Choo-choo-choosing stability in the railways


trainspottingThere is an important entry in the diary of Sir Richard Branson, boss of Virgin Trains. On 31 March 2012, the company's fifteen-year franchise to operate on the West Coast Main Line (WCML) – the important stretch of Britain's rail network that links London, through the West Midlands and North West to Scotland – is to be re-let. He seems confident enough, though, having recently ordered four new trains.

Franchising isn't a perfect system. It arose as part of the effort to introduce choice and competition into the old state-run British Rail (BR) monopoly. BR didn't just run the trains, it made the trains, owned the track, signals and platforms and even ran the station buffets with their infamous dried-up, curly sandwiches. The whole monopoly was no more appetising – bloated and lazy like all monopolies.

One idea was to return to the old Victorian structure, with new private companies running trains across their own tracks and between their own stations – one serving London to the West, one up the North East coast, one up the West Coast, and so on. The trouble is that British Rail had become far more integrated than this, a true national network, with trains running from one end of it to the other, through any number of the old Victorian boundaries. To split it up again would be to cut against the grain of the organisation, and would lead to problems when one company wanted to run its trains across tracks owned by others.

Following an Adam Smith Institute report by Kenneth Irvine, The Right Lines, it was decided to keep the network whole but to allow different companies to run their trains across it, like coach companies competing for business on the national road network. It couldn't, of course, be a free-for-all, so the eventual plan invited companies to bid for the right to operate particular routes and services. It seemed simple enough, until all the lawyers got started – the government's, the regulator's, the operating companies' the infrastructure company's. And since nobody with a franchise of just a few years would make long-term investment in new rolling stock, the rolling stock leasing companies had to be invented, and naturally they brought their lawyers along too. The result was an overcomplicated system that left the public bamboozled about who to complain to when the trains were late.

Not that they were. Privatization led to greater reliability, an increase in services, a rise in passenger numbers, and even (despite two very significant crashes) improved safety statistics. But the system was still cumbersome and confusing, and the private infrastructure monopoly Railtrack turned out to be no better than the public one.

Nor, for that matter, is the new infrastructure quango Network Rail. It has spent an absurd number of billions inefficiently upgrading the West Coast Main Line. The fear must be that the government will want to recoup some of those billions by getting as much as it possibly can from the franchise bidding war. No doubt it will be recruiting game theorists for that purpose. But the last government's experience in getting the highest possible price – in telephones and then again with rail franchises – shows that getting the highest price isn't everything. What is more important is getting a franchise operator that can provide a good service to customers over a long period, without going bust because they have overbid.