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The road to British Railways Privatisation

A short article covering the events leading to Privatisation of Britain's Railways.

Many criticisms have been levied over the years since privatisation was hastily introduced, here are a few brief facts concerning the introduction of privatisation. It would take many pages to cover all changes and policies and many more pages to review al criticisms. Below is a brief summary of events relating to Privatisation and the main issues involved.


The narrow gauge Vale of Rheidol Railway in Aberystwyth, Mid Wales was unique in Britain, being the only steam railway to be operated by British Rail. In 1988, The Department of Transport started the process of privatising the line. Later that year it was announced the line had been purchased by the owners of Brecon Mountain Railway, becoming the first part of British Rail to be privatised.


In 1991, following the apparently successful Swedish example and wishing to create an environment where new rail operators could enter the market, the European Union issued EU Directive 91/440.[1] This required of all EU member states to separate the management of railway operation and infrastructure from the provision of railway transport services, separation of accounts being compulsory and organisational or institutional separation being optional, the idea being that the track operator would charge the train operator a transparent fee to run its trains over the network, and anyone else could also run trains under the same conditions (open access).

 

The management of British Rail strongly advocated privatisation as one entity, a British Rail plc in effect; Cabinet Minister John Redwood "argued for regional companies in charge of track and trains" but Prime Minister John Major did not back his view; the Treasury, under the influence of the Adam Smith Institute think tank advocated the creation of seven, later 25, passenger railway franchises as a way of maximising revenue. In this instance it was the Treasury view that prevailed.



Many criticisms have been levied over the years since privatisation was hastily introduced, here are a few brief facts concerning the introduction of privatisation. It would take many pages to cover all changes and policies and many more pages to review al criticisms. Below is a brief summary of events relating to Privatisation and the main issues involved.


The narrow gauge Vale of Rheidol Railway in Aberystwyth, Mid Wales was unique in Britain, being the only steam railway to be operated by British Rail. In 1988, The Department of Transport started the process of privatising the line. Later that year it was announced the line had been purchased by the owners of Brecon Mountain Railway, becoming the first part of British Rail to be privatised.


In 1991, following the apparently successful Swedish example and wishing to create an environment where new rail operators could enter the market, the European Union issued EU Directive 91/440.[1] This required of all EU member states to separate the management of railway operation and infrastructure from the provision of railway transport services, separation of accounts being compulsory and organisational or institutional separation being optional, the idea being that the track operator would charge the train operator a transparent fee to run its trains over the network, and anyone else could also run trains under the same conditions (open access).

 

The management of British Rail strongly advocated privatisation as one entity, a British Rail plc in effect; Cabinet Minister John Redwood "argued for regional companies in charge of track and trains" but Prime Minister John Major did not back his view; the Treasury, under the influence of the Adam Smith Institute think tank advocated the creation of seven, later 25, passenger railway franchises as a way of maximising revenue. In this instance it was the Treasury view that prevailed.


The Railways Bill, published in 1993, established a complex structure for the rail industry. British Rail was to be broken up into over 100 separate companies, with most relationships between the successor companies established by contracts, some through regulatory mechanisms (such as the industry-wide network code and the multi-bilateral star model performance regime). Contracts for the use of railway facilities - track, stations and light maintenance depots - must be approved or directed by the Office of Rail Regulation, although some facilities are exempt from this requirement. Contracts between the principal passenger train operators and the state are called franchise agreements, and were first established with the Office of Passenger Rail Franchising (OPRAF), then its successor the Strategic Rail Authority and now with the Secretary of State for Transport.

 

The passage of the Railways Bill was controversial. The public was unconvinced of the virtues of rail privatisation and there was much lobbying against the Bill.                                                                                                         

 

The Railways Bill became the Railways Act 1993 on 5 November 1993, and the organisational structure dictated by it came into effect on 1 April 1994. Initially, British Rail was broken up into various units frequently based on its own organisational sectors (Train Operating Units, Infrastructure Maintenance Units, etc. still controlled by the British Railways Board, but which were sold off over the next few years.


The original privatisation structure, created over the three years from 1 April 1994, consisted of:


Railtrack took over ownership of all track, signalling and stations. Railtrack let out most of the 2509 stations to the franchised passenger train operators, managing only a handful (12, later 17) of the largest city termini itself; maintenance and renewal of the infrastructure was also contracted out to British Rail Infrastructure Services, leaving  Railtrack's directly-employed staff consisting mostly of signalers. In the original privatisation plan, Railtrack would have been the last part of British Rail to be sold, but with the approach of a general election in 1997 Railtrack was hastily privatised in May 1996 in an attempt to ensure that the new structure could not be reversed.  


The Rail Regulator (the statutory officer at the head of the Office of the Rail Regulator (ORR)) was established to regulate the monopoly and dominant elements of the railway industry, and to police certain consumer protection conditions of operators' licences. He did this through his powers to supervise and control the consumption of capacity of railway facilities (his approval was needed before an access contract for the use of track, stations or certain maintenance facilities could be valid), to enforce domestic competition law, to issue, modify and enforce operating licences and to supervise the development of certain industry-wide codes, the most important of which is the network code. Probably the Rail Regulator's most significant power was the establishment, usually every five years, of the financial framework in which Railtrack (now Network Rail) operates, through the carrying out of access charges reviews. This settled the structure and level of access charges which the infrastructure provider is entitled to charge train operators for the operation, maintenance, renewal and enhancement of the national railway network. ORR's role only covered economic regulation; safety regulation remained the responsibility of the Health and Safety Executive, but that position changed in 2005 when safety regulation was transferred to ORR under the Railways Act 2005. The first Rail Regulator was John Swift QC.


The Director of Passenger Rail Franchising took responsibility for organising the franchising process to transfer the 25 passenger train operators (known as Shadow franchises) to the private sector and then develop the refranchising programme for the future. The first round of franchising was based solely on the lowest cost bidder wins. The first Director of Passenger Rail Franchising was Roger Salmon.

 

Twenty-five passenger train operating units (TOUs), converted to Train Operating Companies (TOCs) shortly before each was privatised, split by geographical area and service type. This meant that, for example, a major city terminus would be served by an ex-InterCity TOC and one or more local commuter TOCs, with consequent competition for train paths into and out of the stations, which had to be resolved by Railtrack and the Rail Regulator. The TOCs owned virtually nothing, hiring most of the assets required from Railtrack and the ROSCOs and contracting suppliers to undertake heavy maintenance on the trains or provide on board catering. (The special adviser to the UK chancellor of the exchequer, Ms Shriti  Vadera, memorably described the privatised passenger train operating companies as "thinly-capitalised equity profiteers of the worst kind", a phrase which betrayed a disdain which was intensified when it came to the collapse of Railtrack in October 2001.)


Three Rolling Stock Leasing Companies (ROSCOs):

Angel Trains

Porterbrook Leasing

Eversholt Leasing, later HSBC Rail

These were allocated all British Rail's passenger coaches, locomotives, and multiple units. Freight locomotives and wagons were owned by the freight train operators.

 

Six Freight Operating Companies (FOCs): Geographical units for trainload freight

Mainline Freight in the south-east

Load-Haul in the north-east

Trans-Rail in the west

Railfreight Distribution, international and wagonload trains

Freightliner (UK), container-carrying trains

Rail Express Systems, parcels and mail trains


British Rail Infrastructure Services (BRIS), which took responsibility for the engineering requirements of the railway. BRIS was subsequently organised for privatisation on the basis of 7 Infrastructure Maintenance Units (IMUs), which maintained the railway, and 6 Track Renewal Units (TRUs), which replaced rail lines, both organised geographically.

A variety of other companies created to undertake specific functions, including European Passenger Services (to operate the UK part of the Eurostar service) and Union Railways (to implement the High Speed 1 construction project).

 

Further changes have followed, which have seen the government take back a greater degree of control, but the early demise of the SRA, which was its creation, suggests that the situation is still in flux and the right formula for the long-term health of the rail industry has not yet been found.

As an interesting postscript to the privatisation, in July 2006 the Conservative Party's shadow transport spokesman, Chris Grayling, admitted that the 1996 split of the rail industry into track and train components was a mistake which had increased costs: "We think, with hindsight, that the complete separation of track and train into separate businesses at the time of privatisation was not right for our railways. We think that the separation has helped push up the cost of running the railways—and hence fares—and is now slowing decisions about capacity improvements. Too many people and organisations are now involved in getting things done—so nothing happens. As a result, the industry lacks clarity about who is in charge and accountable for decisions."

Since 1997, considerable changes have taken place to the original structure of privatisation, of which very little is left unaltered. The principal changes are as follows:

Railtrack was placed into administration on 7 October 2001 and, the following year, its functions as the track owner were taken over by Network Rail, which is a company limited by guarantee, nominally in the private sector but with members instead of shareholders and its borrowing guaranteed by the government.

ORR has been renamed the Office of Rail Regulation and the Rail Regulator replaced by a board in line with changes to the regulation of other privatised industries. ORR has also been given the responsibility for safety regulation which was previously the remit of the Health and Safety Executive.                                                                                                                                  

OPRAF was replaced by the Strategic Rail Authority, whose remit also included the promotion of freight services. The SRA has since been wound up and its franchising functions passed to the Department for Transport. The most recent rounds of franchising have considered the planned improvements and previous good service delivery of bidders as well as the cost element. As part of the devolution process since 1997, the Scottish Government has been given a greater role in determining the franchising of ScotRail, the Welsh Government is now a co-signatory of the Wales and Borders franchise, Merseytravel (the Merseyside Passenger Transport Authority) is responsible for Merseyrail, and the Mayor of London has some input in decisions on rail services in the Greater London area.


The number of passenger franchises has been reduced and further amalgamations are planned. Many of the franchises have changed hands between private sector operators and one, Southeastern, has been operated in the public sector after Connex was removed from control by the SRA and before a new private sector operator could be appointed. However, two new open access operators have appeared to run new services; Heathrow Express and Hull Trains. A third, Grand Central Railway was due to start operating in December 2006, but suffered delays, including franchised operator GNER taking the Rail Regulator to Court over his decision to grant access rights. In September 2007, the Office of Rail Regulation granted track access rights under Section 17 of the Railways Act 1993 to Wrexham, Shropshire and Marylebone Railway Company Limited (known as Wrexham and Shropshire) to run 5 trains a day between London Marylebone and Wrexham, although there were conditions attached to the right to call at Wolverhampton. Other applications by potential open access operators have been turned down by ORR, but a number of new open access operations are waiting in the wings and may materialise in the near future.

Despite going to the expense of setting up separate management structures for the three parts of the trainload freight sector, on 24 February 1996 all three units were sold to "North and South Railways", a subsidiary of the American Wisconsin Central Railroad, which soon renamed the operation English, Welsh and Scottish Railway. EWS also acquired Rail Express Systems, Railfreight Distribution (the last part of the nationalised railway to be sold, after Labour had been elected) and National Power's railfreight operation. EWS was bought by Deutsche Bahn in 2007 and is thus effectively now state owned - but by the German rather than United Kingdom state.

Current freight train operators other than EWS include;

Freightliner (UK) (purchased by a management buyout) and two open access freight operators:

Direct Rail Services and FirstGBRf.

 

The three ROSCOs continue to exist as originally established, the only part of the privatised railway to remain unchanged, although some now lease freight locomotives and wagons to the FOCs. They have been joined by a variety of small-scale train owners ready to let old railway stock on short-term leases, including FM Rail, Harry Needle Railroad Company and West Coast Railway Company. Also, Railtrack and Network Rail have purchased some rolling stock themselves.

 

In 2004 infrastructure maintenance, (Track, Signal, and Overhead lines), was taken back ' in-house' by Network Rail, but track renewal remains contracted out to the private sector.




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