Railways – the impact of the recession


altToday’s figures from Stagecoach, the holder of the South West and East Midlands railways franchises, were reassuring. Despite the recession, Stagecoach reported like-for-like revenue growth of 6.2% in its UK railways business – figures that compare favorably with the lacklustre growth reported recently by National Express from its East Coast main-line franchise. More generally, UK railways privatisation in the mid-1990s undoubtedly had many flaws. Arguments persist about the policy of separating the ownership of the railways network from the train-operating companies. After all, any new competition on the crowded UK network – the rationale for creating Railtrack - was always going to be minimal.

Greater focus on the burgeoning capital expenditure programme would have been far more sensible – a priority that was only accorded post the Hatfield disaster in 2000. Looking forward, changes are needed. In the short term, reforming the franchise system – partly to prevent over-bidding – is a priority. Some franchises have built in revenue protection measures; some don’t. Applying a revenue ‘cap and collar’ for all franchises would reduce the risk element. Furthermore, over-bidders – most obviously, National Express’ bid for the East Coast main-line - should not be allowed simply to walk away: if they do, other franchises held should be rescinded. Moreover, in awarding franchises, a greater priority should be accorded to deliverability.

In the medium term, Network Rail needs major reform. Its net debt now exceeds £22 billion. Whilst it has delivered much of its investment programme, including the notorious £9 billion West Coast main-line scheme, this has come at a heavy financial price. Efficiency levels within Network Rail remain unimpressive and its governance regime resembles that of the 1960s water boards. Re-privatising Network Rail should be a long-term aim. Eventually, some re-instatement of vertical integration of the network is desirable – only the Isle of Wight’s network is currently integrated.