Trains, showed how "independent" the new body was intended to be. Far from curbing the private companies' profiteering, Labour was chiefly concerned with helping them make their profits. Though the SRA did threaten train operators with fines for bad performance from time to time, it carried out the threats far less often. However, on several occasions it bailed out train operators when they were in financial difficulties, by increasing subsidies. In particular, it gave a helping hand to companies hit by strikes, by reimbursing them for revenue lost during disputes.

Despite the promises that private money would create a "modern railway", the first years of privatisation were characterised by the extreme reluctance of companies to invest - one company even went so far as to borrow carriages from a rail museum when it ran short of rolling stock! Stagecoach's performance in running South West Trains was so appalling, that in December 2002, it was fined £12.5 million by the SRA. It had already been fined £11m in June 2002 - but in between, was handed £29m in subsidy to help with its "problems", while its franchise was extended by 5 years! Connex went one better - it ran services from Brighton to London so badly that it was eventually stripped of its franchise altogether in June 2003. In the previous year, it had won £58m extra subsidy from the SRA - and paid a £20m dividend to its parent company! The route was briefly taken back into public ownership - in the guise of National Rail - before being put back out to tender again.

The SRA, in its turn, was abolished in 2005 and its responsibilities passed to the Department for Transport (DfT), while an Office of Rail Regulation (ORR), also under the DfT, was created to oversee track operations. Again, significantly, this ORR is headed by a grandly-named Director General of Rail, called Michael Mitchell, who just "happens" to be an ex-senior director of First Group, another train operator.

Railtrack hits the buffers

The most spectacular failure of the past ten years was the demise of Railtrack. Over the 4 years to March 2000, despite the huge state subsidies it had received, Railtrack had invested only £3.84bn in infrastructure - even less than in the Tories' original plan. Track maintenance and modernisation had been cut to maximise dividend payments, which totalled £709m over the same period. As a result, Railtrack shares hit a high of £17.68, more than 4 times their original value.

But then this policy bore another, but gruesome, dividend - the Hatfield crash, in October 2000, when a GNER train derailed, killing 4 people. The cause of the accident was a rail which had shattered due to a known problem called "gauge corner cracking". It was not as if the dangerous state of the tracks had not been known before this: there had been 90 derailments in the previous year and Railtrack had been threatened with a £70m fine for its maintenance failures. The rail which caused the Hatfield crash had been ear-marked for renewal. In fact, a new rail had been sitting beside the track for months, waiting to be put in place - it just had not reached the top of Railtrack's list of priorities!

Railtrack's reaction to the accident was to impose immediate speed restrictions in hundreds of other locations - which showed that it knew exactly where there were dangers. But what had the lives of passengers and railworkers mattered, as long as shareholders were kept sweet?

Not only the crash itself, but the subsequent months of disruption caused by speed restrictions, led to a public outcry. Within a year, Railtrack's share price fell to £2.80. This time the government acted, but only to bail out shareholders and prevent a major crash on the stock market. Initially, it looked for a big company willing to take over Railtrack, but, failing to find one, it respectfully paid off the shareholders at £2.50 a share.

So, in place of Railtrack, Labour created Network Rail, a "not-for-profit" private company. This strange beast is state-funded, but not part of the state. It has no private shareholder, although the government has clearly stated its aim to put it up for sale at some point - once enough state funds have been poured into it, presumably. Instead, Network Rail is supposed to be accountable to "members", who include representatives of passenger groups and of the rail unions.

Privatisation, Blair's way

Of course, the government knew that it was not politically tenable to maintain the rail infrastructure company as a profit-making business. But what they came up with has nothing to do with the public interest, nor with a "renationalisation" as was claimed at the time.

Indeed, the composition of Network Rail's board gives the game away. Ironically for a state-funded body, it has no representative from the state! However, its Chief Executive, John Armitt, a direct transfer from Railtrack, has been CEO of construction group Costain (track development) and train company Union Railways (in charge of the Channel Tunnel Link). Other members of the board are former directors of construction companies like Balfour Beatty, BICC and Bechtel, train operators like Virgin and First Group, or the privatised London Underground maintenance operators. So just about everyone in this board has a finger in the private railway pie!

In reality, the purpose of Network Rail is primarily to channel public funds to the privatised railway companies and provide them with a mechanism to share out these funds. Of course, Network Rail's status also has the additional advantage that its enormous debt (currently £20bn) does not show up in the government's borrowing figures.

As to the train operating companies, franchises have been again awarded to the lowest bidders - ie those promising to run the service for the least subsidy. In fact, the claim is that although the level of subsidy will remain about the same for the first year, it will be steadily reduced and, within a few years, turn into a premium which will be handed back to the government.

But who can believe this story, second time round? The figures of the successful bidders are based on estimates which are wildly optimistic, to say the least (for example, GNER has committed itself to paying a £37m premium in 2006/7, which is supposed to rise to £396m by 2014/5). The bidders rely on revenue growth of about 3 times the rate of inflation. Since it would be difficult to squeeze many more passengers onto trains which are already full to bursting, presumably passengers can look forward to much higher fares.

Luckily for the companies, there is a get-out clause written into the contracts, which means they will not have to meet anything like the full shortfall if their over-optimistic profit forecasts are not met, and they are unable to hand these "guaranteed" premiums back to the public purse. And even without this convenient small print, what is to stop them coming back later with excuses for the government to shovel yet more subsidies in their direction, as it has proved only too willing to do in the past?

Although there has been a certain amount of recentralisation across the network, with the creation of Network Rail and the consolidation and reshuffling of train operating franchises, more companies have entered the freight market and sub-contracting of services, like cleaning, has allowed companies like ISS and Initial to come in and share some of the spoils.

As far as the train operators go, after the last round of musical chairs, the main big players still remain coach companies - National Express, Stagecoach, First Group, Arriva, Go-Ahead - plus a few outsiders such as Virgin, GNER (owned by Sea Containers), Laing Rail and Serco. These private companies have hardly lived up to their billing of "efficiency" and "cost-effectiveness". So far, the profits of the train operators have come largely from direct subsidies. But even if - and this is by no means sure - they manage to show a profit without subsidy in the future, this will only be because of the sate funds which are being channelled to them indirectly via Network Rail.

While privatisation was supposed to cut the cost of public transport to the state, the raw figures speak for themselves: overall, under privatisation, total government subsidy to the railway went up from £1.3bn at the start to £3.8bn in 2004/5. And currently, Labour is pumping money into the railway at the rate of £4.6bn per year.

How the union bureaucracy got on board

The over-riding aim of the long period of "preparation" for privatisation was to reduce labour costs. Already, under British Rail, the workforce had been reduced by one-third between 1976 and 1994. Moves had been made towards "efficiencies". For instance, the two drivers which every train used to have, were reduced to one. Guards were taken off trains on some routes and smaller stations were de-manned. Flexibility and longer shifts were introduced and breaks cut.

But in the run-up to privatisation, the job cuts and attacks on conditions accelerated dramatically. 10,000 new managers were taken on in this period - their main task being to get rid of as many workers as possible, by any means, including sacking them over petty disciplinary issues.

Against these attacks the policy of the three main rail union leaders was at best one of passive resistance. Among them, ASLEF organised most drivers, TSSA organised mainly white-collar workers and the RMT, the biggest of the three, organised the remaining grades, plus a small proportion of the drivers. At no point was there ever any attempt between them to build up a common response to the threats piling up in the early 1990s.

In fact, there was not even any attempt to unite the membership in action within each union. For instance, in 1994, when railworkers across all grades and sections were experiencing job cuts and drastic attacks on their conditions, the 4,800 RMT signal workers came out on strike over pay. But the RMT, far from taking the opportunity to generalise this action made absolutely sure that the signal workers' strike remained isolated, before calling it off just as it was beginning to bite.

The following year, ASLEF called drivers out on strike, again over pay. But the dispute was called off after only two one-day strikes and so never built up the momentum which might have pulled other railworkers behind the drivers. Still, many railworkers were expectantly waiting for a strike call from their union leaderships with the aim of halting the privatisation cuts - but it never came.

During all this period, the union leaders used the excuse that it was important not to antagonise the public - despite the widespread unpopularity of rail privatisation. But in fact, their primary concern was to retain their places at the bargaining table after privatisation - even at the cost of a huge drop in membership, which is what actually happened, at least for the RMT. So they made a point of showing the future private owners how necessary they were, partly by proving their ability to bring things to a standstill, but mostly by demonstrating how responsible they were towards the interests of what was soon to become private "businesses".

The rail unions actually went along with privatisation by signing a deal, which was supposed to protect pensions and conditions, including travel concessions, after privatisation, no matter how many times workers were shunted from one company to another. While union leaders presented this deal as a great victory, it only covered the existing workforce, thereby creating yet another division - between ex-British Rail workers and those recruited after privatisation.

Working conditions under attack

In fact, in many companies, new workers were excluded from the pension scheme inherited from British Rail and in some cases, like the short-lived privatised Red Star (parcels), they were not offered any occupational pension scheme at all.

Likewise for travel concessions. In British Rail days, these used to give workers free travel to work within a certain distance, whatever the route (on tube and bus in London, as well as trains), thereby providing some compensation for their low pay. But workers employed post-privatisation were usually restricted to the routes run by the companies they worked for or had no concessions at all if they were contracted out to a company that was not a train operating company (cleaners for instance).

Though so much of the dirty work had been done before privatisation, the attacks on conditions and jobs continued afterwards, with most companies carrying out "restructurings", which cancelled out many hard-won conditions in return for bogus pay increases, which were largely due to the consolidation of various allowances and bonuses into basic pay. Many more job cuts were announced - 40% at South West Trains, 50% at Great Western, 30% at Network South Central, 37% on the freight side.

Sub-contracting reduced pay and conditions even further for certain sections of workers. For example, workers taken on by ISS after it had won the train-cleaning contract from GNER were on even worse wages and conditions - the bare legal minimum (currently £5.05p/h, with 20 days annual leave, including bank holidays and the statutory minimum sick pay). So this franchising and sub-contracting process ended by creating not a two-tier but a three-tier workforce. However, past benefits aside, everyone now working for ISS is in the same boat. This large company routinely cheats them out of money they are owed by making "mistakes" with their pay and has refused to give them any pay rise for the past 2 years. And ISS is by no means the only company which operates like this.

The only exception to such treatment was the drivers - but only because the new rail companies fell foul of their own short-sighted greed for profits. Training of drivers is long and expensive and for a period after privatisation, the train operators preferred to poach trained drivers from one another by offering them higher wages. Eventually, of course, as some drivers reached retirement age or were pushed into early retirement by the companies themselves, in their eagerness to cut more jobs, this led to an acute shortage of drivers. When this started seriously affecting services, the companies suddenly had to start recruiting and training new drivers in a panic - but not before some of them had to cancel thousands of trains. This situation did push wages up in the short term (though not without yet more conditions being bargained away), but also led to huge discrepancies between the pay of drivers in different companies. In King's Cross station, for example, Great Northern drivers earn around £30,000/yr, while those employed by GNER, just down the corridor, earn over £40,000. But even Great Northern drivers, who are among the worst paid, earn about double the typical wage for station workers or other grades who work on the trains.

These divisions between workers have not necessarily disappeared even when different companies have been re-merged. A year ago, for instance, the 3 franchises for services out of London's Liverpool Street station were consolidated and awarded to a train operator called "One" (owned by National Express). But the drivers are not on "one" but three different sets of pay and conditions, according to which company they worked for previously.

As for Network Rail, one of its first tasks was to sort out the mess that had been caused by Railtrack's sub-contracting of maintenance. The maintenance workers who had previously been working for Railtrack's subcontractors were transferred back in-house with their work. But these workers had a multitude of different wages and pension conditions, which they still retain. And attempts at harmonisation have only just begun.

So there may be fewer players at the business level but there is still a many-tiered workforce on the ground. The number of workers has been reduced drastically and pay and conditions have got worse for a significant section, thanks to sub-contracting. And there are bound to be more attacks ahead, as companies slash costs to meet their overambitious profit targets.

But, despite the fragmentation, the possibility of collective action on a national scale is still there. The workforce may be divided by uniforms and managers. But when it comes to its ability to defend its collective interests, the main obstacle it has to overcome is the lack of political will of union machineries which consistently choose to go along with the artificial divisions of privatisation, thereby undermining workers' confidence in their collective strength.

Cutting labour costs so drastically in the railways may well be the only "achievement" that the champions of privatisation can still boast about. In every other respect, both under the Tories and Labour, rail privatisation has proved to be a disaster. Ten years on, all that it has managed to illustrate is the fact that a public service such as the railways can only be disrupted by the anarchic competition and parasitism of the profiteers. By the same token, it has shown that while the working class may have born the brunt of this disruption, ultimately it has come at a high price for the vast majority of the population as well.

This is why the champions of rail privatisation who believe that, thanks to their turn of the screw over the last ten years, the spectre of a national rail strike is now a thing of the past, may well be proved wrong. No matter which uniform they wear, railway workers remain linked by the job they do - running the same railway, operating the same machines and carrying out the same tasks, on a national scale. And one of these days, they will resume the long-standing fighting tradition of the preceding generations in the railways, with the overwhelming support of a working population which has had more than enough of the parasitism of private profit on society.