Why Britain's Railway Privatization Failed
"A short history lesson helps," wrote Christian Wolmar, a British journalist and leading critic of the privatization of British Rail that began in 1993. Taking readers back to the 1820s, he wrote:
When the promoters of the Liverpool & Manchester Railway, Britain’s first proper railway, were examining how they should operate their business, they considered allowing all comers and simply charging access to the track. However, they looked at the situation on the Stockton & Darlington, its ramshackle predecessor, where various users competed against each other, and decided they did not want to replicate the chaotic situation whereby different users came to fisticuffs over who should have right of way.
The U.K. is relearning this lesson nearly two centuries later as its rail operators duke it out not on the tracks, but in Parliament and the courts.
British Rail, which owned and operated nearly all of the country's railways, underwent a total privatization in 1993. The infrastructure was spun off as "Railtrack," and shares were sold to the public. Dozens of franchises were then awarded to private companies to operate trains on the various lines.
The separation of infrastructure and operations turned out to be a fateful decision – perhaps even more important than the privatization itself. Railtrack has since been nationalized, but private firms still run on the vast majority of lines.
The latest bout between operators was sparked when Richard Branson's Virgin Trains lost its last franchise in the U.K., essentially kicking it out of the passenger rail business. The West Coast Main Line, a key British rail corridor connecting London to Birmingham, Liverpool, Manchester, Edinburgh, and Glasgow, will soon be operated by FirstGroup.
Photo credit: Adrian777/Wikimedia Commons
FirstGroup's bid has raised eyebrows, though. The company's bid is predicated on growth of more than 10 percent each year, conjuring up fears that the operator will end up like its East Coast counterpart – broke and unable to hold up its end of the bargain.
Trouble on the East Coast Main Line began in 2006, when the line's decade-long operator, Sea Containers, had to be stripped of its franchise after overbidding. The franchise was then awarded to National Express, which bowed out in 2009. The line was finally nationalized, and will remain in the hands of the Department for Transport until at least 2013.
And operator defaults are only the latest problem.
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The trouble with the single private infrastructure owner, Railtrack, began soon after privatization in 1996. By 1999, 38 people had been killed and over 600 injured in two major crashes on the Great Western Main Line.
A third major crash in 2000 in the town of Hatfield on the East Coast Main Line killed four more. Railtrack was finally nationalized for good and rebranded as National Rail.
The controversy over privatization has also spread underground. In the early 2000s, a public-private partnership (PPP) was created to contract out track and train maintenance on various lines of the London Underground.
From the start, the plan was controversial. Ken Livingstone, who was mayor of London at the time the PPPs began, called the program "a scheme which every independent transport expert opposes."
Tim O'Toole, the American executive in charge of the Underground at the time, told the Guardian, "The more we look at the PPP, the more the craziness and the diabolical nature of the contract reveals itself." (Though now that O'Toole is in charge of FirstGroup, a train operating company, he has changed his tune on vertical integration.)
One Tube franchisee, Metronet, fell into bankruptcy in 2007. The other, Tube Lines, was bought out by Conservative Mayor Boris Johnson in 2010. And with that, the London Underground went back to being a public, vertically-integrated railroad.
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A key reason this latest privatization push failed is vertical separation. This was controversial from the start. Before the railways were nationalized by Clement Attlee's Labour government in 1947, they were run by four major companies, each of which controlled its own infrastructure and operations. Rumor is that when the Conservative government won the 1992 general election and was deciding on how to privatize British Rail, the prime minister himself, John Major, was in favor of a return to this old "Big Four" structure.
Credit: Classical Geographer/Wikimedia Commons
But the view of the Treasury, and especially Steve Robson, its "privatization guru" (also later responsible for the Tube's PPP scheme), won out. All of British Rail's tracks would be owned by a privatized Railtrack, its locomotives and carriages would be distributed among three private "rolling stock operating companies," and private "train operating companies" would bid for the various franchises.
Christian Wolmar was not an enthusiastic supporter of privatization per se – "once you have government involvement, you might as well have government ownership," he says – but he thinks that separation of infrastructure, rolling stock, and operations was the plan's fatal flaw.
"I've always thought that the break-up was worse" than the privatization, he said. "Every railway man I've ever talked to will privately admit that it's no way to run a railway."
David Gunn, who has managed the vast majority of passenger trains on the eastern seaboard at one point or another, says he tried to prevent such a break-up in the United States. He was fired from Amtrak by a board appointed by George W. Bush, he says, for refusing to go along with a plan that would ultimately separate trains from track.
"In a railroad, the operation is so tightly connected with infrastructure – it's very different from a highway," he explains from his home in Nova Scotia. "On a highway, what's the signal system? The most elaborate highway you can think of has a painted line that defines the lanes and tells you where you can pass – dotted or solid."
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For Britain's rail network, vertical reintegration has been a constant topic of discussion.
Merseyrail, a self-contained commuter rail network centered on Liverpool, was a good candidate for vertical integration, which its former chief executive championed for years. But the plans were abruptly shelved last year, reportedly due to opposition by labor unions.
South West Trains has had more success with its softer approach to vertical integration. The train operating company, whose franchise covers intercity and suburban lines radiating from London's Waterloo Station, entered into an "alliance" with Network Rail this year to coordinate infrastructure repairs and upgrades.
"In some cases," Christian Wolmar wrote, "Network Rail staff will report to South West Trains managers."
Britain's privatization experiment is of particular interest to the rest of Europe, which has been edging towards liberalization at a much slower pace. The European Union wants member countries to separate rail infrastructure and train operations, although most countries outside of the U.K. have only imposed a superficial barrier between the two.
The European Union "is discussing a railway package at the moment," Wolmar says. "I was just invited to a conference about precisely this subject," vertical separation of railways. "In a backwards kind of way, I think [the U.K.'s experience] has raised the issue in the E.U."