Building the model railway

Download the Building the Model Railway booklet by clicking on this link. 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 fgwtruth@gmail.com and a copy will be sent to you by return

The way some sections of the media portray it, you would think that Britain’s railways were in an awful state. In reality, they aren’t. The picture is actually a lot more mixed. Yes, some parts of the railway are dreadful but other bits are actually pretty good. What does hold true across the network, however, is that our railways could be a great deal better.

With so many economic and social forces favourable to rail travel, the era in which we live should be the new age of the train. At a time of increasing environmental consciousness, trains are an eco-friendly way of moving both passengers and freight. At a time of increasing house prices, trains allow people to live further out from expensive urban locations and still easily reach their places of work. And, at a time when people are looking to simplify their lives and strike that elusive ‘work-life’ balance, trains provide method of getting from A to B which, unlike driving, requires very little effort from the passenger and should, in theory at least, be relaxing.

Yet, this is not the golden age of the train. This is the age of cynicism about rail travel. Why? Part of the answer lies in the fact that the railways have actually been successful. The socioeconomic factors mentioned above have resulted in an upswing in demand: more and more people are now travelling by train. Unfortunately, supply has not kept pace with this demand and, as a result, conditions have been created which have both annoyed and frustrated passengers. The reports of overcrowding, lack of seats, timetable anomalies and so forth, all neatly demonstrate this fact.

The laws of supply and demand are fundamental; they are the only laws which cannot be repealed! So, when supply doesn’t keep pace with demand there has to be some reason as to why the economic mechanism is prevented from working. In the case of rail, the reason is the restrictive system or parameters within which the network has to operate. The system is not a natural one found in most functioning market systems; it is an artificial creation which hinders progress and development. The designer, implementer and enforcer of this system: the government.

Talking about the system in this way is not an excuse; it is not about absolving First Great Western, or any other train operator, from any blame. It is actually about trying to find proper and lasting solutions to the issues which face the railways. The challenge is to let the forces of supply and demand bring about what everyone in the industry, and everyone who travels, wants to see: an efficient, effective, successful and admired railway.

The booklet published today details three key changes which are required if the system is to be made more responsive and if rail travel is to significantly improve over the longer term. They are the cornerstones of policy. They are not the only solutions and nor are they fully fledged plans. What they are is a start. They are the first steps that need to be taken if we are to build, for our future, a model railway.

Too high a price?

Even in a capitally intense industry such as rail, a billion pounds is a lot of money. It’s not, therefore, surprising that eyebrows were raised when it was announced that First Great Western would pay the government a £1.1bn premium for running the Greater Western franchise for ten years.

Can First Great Western meet their financial obligations to the government? The broad answer is: yes, they can. From an external perspective, the financials do stack up. Admittedly, they are not easily attainable: the business model relies on consistently high levels of revenue growth, say 5-7% per annum, and a tight management of operating costs. Nevertheless, the bottom line is that they are within the realms of feasibility.

That’s all well and good, but asking whether First Great Western can meet its obligations is actually the wrong question to ask. The thing the commentators should be asking is: what value are travellers going to get from the £1.1bn being paid to the government? And let’s be clear on one thing: the £1.1bn will come directly from the pockets of travellers; it is the equivalent of a 15% tax on ticket sales.

One of the problems with the current rail system is that it simply isn’t transparent. Most people don’t realise that a large part of their travel costs go directly to the government’s coffers. As such, they don’t hold the government to account as they do when it comes to discussions of how more visible forms of taxation, such as income tax, are spent. Yet, First Great Western customers, especially regular travellers and commuters, should hold the government accountable. They should ask questions. And they should demand that part of the ‘travel tax’ they pay is spent to improve their travel experience.

Over the past ten years, and over the next ten, the Greater Western franchise region has been, and will continue to be, financially transformed. Back in 1996/7 when rail was first privatised all constituent parts of what is now Greater Western received an operating subsidy. Great Western mainline services were given £61.9m a year; Thames Trains received £43.7m a year; and, Wessex, received a subsidy of £84.6m. By the end of the last franchise which ended in 2006, both FGW mainline services and FGW Link services were paying the government a premium. Wessex still received a subsidy, albeit one that was much reduced. All of this is testament to the private involvement of the train operating companies which dramatically improved efficiency.

Over the next ten years, the amalgamated franchise will more than pay its way. Even including the former Wessex operation, it will be a net donor to the government. It is, therefore, right that travellers should expect something back for the money they pay. Exactly what they should get is a matter for debate, but extra capacity would be a good starting point. What wouldn’t be fair is for the premium payment to be used exclusively for the benefit of other projects or franchise regions. At the very least, the government should be honest and let people know how they are intending to spend the money and how much of it will benefit Greater Western.

In reality, of course, the whole system is completely the wrong way around. The government, which has instilled and explicitly built into the franchising system a culture of high premium paying tenders, should actually have done something else entirely. They should have created a system where bidders were encouraged to maximise investment into their own operations, not the amount they pay to government. That way, money would find its way directly into front line benefits without being eroded away by Whitehall bureaucracy.

The point, then, is not whether the price of the franchise is too high; the point is whether or not the price will, ultimately, be of any real benefit to Greater Western customers.

Credit where credit is due

It is easy for politicians to promise anything when they’re in opposition; the hard part comes when – or if – they have to deliver. To be fair, David Cameron has so far, not promised an awful lot, preferring instead to bide his time until nearer the election. A closer examination of the party’s communications does reveal, however, certain key themes emerging: one of them being an increasing concern about the state of Britain’s railways.

Earlier this week, Mr Cameron said that tackling overcrowding on trains would be an urgent priority for any future Conservative administration. There will be no new government money but, rather, Mr Cameron said funding should come from the premium payments the government will receive from the new franchises like First Great Western’s.

His idea makes sense. First Great Western is due to pay well in excess of £1bn in premium payments to the government over the next ten years: more than enough money to replace FGW’s entire HST fleet with cash to spare. Indeed, if only a tenth of this payment were invested in new rolling stock, it would add significant capacity to the Greater Western network.

Quite what the government actually has the £1bn earmarked for is anyone’s guess; it probably hasn’t calculated it’s budgets that far ahead. But releasing only a tenth of the premium for future investment in rolling stock – which will in turn most likely lead to higher levels of demand and a subsequent increase in income to the fare box – isn’t beyond the realms of economic feasibility. It’s fair too. The money paid in premium can come from only one place: First Great Western’s passengers. In effect, it is an indirect tax levied on everyone who travels on Great Western’s trains. Well, passengers want part of this ‘tax’ to be used for their benefit – not just for the benefit of other franchises or for the myriad of hapless schemes the Department for Transport happens to have in mind.

The response from the government was typically dismissive. Commenting on the Tory proposals, the Transport Minister, Stephen Ladyman, said: “you can't just wave a magic wand and make these things happen instantly. It takes time.” Yes it does. But your government has had ten years, Mr Ladyman – ten years and precious little to show for it.

So, while Mr Cameron’s latest rail idea remains sketchy – and is not a panacea as it fails to deal with any of the structural problems of rail – it is, undoubtedly, a step in the right direction.

An open letter to the Secretary of State

Dear Mr Secretary

Almost five years ago your predecessor, Alastair Darling, spoke at the Railway Forum. In his speech he said: “…the Department will always be open to new ideas and approaches. Not just from industry but user groups and the wider public. If there's a case for change or a new approach, let's discuss it.” I hope, Mr Secretary, that you share his opinion because there has never been such a compelling case for change as the situation we find ourselves in today.

Over the past ten years we have witnessed unprecedented growth in rail travel. I know your department is aware of this, not least because it regularly boasts of this trend as some sort of government achievement. Whether this pride is justified is a matter for debate, not least because despite the success of rising passenger numbers, all is not well on our railways. The crux of the problem: supply is not meeting demand.

At the most basic level, there are not enough carriages to properly service the number of passengers the railway is currently carrying, and will have to carry over the medium term. But the problems are not just confined to this issue; supply and demand are mismatched in other areas too. Timetables are not responsive to the needs of local people; some lines experiencing passenger growth have seen a decline in the frequency of services; and, fares are going up while customers feel they are getting a worse, rather than better, travel experience.

These things may seem like a disparate mix of problems with no connection between them. The reality is that they all stem from the same root: a system which is fundamentally flawed. Now I know this system was not authored by your administration, but is a system over which your government has had stewardship for the past ten years. Ten years is a long time. It affords ample opportunity to design and implement something better; something that actually works to the advantage of travellers. Unfortunately, for all their fine sentiments and words, none of your predecessors had the courage to seize this opportunity. Maybe your tenure will eventually prove to be the exception, but from what I have seen to date all you are currently offering is ‘more of the same’. To continue like this would be a shame, so here are some constructive suggestions for your consideration.

First, remove yourself and your armies of civil servants from interfering in the day to day running of the railways. Frankly, Mr Secretary, it’s not something you are terribly good at – although, if it is of any comfort, it’s something no government department has yet mastered. For example, when you set First Great Western’s December timetable – which, despite your claims to the contrary, you did via the SLC2 specification – you completely messed up what was, previously, a perfectly viable service. You did this because you were meddling in something you had very little knowledge of: timetable setting is a practical matter, not some theoretical exercise that can be managed from a dusty room in Whitehall. You may have noticed that many parts of our economy run perfectly well without micromanagement from the state; indeed, they are generally far more successful than those parts under central control. Nota bene!

Second, sort out the franchising system. There are lots of practical things you can do, but the current mechanism just doesn’t work to the advantage of anyone. You could, if you had the political courage, issue long term franchises – say 25 years plus. This would give train operating companies a real chance to develop strategic visions for their areas rather than being a hostage to the short-termism imposed on them by their contracts. They would also be much more willing to invest in new rolling stock to aid with capacity problems. In short, longer franchises equal more private investment.

Third, when you issue franchise specifications you need to make sure your calculations stack up and that you take a holistic approach to passenger growth. What do I mean by this? Well, Mr Secretary, take the First Great Western franchise as a case in point. Your department was certainly beguiled by First Great Western’s growth projections – which were higher than your own (probably because they are more sensitive to market reality than your planners) – and you were keen to extract the financial premium that such growth would allow. However, you didn’t really think about the flip side to this: how that demand would be met. You didn’t, for example, build in much of a provision for new rolling stock. In fact, truth be known, other than accepting First Great Western’s refresh programme which will introduce more seats on the HST services, you didn’t build in a provision for ANY new rolling stock. That’s hardly integrated thinking.

Fourth, and this is most important, you need to be open and honest about your approach. You are the sole guardian of rail strategy. The government sets the parameters of the system and determines the way in which it will be run. You, and only you, have the power to issue and rescind franchises. You have all the power but it seems that you want none of the responsibility that comes along with it. On the December timetable issue you blamed First Great Western for the incompetence of your own planners. When the GNER franchise collapsed you blamed the company’s management, even though your own department should have recognised the financial shortcomings in their bid. Quite simply, Mr Secretary, it’s not good enough and you have got to do better. If you want to make unpopular decisions because you think they are right then have the courage of your conviction and explain to people what you’re doing and why. If you make mistakes you should admit to them and move on, not try to shift the blame to save your own skins.

There is, of course, much more advice I could give you but implementing these first four steps would represent a very good start.

In closing, I do not seek to claim that all the failings on today’s railways are down to your department. I do believe, however, that whether deliberately or accidentally, government policy has exerted a negative influence and held back the railways for far too long. So my message to you is quite simple: get off the track, Mr Secretary, you’re delaying progress.

Yours sincerely

CJ Harrison

Who does what?

Passengers travelling to and from Swansea are, rightfully, outraged. Engineering work which was supposed to be completed after the Easter break is taking an extra week and, as a result, there are no services either in to or out of Swansea. Massive disruption has ensued.

Meanwhile, Mr Pedersen of Maidenhead is annoyed with what he sees as ‘yet another’ points failure which has caused him difficulties. In protest he has written a strongly worded letter to the Maidenhead Advertiser. In his letter he asks a pertinent question: so are Network Rail or FGW to blame for the failure to properly repair this set of points outside Maidenhead?

The answer to his question is that Network Rail is fully responsible for the maintenance of all network infrastructure: they look after signals, tracks, points and all other ‘bits’ the trains run on. They also manage all engineering and renewal work – which means that they, and they alone, are responsible for the current problems in Wales.

First Great Western has no responsibility for these areas: it is completely at the mercy of Network Rail. That, for better or for worse, is the system we currently have. It is a much misunderstood system but let’s be clear on one point: anyone who blames FGW for infrastructure problems is either ignorant of the facts or is simply evading the truth.

More questions than answers

The government’s announcement of 1,000 extra carriages to alleviate overcrowding isn’t so much of a policy as a glib soundbite designed to take some of the heat off an increasingly pressured Department for Transport. Indeed, the whole matter raises far more questions than it answers.

Question one: where will these new carriages go? The Department has already answered this – it doesn’t know or hasn’t yet made a decision! Such a position demonstrates the ad hoc nature of the announcement and the complete lack of planning and foresight within the government’s rail division. Surely capacity increases should be demand driven. In other words, the number of additional carriages should be determined by examining exactly what is needed on the network, where it is required and what it is financially viable to deliver. Requirements certainly shouldn’t be determined by plucking a rounded number out of the air, which is precisely what seems to have happened here.

Question two: how will current franchises benefit from the additional capacity? This applies especially to First Great Western’s franchise, but it is also applicable to others. According to the government’s rather sketchy timetable, additional capacity will start to enter service well within the existing leasing terms of many current franchises. Since the scope and financials for these franchises have already been determined, how will they benefit from additional capacity? Is the government planning to provide the carriages free or for a discounted price? If it isn’t, does it intend to force – by some mechanism – franchisees to pay for additional capacity that wasn’t part of the original franchise specification?

Question three: how much will the new carriages cost? No one knows exactly. Some figures have been bandied around by the Department but none of them are fixed, they are merely rough estimates. It is notable that the Secretary of State for Transport was very careful in his announcement to include the phrase “if the price is right”. In other words, he does not want to fully commit himself to additional carriages without knowing the price. A sensible policy but one that suggests that the announcement was somewhat premature and ill thought through.

Question four: are the additional carriages part of an integrated policy? It is all very well providing more rolling stock but unless it is matched with increases in platform length and other necessary changes in fixed infrastructure then its impact will be somewhat muted. Network Rail recently announced its business plan, but since the government can’t say where the rolling stock is going, it appears highly likely that this plan isn’t fully aligned with the Department’s intentions.

These questions are not academic curiosities: they are critical factors to which there should be answers. It is worrying that the Department for Transport – which is supposed to be the guardian of rail strategy – is not able to provide clarity over any of these points. Can you imagine a private sector business being run in this way? It would be like First Group going out and buying 1,000 new buses without determining where they are to be run; or, British Airways ordering 50 new aeroplanes without having any idea of how they are going to use them.

This current muddle, which is supposed to constitute a strategic vision, is little more than an absurdity – and one which is entirely symptomatic of the lack of focus the government has when it comes to rail policy.

The pound in their pocket

The profit motive – the idea of making surplus cash out of dealings with customers – is one of the most misunderstood concepts of corporate Britain. The public generally don’t object to companies making a little money, but are quick to pronounce a negative verdict on those they see as making ‘too much’ - although no one has yet come up with a robust definition of exactly how much constitutes ‘too much’. They also readily denounce the profits of those organisations they see as making money out of an inferior product. These indictments were the subject of a recent letter to the Maidenhead Advertiser from Anu Sharma. The topic of her correspondence: First Great Western.

It is not the job of this blog to defend the profit motive per se. Although, as has been said before, the role of profit on the railways works as it does elsewhere in the economy: to provide capital for future investment and expansion, both of which ultimately benefit consumers. Profit should not, therefore, be too much maligned. But are Ms Sharma’s specific charges against First Great Western justified?

First and foremost, it is obvious that First Great Western is going to make a profit from the running of the franchise. They wouldn’t have bid if they weren’t. And nor would any other company. But are they making too much? The best way to find out is to examine how each pound of income to FGW over the course of the franchise will be distributed. From the outset it is important to understand that this is not an exact science: to get the final numbers a large degree of estimating and forecasting is required (see note below). However, that caveat mentioned, each pound of income is distributed as follows:

Operational costs: 77 pence
Payment for the franchise: 15 pence
Capital investment: 3 pence
Operating profit: 5 pence

The operating margin (5 pence in every pound) is modest compared to other leading companies: Tesco makes around 6 pence in the pound in operating profit; Marks & Spencer, 11 pence; British Airways, 8 pence; and, Vodafone 24 pence). There are, of course, companies that do make lower margins, but not all that many. So, while the charge that First Great Western is profiteering makes for a good headline, or letter to the editor, it isn’t one which stacks up against the available evidence.

What is notable is the amount the government is taking in premium payments. This is the money First Great Western have to hand over for the privilege of running the franchise. Around 15 pence of every pound spent goes to the government’s coffers: triple the amount made in profit. Theoretically some of this money will be reinvested in the rail network; but not before a significant proportion of it is wasted on Whitehall bureaucracy. Moreover, not all of it will find its way into the Greater Western region; much will be diverted to other regions and even to subsidise other train operators. This should be of much more concern to Greater Western passengers than FGW’s profits.

The fact that the government wants to use the Greater Western franchise as a cash cow is a major factor contributing to some of today’s problems. It is natural that a franchise that once attracted £11.5m in annual subsidy (£56m paid to Wessex minus the surplus payments of First Great Western and First Great Western Link) is going to be squeezed when that subsidy is taken away and a massive premium payment put in its place. The government knew this when it demanded bidders for the franchise submit premium-paying tenders; and it knew it when it engineered service and timetable cuts to make such a financial transformation feasible.

Against this backdrop, Ms Sharma’s suggestion of fining First Great Western its profits makes no sense at all. If anything, the public should be demanding that the government surrender a large proportion of the premium payment and use it directly to improve rail services in the Great Western region.

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Note: the calculations are based on the following assumptions: 6 percent annual growth for every year of the ten year franchise; an average annual increase of 2.6% in operating costs; synergy savings of £15m from Wessex following the merger with the other parts of the franchise; £200m investment in carriage refurbishment and new engines as stated by FGW; £1.13bn premium payment to the government as stated in the franchise agreement.

On the sunny side of the street

It’s very easy to fall into the trap of negativity; complaining about things and analysing what’s gone wrong, makes for far more compelling blog entries and media stories than highlighting what’s going right. So, while there are many legitimate problems with rail travel, we shouldn’t forget that there are some positives too.

Alison Forster, the Managing Director of First Great Western, has highlighted many of these plus points in her most recent letter to customers. This comes on top of yesterday’s announcement by Network Rail of a significant future investment in network infrastructure – some of which will be spent on projects in the Greater Western region.

Needless to say, all of these things will take time to be implemented. Unfortunately rail is not an industry where changes can be made overnight – even if and when capital is readily available to spend. But, in sum, these positive measures will, over the longer term, make life easier for the travelling public. As Ms Forster notes in her message: “individually, each one of our changes does not make a headline, but taken together they are like a barometer that is moving from stormy to change and on to fair”.

None of this negates the fact that there are still serious structural problems in the rail industry. Nor does it alter the difficulties that such a structure will continue to create for those companies trying to deliver a service to customers. Nevertheless, it’s always good to appreciate that, on an otherwise shady street, there is still some sun to be had.

Fat Controller

If proof were ever needed of how divorced from reality the Department Transport is, then one need look no further than the latest edition of Rail Professional magazine . Nestling among the various articles about track, signalling and rolling-stock is an interview [opens in PDF] with the Transport Minister, Tom Harris.

In a single throwaway line, Mr Harris reveals almost everything that is wrong with the government’s understanding of rail. On the structure of the industry he says: “It’s a logical, private industry specified by government. Don’t blame the structure for failures”.

First and foremost, it is a ludicrous contradiction to pretend that an industry tightly controlled and ‘specified’ by the government is a private one. No other private industry operates in this way: since when was Tesco told where to open stores, what to sell and what prices to charge? Moreover, how is Network Rail, the manager and guardian of all fixed railway infrastructure, a private company? It isn’t; it’s an organ of the state.

This, probably deliberate, misunderstanding by Mr Harris, is much more than a semantic argument. It is mechanism by which the government maintains power over the railways but evades any of the responsibility that comes with it. It’s the trick by which they are able to push all of the blame for recent problems onto First Great Western – which Mr Harris does elsewhere in the same interview – while pretending that their own policies and decisions had nothing to do with the issues; the old mantra of, “it’s nothing to do with the Department – rail is privately run, blame the operators”.

The fact that Mr Harris thinks the current system is logical is extremely worrying. Many words have been used to describe the privatised rail industry but ‘logical’ is seldom, if ever, among them. The present system is actually completely illogical. Just think about it. We have a system where many different companies run the trains people travel on; another group of companies rent them the trains; a further organisation runs the track and signalling; this same organisation ultimately owns the stations but, in most cases, leases them back to the same people who run the trains so they can manage them; there are several regulatory bodies which tightly control safety; some more bodies who collect data and information on rail performance; a smattering of passenger and interest groups; and, on top of all this presides the government trying to direct and coordinate all of the various elements. This, of course, is before the complex rules and regulations governing the relationships between these various agencies is taken into account. It doesn’t even sound logical in theory and, in practice, it is a recipe for mismanagement, bureaucracy and a completely disjointed approach to policy making.

That Mr Harris goes on to state that the structure shouldn’t be blamed for failures serves only to demonstrate his naïveté. No one, not even politicians, disputes the fact that there are problems on today’s rail network, but if it isn’t the system that’s at fault, then who – or what – is to blame? Mr Harris does not say, but the reality is that the system is entirely at fault: it brings few of the advantages of true private involvement while maintaining all of the problems of state intervention. The end result is that the present system delivers neither good value for the taxpayer or good service for the travelling public. Mr Harris’ failure to understand this – and by implication the Department of Transport’s lack of will to deal with the problem – does not bode well for the future of the rail network.

Throughout the interview, Mr Harris keenly emphasises how much he enjoys his job. He may well indeed, but that does not make him, or the Department he works for, qualified for the job of running Britain’s railways: that’s a role for real, commercially focused railway professionals like Alison Forster or Mary Dickson.

Investment

If you rent a house on a short to medium term basis, it stands to reason that you’re not going to invest in it very much. You might paint the odd wall to make your surroundings more pleasant but you’re not going to lay acres of new carpet, replaster walls or undertake major structural work.

The same type of argument applies to train operating companies like First Great Western. If they don’t own a franchise but merely ‘lease’ it from the government they’re not going to inject huge amounts of cash. Sure, they will put in some money here and there – the railway equivalent of paining a wall – but it just doesn’t make sound business sense to do anything over and above this.

To get more private investment in the railways we need to give train operating companies more of a reason to invest and to do that we need to give them more of a sense of ownership over their franchises. This may be longer agreement terms or it may something more permanent; but whatever it is, something clearly needs to be done.

When it comes to investment, ownership – whether an individual’s possession of a home or a train operating company’s long term secured tenure over a franchise – is a wonderful motivator.