Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The dim-witted engines on the fictional island of Sodor are endlessly causing “confusion and delay”, in the words of the Fat Controller in Thomas the Tank Engine. No matter how hard Thomas, Percy and friends try to be “really useful engines”, the result is a total mess.
The state of the English railways would strain the vocabulary of Sir Topham Hatt, Sodor’s beleaguered rail boss. Delay: obviously. Confusion: that is a given. But the system is in a state of strategic gridlock and paralysis — one that looks set to persist.
Since the government stepped in to scrap private franchise contracts and keep the railway running under emergency measures during the pandemic, the sector has been in limbo.
National rail contracts, which pay a fixed fee to operators to run a government-controlled network, have taken the place of the pandemic’s emergency arrangements. A strategic overhaul was already planned given the failures of the franchising system before 2020. But the recommendations of the 2021 Williams review, including for a “guiding mind” overseeing both services and infrastructure in the form of Great British Railways, have yet to be enacted.
The chance of meaningful progress before the next general election is slim. As a result, most everything else — from new services contracts to simplification and reform of fares to determining what to do with the four failed franchises that are currently being operated by the government — is gummed up as well.
This strategic deep-freeze is having serious knock-on effects. Hitachi’s rail business has written down the value of its factory in north-east England, because of a lack of orders for new rolling stock. Alstom has warned of job losses at its Derby factory as work runs out.
This is not because companies do not need new trains. Multiple operators are trying to push through orders, according to one senior industry figure, but are bogged down in public procurement processes.
Whereas orders for new rolling stock were once specified in franchise agreements, every decision now has to run through the government. The rail manufacturing sector, which employs more than 30,000 people, according to the Railway Industry Association, needs several hundred orders a year to be sustainable. There have been no significant new build or refurbishment orders since the HS2 fleet in 2021, business that is now also in doubt.
In a country seemingly allergic to long-term planning, this is simply the latest bust in a long cycle. In 2010, the manufacturing sector for rolling stock had shrunk to one factory, before an order boom set off a scramble for capacity. The absence of a strategy for rail electrification, another boom and bust area, makes it harder for rail operators to know what they should be ordering and when.
The organisation of rail services is, to some extent, irrelevant to the travelling public who care about timetables, fares, and service levels. But the post-pandemic set-up, where every penny of spending has to be centrally cleared, threatens to become corrosive, as decisions slow, revenues drag and cost-cutting pressure mounts.
Passenger numbers have almost recovered across the system. But the shift towards less lucrative journeys, with fewer commuters and season tickets and more leisure travel, means revenues are only 75 per cent of pre-pandemic levels, with the Treasury plugging the gap. Open access services, which operate without government contracts and bear commercial risk, are performing better: First Group’s Lumo and Hull Trains services both managed 40 per cent revenue growth in the first half of the financial year to the end of September.
The recent discussions about introducing a revenue incentive, allowing train companies to make bigger profits if they increase passenger numbers, into contracts is welcome. But it is tinkering with a second-best system, with huge uncertainty about its future. The government says it intends to return the four franchises run by the state-owned “operator of last resort” to private hands but has no blueprint for how to do so, even if there were time before the election.
Labour’s intention is to let contracts end and take operations into public hands through the OLR. But it has not said how those would be managed, the role that GBR or private train companies might play, or how this would improve anything.
Either approach, at a basic level, requires a long-term objective for what the country wants to achieve with its rail network and a plan for how to get there. Now that really would be very useful indeed.