Wednesday, 28 March 2007

Non est mea culpa

It is increasingly commonplace for First Great Western to be blamed for all manner of ills which are completely outside of their control – but blaming the company for overcrowding on another operator’s service is simply nonsensical. Nevertheless, that’s exactly what Councillor David Unwin of Bridgend Council has done in a letter to Alison Forster.

Mr Unwin complains that the removal of a First Great Western train has created severe pressure on at least one of Arriva Trains Wales’ services. While there may well be some truth in the statement, Mr Unwin fails to see the matter in context and his analysis of the situation is intellectually pitiful.

First of all, FGW does not have complete control over its timetable and any cuts to services will have been mandated, or at least rubber stamped, by the Department for Transport. But that’s not the real issue here: the real issue is the unequal relationship between Arriva Trains Wales and First Great Western.

Compare the two.

Arriva is subsidised by the Welsh Assembly Government; it is able to run unprofitable services without concern for its overall financial stability. First Great Western is a commercial entity that receives no subsidy from the Assembly or, over the course of the franchise, from the UK government – indeed, it has to pay back over £1bn in premium payments.

Arriva is paid by the Welsh government to run a service for Welsh passengers: this duty of service, regardless of commerciality, is a condition of it accepting subsidy. First Great Western, while it wants to provide a good service, has no such duty: it cannot be expected to run unprofitable services just because councillors – or Arriva – want them to.

Arriva, by receiving subsidy, is able to distort the market. It takes a share of passenger income from the Welsh Market which, under normal commercial conditions, it would not be able to profitably service. First Great Western is deprived of at least some of this income and this, in turn, makes it less attractive for them to add services or capacity.

Yet, despite all of these considerations, when it comes to the issue of overcrowding on Arriva’s trains it is First Great Western – the private company running without government assistance – that is blamed. A double standard is clearly in operation.

Why do Councillor Unwin and his friends expect First Great Western, at their own expense, to provide services without regard to their commercial feasibility when they do not expect the same thing of Arriva? Why do Councillor Unwin and his friends not direct criticism at Arriva which is, after all, paid by the state to provide a good service to passengers? Why do Councillor Unwin and his friends not look to the Welsh Assembly government to sort out the anomalies in subsidy payments given to train services in Wales?

The answer is simple: for intellectually lazy politicians, it is easier to grab a headline by blaming First Great Western than it is to properly analyse the situation and report the truth.

Monday, 26 March 2007

The fallacy of renationalisation

Remove the franchise from First Great Western! Renationalise the railways! It’s the only way to provide a half decent service! How often have you heard such calls? And how tempted are you to believe that there is a degree of truth in them? If you are tempted then stop for a moment, think about what you are advocating and consider the following.

The first question to ask yourself is whether the railway system, as it exists today, is actually a proper private entity in any meaningful sense of the term. Who owns the railway? Not the train operators, that’s for sure. If they did then they wouldn’t have to bid for the right to run train services. In actuality, it’s the government which holds the title deeds to the railways: it says who can, and who cannot, run services; it tells them what services to run and, increasingly, how to run them. If the contractors don’t meet the government’s requirements then their agreement is terminated and their services dispensed with – as the case of GNER neatly testifies. That’s hardly a private system: it’s a publicly, state owned system partly contracted out, on a short term basis, to private companies.

So, if the system isn’t properly private in the first place calls to renationalise it seem somewhat futile. But there is also a more important issue at stake: the fact that most people believe the system is private leads them to arrive at sweeping and erroneous conclusions. These often take the form of blaming private train operating companies for most, if not all, of the railway's current ills. Yet…

…are cuts in services made by greedy private companies seeking to make a fast buck? No, they are actually driven by government actively reducing service specifications.

…are fare increases implemented by fat cats in boardrooms wanting to boost their profit figures? No, most fare increases are mandated by the government seeking to increase the amount of money coming from passengers.

…is the lack of new rolling stock and capacity due to corporations trying to save money by squeezing more and more passengers onto already overcrowded trains? No, it is caused by government-created franchise specifications which are restrictive and make no provision for rising passenger numbers.

See the pattern? At the bottom of most of the problems is the government, not private companies. Calling for yet more government involvement through ‘renationalisation’ is simply prescribing more of the same poison which is damaging the system in the first place. It will result in an even greater array of problems and a further deterioration in service quality.

Private companies don’t, of course, always get it right but they are, in general, far more efficient at running things than the government; and this is as true in rail as it is elsewhere. But in order for them to be effective they require a degree of operational freedom which just isn’t present on today’s rail network. However, while most people would, at least grudgingly, accept that private entities are efficient, the public is more sceptical about the profit motive of private firms. They think that profit can only be provided at the expense of a good service and that the mission of a private company is to ‘rip them off’. Nothing could be further from the truth.

There is nothing whatsoever wrong with making a profit. Indeed, it is profit that creates funds for future investment, for staff salary increases and for shareholders and investors. And neither is there anything wrong with providing a return for investors. The railways need capital; without it there can be no future development. And that capital will only come if rail companies are able to provide a good return for investors. No profit, no investors, no capital, no development, no new carriages, no new capacity, no new anything. And then we’re back to precisely the situation we had under British Rail where the railways were constantly starved of cash causing a backlog of investment which still haunts us to this day. Profit is an essential part of the functioning of a market economy and it works in everyone’s interests – rail passengers included.

It is also a mistaken belief to hold that private companies are only out to rip everyone off. Unlike the government’s power to tax, no private company, train operators included, is able to force consumers to deal with it. The only way for them to get money from people is by offering a positive: a service in return for payment. But train companies are a special case because they’re a monopoly provider, people will argue: they can subject us to horrendous conditions and extortionate charges and we still have to use them. But these conditions already exist on the rail network and they are caused, not by private business, but by government interventions. As such, it is a completely unconvincing argument to accuse private train operators of something they may do in theory when government involvement is already causing the very same problems in practice. In reality, while a truly private system may not be completely perfect, it would be more sensitive to consumers needs and would seek to grow its market share – and profits – by attracting non-rail users to the service: something it could only do by providing high service standards at reasonable prices; not by 'ripping people off'.

So, the state of today’s railway isn’t the fault of ‘privatisation’ at all and what the railways need today isn’t renationalisation. What the railways need today is privatisation proper.

Sardine Man

Transport 2000 has, today, launched its report into the most overcrowded rail journeys in Britain. Many of those coming in for fire are on regional routes rather than on commuter services such as First Great Western trains in the Thames Valley. Although, as the report fully recognises, capacity is now a very serious issue across the entire network.

The report contains some interesting analysis which supports many of the things this blog has been saying. Not least among them, the fact that the way franchises are structured by the government results in stock-underutilisation because of high leasing costs which, in turn, exacerbates overcrowding.

Julia Thomas, Transport 2000’s public transport campaigner, said: “It’s very easy to blame rail operators for overcrowding problems, but actually a lot of it is down to the Government’s rail policy – they have issued ‘no growth’ franchises for the past 10 years and they’ve been promoting a policy of fares hikes to get people to travel off-peak, but passengers really don’t have that much flexibility. In addition, the very short time periods covered by franchise agreements does not encourage any infrastructure investment by the rail operators.”

Amen to that.

You can see more about Transport 2000s campaign, and follow their mascot – Sardine Man – via the following links:

Sardine Man Blog
News release

Wednesday, 21 March 2007

Guilty, by their own admission

In a previous blog entry we mentioned that we were seeking, under the Freedom of Information Act, proof that First Great Western could not change services without express permission from the Department for Transport. Today, this proof has been provided.

The derogations against the changes to Oxford services announced on 9 January 2007, offer categorical evidence that First Great Western cannot change the timetable without authorisation from the Secretary of State. This is at odds with the Department’s past assertions that train companies are free to run additional trains: they are clearly not free unless the Department agrees with, and rubber stamps, their plans.

However, the information released also reveals something else which is highly significant.

It shows how the December 2006 version of SLC2 (Service Level Commitment 2) was changed by the government to significantly worsen the services provided to passengers. Route D2, where previously three additional services were required from Oxford, was changed to require just two additional services. Route C1, which is also mentioned, also suffered from such a reduction in service. In other words, the government built in the reduction in service into SLC2 (which drives the timetable) thereby causing the problems with capacity and frequency. Of course, these are just two of the very many reductions the Department will have prescribed.

The issue remains that the government exerts too much control over the railways. It is interfering and meddling in areas where it has no business to be and, in so doing, it is making life difficult for the travelling public and train companies alike.

Monday, 19 March 2007

A victim of circumstance?

First Great Western: villain or victim of circumstance?

Find out by reading The Truth About First Great Western. Now available for download in PDF format. Either use the link to the right or this link to download it. It works best if you right click and than use the ‘Save As’ option rather then left clicking on the links. Alternatively, you can request a copy by emailing and a copy will be sent to you by return

Sticking plaster

While the government’s announcement of 1,000 additional train carriages by 2014 is to be welcomed, the commitment represents the metaphorical equivalent of applying a sticking plaster to a patient who is haemorrhaging over the floor of the operating theatre. Furthermore, the plaster is being applied by the very same people who inflicted the wounds in the first place and, before taking this action, they stood watching for quite a while as the blood drained away and the patient descended into a medical crisis. Maybe that’s stretching the metaphor a bit too far, but you get the general idea: it’s too little, too late and does nothing to solve the, underlying, political problems of the rail system.

While the solution may be questionable, the government’s timing is prudent. The issue of rail overcrowding is a growing problem which is angering travellers well beyond the First Great Western franchise; in some areas passengers are in open revolt and are demanding action. But to anyone with any degree of knowledge about the railways this should come as no surprise. Passenger numbers have been rising for over a decade: by the Transport Secretary’s own admission by 40% since 1996. Yet capacity has been increasing at nowhere near the same rate and very little has been done to address this disparity between supply and demand. The current crunch, squeeze, crush or whatever other descriptive term you wish to apply to it, is the inevitable result.

That the government, which is the ultimate controller of the system, has sat on its hands for ten years is bad enough but, in some instances, it has actively exacerbated the problem of overcrowding. Take, for example the December 2006 timetable for First Great Western’s trains. Quite what objectives the Department for Transport’s planners had in mind when they designed this is unclear, but maximising capacity certainly wasn’t one of them. Indeed, their meddling has actually reduced capacity from busy commuter stations making trains even more crowded than ever before. If the government were serious about the solving the problem of overcrowding it would allow train operating companies, who know much more about the requirements of their customers, to at draw up timetables – or, at the very least, to have a much greater say in their creation. But the reality is, the present administration just doesn’t trust professionals to make decisions – they’d rather have decision making centralised in Whitehall.

So what of the train operating companies like First Great Western? Surely they could have added capacity? That would, of course be the ideal and, in theory, it’s what should happen. Train operating companies should see that passenger numbers are increasing as part of a long term trend and, in response, they should invest in new rolling stock to meet this demand and to attract further customers. That’s the theory. But under the current system, it isn’t – and will never be – the practice. Buying new trains is an expensive business. This in itself isn’t a huge problem: capital will always flow to any venture where it can make a return so, provided there is a demand for them, finding the money for new trains is perfectly feasible. But, there is the matter of the time taken for a return to be made. With franchise terms of seven to ten years, no train operating company is going to invest significant amounts in rolling stock quite simply because there is no time for them to get their money back. Until the lengths of franchises are made significantly longer, using train operating companies as a route to increased capacity simply isn’t feasible. And with the subsidy profile for many franchises being phased out, this is more the case now than ever before.

So, that leaves the government as one of the only sources of capital investment. But while government is financially profligate, it has many demands on its expenditure and can never be guaranteed to give rail the priority it needs. Moreover, government by its nature is short-term in its outlook. So even where a long term return can be made, why should a government today spend money only for a different administration to reap the rewards tomorrow? That’s part of the reason the announcement of increased capacity – which should have come ten years ago – has only just arrived and it’s also the reason why by the time the increase capacity is with commuters there will be a whole set of different problems that then have to be addressed, yet again caused by a misallocation of supply to demand.

Yet, even under this crazy system there is a simpler way. Over the next ten years the government is set to take huge amounts from franchises such as First Great Western’s where a premium of over £1bn is set to be paid. While part of this can be used to fund new trains by the Department, if the government were serious about alleviating overcrowding it could call up First Great Western and ask them in return for a reduction in the premium to keep the Class 180s Adelantes – assuming they have not now been assigned elsewhere – and use them, as well as the additional and refurbished HSTs to help improve capacity. That they haven’t done this shows their lack of commitment to making life easier for rail travellers.

So for the time being it’s jam tomorrow – both figuratively, and for long suffering commuters, quite literally

Saturday, 17 March 2007

The Truth About First Great Western

The Truth About First Great Western booklet is now available for download in PDF format. Either use the link to the right or this link to download it. It works best if you right click and than use the ‘Save As’ option rather then left clicking on the links. Alternatively, you can request a copy by emailing and a copy will be sent to you by return.

Happy reading!

Friday, 16 March 2007

Coming soon…

The purpose of this blog is to discuss the issues surrounding the Greater Western franchise and to try and get to the truth behind many of the problems that face today’s rail network.

Despite the title, its purpose is not, and never was, to blindly defend First Great Western but, rather, to show how it is unfair and wrong to blame First Great Western for circumstances which are not of its making.

This weekend the ‘Truth About First Great Western’ booklet will be published to this site. As well as showcasing some of the articles from this blog, the document provides a more balanced and structured discussion of the root causes of the issues and where responsibility begins and ends for many of the activities on the Great Western railway.

Thursday, 15 March 2007

Profit and service: perfect bedfellows

There is a much repeated fallacy that it is impossible for a private rail company to provide a good service. First Great Western has often been a victim of this allegation with a view that they have put profit before service.

The truth is that it isn’t impossible for a private company with shareholders to run a good railway service.

Over the longer term, a private company has got to deliver a steady and continuous growth in profits to satisfy both shareholders and the City. It is only possible to delivery such growth by satisfying customers. Cutting costs to the detriment of customer service certainly delivers a short term profits boost, but it doesn’t deliver sustainable growth – if only because existing customers eventually desert the service and it becomes increasingly difficulty to attract new ones because of a poor reputation. The ultimate consequence of such a position is that it becomes very hard to grow the top line (or revenues) and having already undertaken a cost cutting exercise the company has nowhere to turn to grow the bottom line or profits. And that is precisely why no sensible private company looks after shareholders to the detriment of customers.

When properly managed, cost cutting does, of course, have a part to play. And so it should: it makes things cheaper for customers and provides more money for future investment as well as allowing a better return for shareholders who, incidentally, are one of the sources for future capital investment. But it isn't the engine of growth of most private organisations.

I accept that today’s railway is run on a short term basis and this is, indeed, one of the central causes of many of the current problems. But the short term nature is not a problem caused by private businesses like First Great Western - it is a political problem brought about by an unsound franchising structure and a government that refuses to provide any long term strategic direction.

Tuesday, 13 March 2007

Ultimate responsibility

Consider the following scenario. You want to have a new home constructed and employ a builder to do the job for you. You give the builder some basic plans and let him know your budget. Based on this he then comes back with a detailed specification and costs. You discuss these between you, making some adjustments here and there, and then agree on final plans. The builder constructs the house according to the agreed specifications, finishes the job and presents you with the key. At this stage you invite your family to view the new property. They dislike every aspect of the home from the layout to the architectural design and refuse to move there. Who, in this instance, is to blame?

Most people who possess any degree of logic will answer that you are to blame, simply because you are the ultimate decision maker: you signed off the plans and you agreed the specification with the builder; in this case probably doing so without adequately consulting your family. Clearly, so long as the builder has followed the agreement he or she cannot be assigned any of the blame.

Now consider the following scenario. The Department for Transport want to create a new rail franchise and want to have someone run it for them. They provide bidders with a basic specification based on their budget. The bidders then come back to them with detailed plans, and from these the Department picks someone to undertake the running for them. They enter in to some further discussions making adjustments here and there before the plans are finalised. The contractor – let’s call them First Great Western – then starts running the service as per the agreement entered into. However, customers do not like the new service and start complaining. Who, in this instance is to blame?

For most people who are broadly ignorant of the way the system works – and why indeed should they be concerned with it – the blame is assigned to First Great Western as it is the part of the operation most visible to them. Yet, the principles that hold true for the first scenario still hold here. The Department for Transport is the ultimate contract manager: it, and it alone, dictates the type of service it wants and then enters into an agreement with a third party to run that service.

To blame a train operating company like First Great Western for running a service, no matter how inadequate, specified by the Department of Transport is as illogical as blaming a builder who constructed a home based on detailed plans given to him. Certainly, there are areas where First Great Western does need to take responsibility – such as the maintenance of its train fleet – but the overall structure and nature of the franchise is the ultimate responsibility of the government.

Monday, 12 March 2007

Better late than never

Some of the fiercest critics of First Great Western have been Conservative MPs: Teresa May, Ed Vaizey and Boris Johnson have, in particular, been scathing with their criticism. It is, of course, understandable that these MPs should be concerned about the service that is provided to their constituents. It is equally understandable that they want to appear ‘tough’ to the electorate and that the issues surrounding the Greater Western franchise have provided them with an ideal platform for the flexing of their muscles.

Nevertheless, in placing the blame at First Great Western’s door, the MPs have let the Department for Transport off the hook. It is, after all, the department’s absurd micromanagement – or micro mismanagement – of the rail network which has created so many of the problems that now exist. This is a lamentable failure on the part of the Conservatives – for if opposition MPs can’t, or won’t, hold the government to account, then who will?

It was notable, therefore, that the Shadow Transport Secretary, Chris Grayling, in a recent speech seemed to recognise that the fundamental problem with today’s railways lies not with the train operating companies but with the way it is run and controlled by the government.

Mr Grayling identified two barriers to the future success of Britain’s railways. The first of which is too much political interference: “Douglas Alexander is inheriting a Department that has more operational involvement in our railways than ever the Government did when British Rail was around. I think it makes no sense at all to have railway timetables written by Government officials”, he said. And he is right: as this blog has stated before, it makes absolutely no sense whatsoever for a remote government department to do a job that seasoned professionals could do so much better.

The second barrier is the way in which the industry is structured, involving the separation of track and train. This of course was a Conservative failure in the way the system was privatised – so it is a significant admission on Mr Grayling’s behalf. However, this recognition of failure must be warmly welcomed for, indeed, the lack of control the train operating companies have over their essential infrastructure is a root cause of many of today’s problems. Integrating the network would make for a much more customer responsive system that works for rail operators and passengers, rather than – as it so often does now – against them.

The Conservatives will, no doubt, be formalising their rail policy over the next year or so. As a start, however, it is encouraging that they have quickly identified so many of the root problems. What they need to do, however, is to stop the appalling attacks on a private company by their Members of Parliament and start directing the criticism where it belongs – with the Department for Transport.

Friday, 9 March 2007

Parallel universe

In a parallel universe, not dissimilar to our own, Alison Forster the Managing Director of First Great Western, runs train services. Miss Forster has complete control over all aspects of her operation: she is not coerced by government, she is not answerable to politicians and she calls all the shots.

Because Miss Forster knows that her company owns rail the operation outright and that it cannot, without the consent of shareholders, be taken away she is able to make long term decisions. She can, for example, borrow money for capital projects such as buying new rolling stock or improving stations. Investors, because they know the company has a long term future, are willing to lend the money; Miss Forster, because she knows she has time to see that money work for the company and generate a return, is prepared to borrow it and pay interest on the credit she has been extended. Miss Forster has recently purchased a lot of brand new trains because she knows that passenger numbers are rising and she can make money out of running more services.

Miss Forster also has control over the infrastructure her trains run on. If she doesn’t like the way maintenance is being undertaken, she can sack the contractors. If she believes maintenance work is getting in the way of providing a good customer service, she can reschedule it to a time which is more convenient for her passengers. She is also able to direct funding to where it is most needed:: Miss Forster has recently had new signaling put in at key pinch-points on her network to alleviate congestion, reduce journey times and to allow more of her new trains to run without having to build new lines.

Miss Forster and her staff are also responsible for the timetable. They decide what runs, where it runs and when it runs. Fortunately, the First Great Western team is expert at rail operations – many of them have been in the industry for years, so they know exactly what they’re doing. Miss Forster sets her timetable to help her make a good profit. This means she provides services to satisfy the maximum number of people. True, there is a trade off between maximizing profit and the number of services run, but Miss Forster knows she has to provide a decent level of provision otherwise the First Great Western brand becomes tarnished and it becomes more difficult to persuade customers to travel which harms long term growth prospects.

The lesson from the parallel universe is that systems run under a free market perform far better than those controlled or run by the government. They are more responsive to passengers, more efficient at allocating resources and more effective at taking longer term decisions. If you doubt it, just examine today’s economy. Those areas run or heavily controlled by the state, including rail, are riddled with problems; those run by private industry are, by comparison, paragons of efficiency.

The first step to a better rail service is the complete removal of the government influence which has, for too long, held back an industry desperately in need of free market forces.

Rhetoric or reality?

There is, in logic, a fallacy known as the argumentum ad misericordiam: in English, it means an emotional appeal ignoring pertinent facts. It is this exact fallacy that Aslef, the train drivers’ trade union, relies upon in its recent criticism of First Great Western.

Aslef claims that the reusing of partly worn brake pads on First Great Western’s Class 180 trains is a reprehensible practice which is putting the public at risk. Yet, the organisation fails to produce one shred of evidence to back its claim; nowhere is proof provided to demonstrate that the reuse of brake pads reduces the effectiveness of a train's braking system. Instead, Aslef is relying on emotion. By using rhetoric like ‘putting lives in danger’ Aslef is cynically playing on public fears, which are especially heightened so soon after the Cumbria rail crash. But rhetoric is not a replacement for evidence, and Aslef’s comments should be readily dismissed.

If public safety isn’t at risk then what is Aslef’s real motive in raising this issue? The answer to that is simple: the unions never have, and never will, support a privatised or semi-privatised rail network. Their broad aim is for the rail industry to be returned to government control where they can wield more influence and power. It is, therefore, within Aslef’s interest to discredit the private sector at every given opportunity.

That, and that alone, is the real reason Aslef raised the issue and why it worked so hard to publicise it through the media.

Thursday, 1 March 2007

Time to change ... our politicians

Recent calls by politicians of all parties for First Great Western to be stripped of its franchise serve only to demonstrate two things: the hypocrisy of today’s political class and their complete lack of commercial understanding.

They show hypocrisy because many of the problems, especially in relation to the new timetable, are the direct consequence of political meddling. Rather than letting First Great Western get on with running the railway, the Labour government and its Department for Transport has decided to micromanage almost every aspect of the system. The result has been disastrous both for First Great Western and for its customers. The Conservatives, represented most vocally by the increasingly sanctimonious Theresa May, are little better: it was, after all, the Conservative Party that presided over the botched privatisation of British Rail. Many of the mistakes made during the privatisation process – like the short nature franchising system – still haunt the railway today and are the root causes of some of the issues faced by passengers.

They show a lack of commercial understanding because if private train operating companies could actually have their contracts terminated at the caprice of politicians it would do immense harm to the rail industry. No companies would be willing to go to the expense of bidding for a franchise that they could lose in the blink of an eye: investment would dry up and passengers would suffer.

We actually don’t need a new train operating company. What we need are new politicians: ones who actually admit to the mistakes they’ve made rather than hiding behind private companies; and ones who look for long term solutions to the problems rail faces rather than spending their times uttering meaningless headline grabbing soundbites to make them sound impressive to their constituents.