Tony Lodge: Rail. Why radical action can save money – and re-shape a sector which will never be the same again

Tony Lodge is a Research Fellow at the Centre for Policy Studies and author of Rail’s Second Chance – putting competition back on track

The modern railway boom is over. You might have missed it but, up until March last year, Britain’s railways had enjoyed the most remarkable party.

Since privatisation during the early 1990s, passenger numbers had doubled, investment in trains soared and numerous innovations had built a large and committed customer base. This was all coupled with the renaissance of Britain’s larger cities as places to work and play, particularly London.

These significant achievements have been thrown away over the last 12 months of COVID lockdown. The implications of the consequent collapse, and how it has been handled, will have far-reaching consequences for future investment, fares and passenger choice.

The risk is that Ministers will now reach the wrong conclusions – and choose to ignore the huge opportunity for change which this situation offers.

Lockdown and the Government’s aggressive campaign against all but essential travel (which remains in place on rail until June 26th, and will then require social distancing) has delivered a body blow which has, in turn, necessitated de-facto nationalisation and the real likelihood that train companies will be underwritten by the taxpayer for the foreseeable future.

To date, over £10 billion has been spent to keep near empty trains running. But Conservatives who think that more state money and Whitehall control is the answer are merely papering over the cracks of a problem which needs radical change now. Cheaper fares will be lost, and civil servants will become responsible for running trains again – thus exposing their ministers to avoidable and unnecessary political risk.

While the initial Covid-19 guidance against unnecessary rail travel was unavoidable, it has gone on for far too long. Consequently, the shift from rail to road has been significant, and will be very hard to reverse in the medium term especially as working from home takes root. The old reliable rail flows and high passenger numbers, especially across the lucrative south east and London commuter market, are unlikely return to the highs of the last decade.

It is important to put some numbers next to the words. Currently train services are operating at about 75 per cent of pre-Covid levels. However, when social distancing is taken into account, passenger capacity being provided is roughly 40 per cent of the pre-Covid timetable.

According to the Office of Rail and Road, income from fares in the second quarter of 2020 was £184 million – this compared with £2.5 billion for the first three months of 2019, a fall of 93.1 per cent. The Department for Transport has propped up train firms with its Emergency Measures Agreement subsidy. Rail travel is still below 20 per cent of ‘normal’.

Franchised train operators will continue to need around £650-700 million a month to keep running up to and beyond June. Rishi Sunak pledged £2.1 billion in the Budget to support passenger trains up and until June. But what if a critical mass of passengers don’t come back by the late summer and beyond?

Season tickets represented 11 million of the 33 million rail journeys made each week before the pandemic. The extent to which this market has collapsed, as people work from home or await more flexible ticketing or carnet style offerings remains to be seen but, crucially, this traditional and hugely lucrative ‘golden goose’ has gone for now.

The Home Counties’ traditional five day season-ticket commuter market has been particularly devastated, and the plan announced in January to impose above inflation fare rises was just another hammer blow.

So why are empty trains being paid to run (by the taxpayer) all day between London, the commuter towns and elsewhere when there remains little demand, even in the traditional peaks? Why have some services not already been cut back in line with demand? The once popular long-distance intercity services connecting large cities are similarly struggling to pull passengers back (especially when the Government keeps telling you not to use them).

Ministers effectively nationalised the railways at the start of the pandemic, initially spending more than £3.5 billion to keep services running during a six-month emergency period that ended in September. This guaranteed train companies a profit of two per cent of operating costs.

The route of travel here seems clear: Ministers seem to have accepted that Whitehall knows best and most of the firms are of course happy to run near empty trains with a huge state subsidy.

Part of the problem here can be linked with too much short-term and panicked policy. John Major’s 1993 Railways Act ended 45 years of British Rail nationalisation, and allowed for a change in the quality of services with some competition and passenger choice compared with the old British Rail.

There were huge challenges in the early years with regards to infrastructure support and cost but the private sector, with the right initial political support invested in some new rolling stock and routes. But 20 different rail ministers in 25 years, numerous reviews and countless failed initiatives to deliver more private sector-led policy have all consistently suffered a pincer attack from both civil servants and trade unions.

Ministers risk drawing the wrong conclusions from the pandemic. If they stage a final retreat back to nationalisation and central planning almost 30 years since privatisation then passengers, taxpayers and the Treasury will be the losers.

This is surely the perfect landscape on which to bring the sector more into line with new and future demand, and develop more advanced modern and flexi-ticketing alongside competing services. Such an approach can lead to market led changes, lower subsidies and better encourage rail workers to resist and even oppose trade union diktat and strikes.

Unlike the privatisation of aviation, telecommunications, maritime or mail, why have ministers and civil servants not been able to relinquish their micromanaging of trains and fares? For far too long, the latest Rail Minister has hidden behind the latest Rail Review, which usually contradicted the last one.

In 2016. I gave evidence to the exhaustive Competition and Markets Authority inquiry into the future of the rail passenger market. Its findings and recommendations for a more flexible and competitive network were sadly ignored by the then Transport Secretary, but would have stood the rail industry in a much better place to adjust and shoulder the crisis it faces today.

Covid-19 has delivered a huge blow to the railways but has also delivered a rare opportunity. We now need a plan which embraces a market-led reset with greater efficiency and services in line with what customers want.

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Author: Tony Lodge


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