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  • Writer's pictureNOR4NOR

East Coast Nationalisation Rips Open a Failed Ideology

Updated: May 21, 2018

Image CC Martin Arrand Wikinedia Commons
The Virgin & Stagecoach partnership ended early after just over two years, with a £2 Billion bailout from the government.

The government and taxpayer has once again been forced to pick up the pieces after the failed ideological free market ideas behind rail franchising and privatisation have seen the East Coast Mainline franchise fail for a third time due to operators' financial difficulties.

The latest franchise was operated on a 90% / 10% partnership basis between Stagecoach and Virgin. Virgin Trains East Coast (VTEC) replaced the previous government run Train Operating Company (TOC) 'East Coast', which was operated by Directly Operated Railways (DOR), a company established by the last Labour government to pick up the pieces after the previous private franchise operated by National Express went belly up in 2009, which also left passengers and taxpayers in the lurch. DOR pumped £1 Billion back into the treasury during the five years it operated from late 2009 to early 2015 and had the highest passenger satisfaction rating of any TOC in the UK in that time.

Despite public outcry, the Tory government still pressed ahead with a dogmatic ideology of reprivatising the DOR run franchise in 2015 with an expensive bidding process at great cost to the taxpayer. Rather than see our public services operated in the public interest, with income being directly invested back into the service, the Conservative government continued beligerently down the path of the failed franchising model.

John Major's government of the early 1990s privatised British Rail, carving up a once unified integrated freight and passenger transport system owned by everyone, into 'sectorised' business units, with passenger services being operated on a 'franchise' basis. Tracks and Signals were sold to and operated by Railtrack PLC, which went into administration in 2004 after several high profile rail accidents caused by poor maintenance. State owned Network Rail was formed to pick up the pieces. Intercity services on the East Coast Main Line formed one of these sectorised business units, the contract being first let to GNER, who ran the service until parent company 'Sea Containers' ran into financial difficulty in 2006. National Express group picked up the next franchise until they too hit financial buffers the, with the intervention of DOR from 2009 to 2015. VTEC have operated the route since reprivatisation in March 2015. Reports suggest VTEC overbid on the franchise, and a slump in passengers using services has been cited as hurting projected profits. By walking away from the franchise, Stagecoach and Virgin have got away with paying over £2 Billion in franchise payments over the remaining years of the contract.

Timeline of East Coast Failures:

  • 1923 - 1948: Original LNER Company

  • 1948: Britains Railways Nationalised, British Rail (BR) formed

  • 1991: British Rail Completes ECML Electrification

  • 1996: Beginning of Privatisation. GNER TOC takes over from BR

  • 2000: Hatfield Rail Crash. Poor Track Maintenance Kills 4, Injures 70

  • 2002: Potters Bar Rail Crash. Poor Track Maintenance Kills 7, Injures 70

  • 2004: Railtrack PLC folds, Network Rail formed by Govt

  • 2006: Sea Containers in Financial Difficulty, GNER Ends

  • 2007 - 2009: National Express Era. NX ends with financial problems

  • 2009 - 2015: Govt Owned East Coast/DOR

  • 2015 - 2018: VTEC Era

  • 2018: VTEC in Financial Difficulty. LNER formed

The whole programme of franchising is inspired by free market capitalist principles of introducing 'market forces' into public services. The intention is that it introduces competition which in turn drives down prices, providing a better service for end users. Computer models demonstrate that this is possible, but only with perfect conditions, which include no regulation and a perfectly fair and open trading platform. The reality is that these perfect conditions do not, and never will, exist in the real world. To run a railway without regulation is to play Russian roulette with the travelling public. We know from history what happens when regulations on the railway are ignored, when profit takes precident over safety: lives are lost and accidents happen. A fair trading platform can never exist until there is absolute transparency in business. Immovable distortions such as advertising, for instance, prevent the consumer to make an informed, fair choice. The market also has no morals when profit is king, and without regulation we find public services cut to the bone so that a big slice of the cake, which could be spent back on investing in and improving services, or driving down fares, makes its way back to the board room in bonuses and into shareholder dividends. That's why we advocate for accountable public services and a railway run for people, not profit.

But we know railways are a natural monopoly, they work best when they are cooperative, not competitive. And there is a simple truth that in this instance Britain needs a railway run for people, not for profit and not unsprurpisingly, there's public support for it across the political spectrum. People want change.

In a perfect free market system, the winner might take all, but they can risk loosing everything too. So with the ideology which drives the nonsense of railway privatisation, we should be seeing the likes of Stagecoach and Virgin paying a hefty price for overbidding. If their board room executivess and shareholeders can profit handsomeley, then they should have to pay too. If we have rule of law, that cornerstone of civilisation, then actions must have consequences. If the free market reigns supreme, they must play the game by their rules: competition is a dog eat dog business. But they don't, of course.

Realising that the last round of franchise bidding on the East Coast route was likely to have encouraged overbidding, with the knowledge that year-on-year passenger growth may be a thing of the past (which is no wonder after so many fare rises) and with an eyewateringly expensive and overly complex programme to build new Intercity Trains, the Conservative Government are, and Transport Secretary Chris Grayling is, as equally guilty as the private operators who are cutting their losses and leaving the taxpayer to pick up the pieces.

Critics would quickly counter that nationalisation is just a similar, ideologically driven dogma from the school of Socialism. In the wrong sector, it may be just as beligerent to argue so. But we know railways are a natural monopoly, they work best when they are cooperative, not competitive. And there is a simple truth that in this instance Britain needs a railway run for people, not for profit and not unsprurpisingly, there's public support for it across the political spectrum. People want change.

On the 24th June 2018, a new operator takes over the route. The London and North Eastern Railway will be owned by the Department of Transport, bringing the famous LNER name back to the East Coast. Whilst it might be a wet dream for nostalgic blue passport waving Brexiteers, there'll be no romance on the Flying Scotsman under the new arrangement. Unlike the East Coast/DOR setup, in which everyone was just left to get on with the job, the private sector is already crawling over what should be a public franchise. With three principle partners, including 'Big Four' accountancy firm Ernest & Young, the franchise threatens to be a Carillion on wheels, especially if a 'deep alliance' with publically owned infrastructure operator Network Rail is formed. The last thing our railway needs is another set of corporate talons being sunk into its carcass. The railwaymen and women who are on the frontlines already know what do do: let them get on with it. This is a railway, for moving goods and people, not a financial mechanism for making a quick buck.

Already Network Rail is being carved up into regional chunks in much the same way British Rail was in the 1980s and 1990s, with a fear that these can be sold off and integrated with franchises for an even worse bout of privatisation. That's why we advocate a bold and sensible future for Britain's railways. We want to see local accountability and adequate funding for local rail services, as part of an integrated, nationwide transport strategy which will put both the passenger and the worker at the heart of our railway. We need solid protections against future privatisation, like community and cooperative ownership. Whilst we need trains and track to be reintegrated, we know that the private sector, driven by the profit motive, operates without morals and for a railway run in the interest of the public, we need a railway with morals, with public service at its core.

NOR4NOR May 2018

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