Downloading PDF. Please wait... Issue 2140

Workers suffer as rail franchises fail

This article is over 12 years, 10 months old
Spending on the railways is being cut as companies try to boost profits, writes Matthew Cookson
Issue 2140

Britain’s private rail companies look set to be the next victims of the recession and they are demanding the government helps save their profits.

Mike Mitchell, the senior civil servant in charge of Britain’s railways, has said that the government has attached a red light symbol to five unnamed franchises under its monitoring system of companies’ financial health.

Representatives of the five main railway franchises – Go-Ahead, Arriva, Stagecoach, FirstGroup and National Express – met transport secretary Geoff Hoon last month.

Bosses circulated a note before the meeting that listed a number of measures to deal with the crisis.

These included shortening trains, the government taking on a greater share of losses on contracts, government funding for 1,000 jobs on the network and an easing of borrowing restrictions on contracts.

The companies are being hit by falling passenger numbers as people reducing their expenditure and job losses mean fewer people are travelling to work.

They are also worried about falling inflation.

Under the franchise agreement, most companies can increase their fares each January by the Retail Price Index (RPI) measure of inflation, plus 1 percent.

This agreement shows where the government’s interests lie.

It spent much of the last two years insisting the workers’ wages should be linked to the then much lower Consumer Price Index (CPI) so as not to destabilise the economy.

But it was allowing its privateer friends to increase rail ticket prices by above RPI to bump up their profits.

This meant rises of about 6 percent this year. But with RPI falling dramatically, hitting 0.1 percent in January and expected to become negative, this could mean falling ticket prices next year.

While the rest of the population would welcome this, it would devastate the privateers.

The government awarded most of the franchises over the last few years, with companies paying high prices for them on the assumption that passenger numbers would increase by up to 10 percent year on year.

The government has agreed to make up part of any shortfall if a company’s revenues does not match their original projections.

But this agreement does not become live until the end of the fourth year of a franchise.

First Group’s two main franchises, First Great Western and First Capital Connect, are both eligible for this agreement from April. But the other major franchises are not.

The companies are taking drastic measures to try to deal with the crisis. Stagecoach last week axed Ian Dobbs, the head of its rail business.

Brian Souter, the Stagecoach chief executive, has now taken personal charge of the group’s South West Trains franchise.

The RMT rail workers’ union has said that more than 3,000 rail jobs are under immediate threat as private franchises seek to protect profits and Network Rail implements a huge spending squeeze.

But the privateers, despite the crisis, are continuing to rake in the profits.

Go Ahead last week announced rail operating profits of just under £35 million for the second half of last year.

Privatisation has been an expensive disaster for the traveling public, with fares in Britain about 50 percent higher than those in Europe.

The railway analyst Christian Wolmar comments, “Since privatisation in the mid-1990s, the government has been subsidising the railways to the tune of 500 percent of their costs, about £5 billion per year, and yet fares are still high.

“That shows the extent to which privatisation has pushed up costs.

“Unfortunately, this is going to get worse. The government wants to push more of the cost of the botched privatisation on to passengers to reduce the taxpayers’ burden.”

Instead of continuing down the failed privatisation route, the government should take the railways back under public control, as the unions and passenger groups are demanding.

It could then reverse job and service cuts, reduce ticket prices and dramatically expand rail services.

This would provide jobs in the recession and encourage millions of people to use the railways, which are much more environmentally friendly than air and road travel.


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