First it was Railtrack ... now it is the lot

End of the line

Covid-19 has done away with Britain’s rail franchising system. Paul Demarty, for one, is not going to miss it.

We all know that the coronavirus is especially cruel to the old, the infirm, those with certain pre-existing maladies; and so we all fear for our aging relatives, our asthmatic friends, and so on.

One ailing patient dispatched by the virus this week, however, will not be mourned. That is the UK’s private railway system, which passed away early on Monday morning after a long illness. With two franchises supposed to be renewed within weeks - and all of them facing collapse under circumstances of massively-reduced travel miles - the railway system was effectively nationalised for six months.

Franchises would have “the opportunity to temporarily transition onto Emergency Measures Agreements”, which essentially transfer all costs and risk to the government, with the franchisee being paid a “small management fee” to continue operating. If the “opportunity” is refused, of course, the government reserves the right to transfer its operations to the state-run operator of last resort. But the offer will not be refused; and share prices of the operators stabilised on the news, since they had seen a 70% drop in passenger numbers. They are effectively reduced to the status of contractors, with the government setting the level of their payment by fiat.

This brings to an end a quarter-century of graft, price-gouging and mismanagement, ever since John Major took it on himself to break up British Rail at the fag-end of his government. Whatever replaces the state-administered ‘emergency’ rail system, one thing is certain - the franchising system, visibly tottering for years, will not return. It is dead and buried.

Major malfunction

Privatising a natural monopoly like the railways is a dodgy business at the best of times, requiring careful and onerous regulation to work even close to properly. Major’s scheme was exceptionally ill-advised, however.

He first split the management of the physical network - tracks, power-lines, signalling - from the management of the trains themselves. The former was spun off into a company called Railtrack; the latter was then parcelled out, piece by piece, into franchises. The ‘competition’, which would supposedly ensure far greater efficiency via the wonders of the market, was thus not for passenger money - one could hardly have 15 train companies running their own lines from Manchester to London. It was for government tenders; and thus it was purely a piece of theatre, in which armies of lawyers and accountants squabbled over the spoils of a captive customer base.

Neither part of the privatisation was a success. A series of crashes, most especially one at Hatfield in Hertfordshire that cost four lives, destroyed confidence in Railtrack, which promptly went into administration; it was liquidated and effectively renationalised as Network Rail. This was in 2000 - barely three years after the whole system was finalised. Railtrack had applied modern management theory and outsourced everything that was not core to its business to lowest-bidding contractors - non-core activities apparently included, er, keeping the railway lines in a good state of repair. No government ever managed to reprivatise Network Rail, although laughably no official acknowledgement was made that it had actually been nationalised for 13 years, as if it were the Israeli nuclear arsenal.

The franchisees, meanwhile, set about milking their little fiefdoms; but rail prices are politically sensitive, and were strictly controlled (though they have risen steadily above inflation over the years). The franchises were just long enough to allow price-gouging, but not long enough to incentivise serious investment to infrastructure, because what if you put money in and then somebody else won next time out? The result was that even seasoned parasites like Richard Branson found their ardour cooled, and the last few tender competitions have been embarrassments. Leftwingers and national chauvinists alike, meanwhile, made play of the absurd situation that several franchisees were themselves subsidiaries of state rail companies in Germany, France and Hong Kong. So much for the efficiency and dynamism of the private sector!

The Covid-19 pandemic threatened all the franchises at once, but they have been collapsing in ones and twos for years now - most recently Northern Trains. The overcomplicated system contributed to multiple disasters during the reign of that feeble-minded homunculus, Chris ‘Failing’ Grayling, at the department for transport (DFT), which somehow continued until 2019. A report into the future of the system was already glacially progressing through Whitehall, with the result likely to be the abolition of the current system. The virus has hopefully saved us some small time and expense, as Tory ministers and civil servants work themselves up to admitting what is plainly the case - privatisation had failed.

Tory ‘socialism’

The fact that this has to be dressed up as an emergency measure, of course, means that no such admission is necessary or shall be forthcoming.

The same might be said for the formal timidity of the move. Great effort has been made to frame the act as merely a temporary arrangement - a bailout, more or less - in a manner that fools nobody. Thus it shares the obnoxious recalcitrance with which all the government’s ‘extraordinary’ measures have been rolled out. Boris Johnson has always been caught between ‘British bulldog Churchill’ posturing, and an equally unconvincing sort of ‘springtime in America’ optimism about Britain’s post-Brexit future. He obviously does not relish being pinned to the Churchill side of the equation for real, with nothing to offer except blood, sweat and tears.

Almost everyone on the left, from ourselves to Polly Toynbee, has argued that there can be no ‘return to normalcy’, for a definition of the normal that includes mass homelessness, a tyrannical benefit system and all the rest. Yet it is quite inevitable that - Tories being Tories - full reprivatisation will be attempted; albeit presumably not in the same cack-handed manner as Major’s. Until such time as that is achieved, meanwhile, the system will be controlled centrally by the DFT, under the thumb of the Tories and Whitehall mandarins. Do not be surprised to see union-smashing activities in this interregnum - Grayling’s attempt to load that sort of dirty work into the franchises themselves backfired, but it will be a simpler matter for his successor, freed from that kind of negotiation.

There is a chance - albeit a rather remote one - that private rail 2.0 will be significantly less of a fiasco than the original model. But it is worth considering what a non-screwed-up privatisation looks like. The water supply was privatised by Margaret Thatcher, for example. The result was something like the railway system - a series of area-based franchises, each run by a permanent monopoly. These companies are stable, moderately successful and rather boring - the opposite of the fractious, accident-prone railway franchises in that respect. But they also underinvest - with repeated fines levied against them for pollution and contamination - and they overcharge. (The enormous Thames Tideway sewer project was prompted to avoid 10-figure fines from the European Commission, thanks to large-scale water contamination.)

Electricity supply is a slightly different matter, since the wholesale market does somewhat function as a market and indirectly allows some competition for consumer money; but the energy companies are equally notorious for discreet and exploitative price manipulation - to the point that even Ed Miliband could call for a price freeze.

What all these private utilities have in common is the fact that it is impermissible for service to be interrupted by the misfortune of a given company. If Thames Water collapses in an Enron-style accounting scandal, water must still come out of the taps at the treasury; the state will step in, either to bail out the operator or take over the running of things. In practice, this amounts to a suspension of the doctrine of moral hazard: privatisation merely allows fortunes to be amassed through naked rent-seeking. It makes a mockery of the apologetic presentation of the market as an arena of Darwinian struggle. The privatisation of the railways is a ‘failed’ privatisation because it did not provide a sustainable profit stream to these parasites. All privatisations of basic utilities are failures as optimally efficient ways of running things.

If there is one lesson of the current situation, of course, it is that many, many more economic activities than what we traditionally think of as utilities are, in fact, in the same bracket - sustained interruption of service is politically impermissible. This goes for things like internet service, which is not as universally available as you might think, and the lack of which is a major impairment at the moment; or the malfunctioning supermarket system’s inability to deal with panic buying. But it is also true that mass unemployment as a result of severe economic contraction is problematic enough to draw forth serious (though very likely inadequate) government intervention.

In spite of its particular dysfunction, then, the fundamental lesson of the death of rail franchising is that capital can scarcely be trusted with the running of anything - and especially not in an emergency.