STUDY UNIT 3

SECOND SEMESTER 2023

(TRE8X07
 CASE STUDY: PRIVATISING BRITISH RAIL

Study critically privatisation of British Rail with particular emphasis on:

• Aspects that prompted the decision to privatise BR
• All the aspects that were considered
• What the chosen solutions were
• What motivated the choices
• Opinions on the failures and success.
• British Railways 20 years later
Consider whether similar circumstances exist in South Africa or not and whether
Privatisation of TFR would be an appropriate solution for an emerging economy
like South Africa.
 PRIVATISING BRITISH RAIL
THE REFORM OF UK RAILWAYS—PRIVATIZATION AND ITS RESULTS
GÉRARD MATHIEU

The following slides are based on the work by:

Gérard Mathieu:
PRIVATISING BRITISH RAIL
The Reform of UK Railways—Privatization and Its Results

and
Andrew Bowmana, Peter Folkmana, Julie Froudb, Sukhdev Johalc, John
Lawd, Adam Leaverb, Mick Moranb, Karel Williamsa:
The Great Train Robbery:
rail privatisation and after
 PRIVATISING BRITISH RAIL
THE REFORM OF UK RAILWAYS—PRIVATIZATION AND ITS RESULTS
GÉRARD MATHIEU

Prior to Privatisation, the British government was aware of the unique difficulties posed by
the rail transport sector, including:

A very low market share (about 5% of the overall market) and a seemingly irreversible
decline in rail transport

Great dependence on large subsidies

Presumed vigorous opposition from local residents to line closures and network downsizing
 WAY FORWARD: PRIVATISING BR

 Separate infrastructure and operations

 Create a single manager for all
 infrastructure (RAILTRACK)
 Divide BR into some 20 operating units
 Adopt a franchise system for passenger services
BRITISH RAIL EXPERIENCE

In promoting privatization of British

Rail, the government had three
objectives
 FIRST OBJECTIVE

Reduce the level of government subsidies

for rail transport over the long term
 SECOND OBJECTIVE

Open the transport sector to

competition to improve services, increase
railway productivity, and reduce
administrative sluggishness
 THIRD OBJECTIVE

Respond better to market needs, thereby

meeting demand and improving financial
results
 THE BR PRIVATISATION MODEL

The chosen option ultimately divided UK

railways into some 100 separate entities
 THE BR PRIVATISATION MODEL: INFRASTRUCTURE

RAILTRACK became the sole owner and

manager for the entire railway
infrastructure including tracks,
signalling equipment, electrification
equipment, stations, depots, shops, etc.
THE BR PRIVATISATION MODEL: Operating

Twenty-five TOCs were established

with franchises to run passenger
operations for durations of between 7
years and 15 years
THE BR PRIVATISATION MODEL: INTERNATIONAL

Eurostar, an international company,

began managing joint operations with
French National Railways (SNCF),
Belgian National Railways (SNCB),
and Eurostar UK as a 26th operator.
 THE BR PRIVATISATION MODEL: FREIGHT OPS

Four freight companies were

established: English, Welsh & Scottish
Railways (EWS, the most important),
Freightliner, Direct Rail Services (DRS), and
Combined Transport Ltd. (CTL).
 BR PRIVATISATION MODEL: ROLLING STOCK

Three Rolling Stock Companies (ROSCOs)

were established. They purchased BR’s rolling
stock and let it to the TOCs.
BR PRIVATISATION MODEL: SUB-CONTRACTORS

Many subcontracting companies were

created, mainly to maintain and
improve infrastructure according to
‘modern equivalent’ rules.
RAILTRACK’S PURPOSE

to provide network access to the

operators and to assign time slots.
RAILTRACK’S MAIN FUNCTIONS

The definition of standards and approval

of new rolling stock was the responsibility
of a non-commercial office of RAILTRACK
RAILTRACK’S MAIN FUNCTIONS

The second important function of

RAILTRACK was to organize and
manage train traffic according to the
pre-established timetables.
RAILTRACK’S MAIN FUNCTIONS

The third important function of

RAILTRACK
was to ensure maintenance of the
network..
 BR: 25 NEW FRANCHISEES WERE
ESTABLISHED IN 1996 AND 1997

awarded by the Office of

Passenger Rail Franchising (OPRAF)
within the framework of the 1993
privatization reforms.
 BR: 25 NEW FRANCHISE CONTRACTS

The franchise contracts varied in

duration but generally ran for 7 years
and stipulated the level of services and
subsidies.
GOVERNMENT ACTIONS

Three factors played a major role in the

Conservative government’s actions
regarding franchises:
FACTOR ONE
Significant opposition to BR’s
privatization from the opposition Labour
Party and unions -opposing any reform
judged to be politically risky and
difficult to accomplish technically and
financially.
FACTOR TWO

The urgent need for the government to

arrive at a quick conclusion before the
anticipated spring 1997 elections.
FACTOR THREE

The apparent contradiction between the

franchise system and free access to
infrastructure. (The idea of another
operator running on the same line and
skimming off the most lucrative markets
would undermine confidence in the
revenue source).
 BR: PRIVATIZATION OF ROLLING STOCK

The allocation of rolling stock to companies

other than the TOCs was a necessity, due to the
incompatibility between service life and
amortization of the equipment on the one
hand, and the much shorter duration of the
franchises on the other.
 BR: PRIVATIZATION OF ROLLING STOCK:
CREATION OF ROSCOS

Government established three companies:

Angel Train Contracts,
Eversholt Leasing, &
Porterbrook Leasing
 BR: PRIVATIZATION OF ROLLING STOCK:
CREATION OF ROSCOS

The most widely used carriages were distributed

between all three ROSCOs;
Less commonly used carriages were divided between
two ROSCOs &
series with just a few cars were assigned to one
ROSCO.
 ROLE OF ROSCOS

ROSCOs lease rolling stock to TOCs for their operations.

ROSCOs are responsible for major overhauls, with on-going
maintenance done by TOCs.

ROSCOs do not have maintenance workshops while the TOCs

do. Consequently, ROSCOs are forced to conclude maintenance
contracts with the TOCs

ROSCOs also conclude contracts with independent workshops

for major maintenance operations.
 INFRASTRUCTURE MAINTENANCE
COMPANIES

RAILTRACK subcontracted all maintenance

operations to specialized companies.
These specialized companies were sold in 1996
mainly to major British engineering companies
with a few to management buyouts.
 BR: FREIGHT TRANSPORT ORGANIZATION

Prior to Privatisation, Rail’s share of the UK freight

sector declined continuously for 50 years -
accelerated by 3 factors

1. government policies that imposed strict budgetary

reductions on BR, causing it to divest some freight
operations.
 BR: FREIGHT TRANSPORT ORGANIZATION

2. Traffic minimums imposed in the form of high-

volume guarantees. Customers who could not
reach these minimums had to endure severe rate
increases
 BR: FREIGHT TRANSPORT ORGANIZATION

3. Some terminal operators were compelled to

reduce operations and close some freight platforms
while others went bankrupt.
 BR: NEW PRIVATIZATION FRAMEWORK

• For the supporters of privatization, the goal was

simply to make rail transport more efficient.
• Nevertheless, government soon realized that
market forces alone would not safeguard the
greater social good.
 BR: NEW PRIVATIZATION FRAMEWORK

• Some form of Regulation was essential to

maintain the coherence and integrity of the
national network and to protect consumer
interests.
 BR: NEW PRIVATIZATION FRAMEWORK

• The Retained system shared responsibilities

between ORR & OPRAF. These two
organizations were supposed to be
complementary. In reality numerous
overlaps caused difficulties, increased
transaction costs & conflicts between various
players sharing control of the sector.
OFFICE OF PASSENGER RAIL
FRANCHISING (OPRAF)

OPRAF is an independent public authority

financed directly from the Treasury to award
franchises to TOCs.
OFFICE OF PASSENGER RAIL
FRANCHISING (OPRAF)
Within this framework, OPRAF was responsible
for determining
• minimum levels of service and performance
standards,
• fares for‘ captive’ passengers,
• subsidies to TOCs, and
• control over services
 THE HEALTH AND SAFETY EXECUTIVE

The HSE monitors adherence to regulations

designed to protect the health and safety of the
general public.
 THE HEALTH AND SAFETY EXECUTIVE

HMRI is a specialized department within the HSE

that is responsible for safety in the rail sector and
has control over railway safety regulations and
procedures by enacting standards for the design,
construction and operation of railway equipment.
OFFICE OF THE RAIL REGULATOR
The Regulator is an independent magistrate, appointed for 5 years.
• To protect the interests of passengers
• To promote the use of railways for shipment of freight
• To promote the use and development of the rail network
• To promote competition and efficiency
• To monitor the safety of rail transport
• To monitor maintenance of the network
• To ensure that through-ticketing agreements are respected
• To monitor the financial situation of the sector
OFFICE OF THE RAIL REGULATOR

The Regulator grants operating licenses,

supervises the TOCs’ access to the
infrastructure under fair competition, verifies
TOC rates, determines regulations governing
competition, and ensures that passenger rights
are respected. The Regulator also supervises
RAILTRACK and the ROSCOs.
 THE BRITISH RAILWAY BOARD

The BRB, the only operator after WWI, was retained after
privatization with the following functions:
• To respond to the call for franchise tenders, if the call is
unsuccessful
• To manage non-operating inherited assets (mainly real
estate)
• To administer the British Transport Police, which is
responsible for policing the railways
• To manage remaining debts
THE RAIL PASSENGERS COUNCIL

Their existence and function were affirmed in

the 1993 Railway Act, which gave them the role
of protecting consumer interests while acting as
a ‘watchdog.’
THE RAIL PASSENGERS COUNCIL

The Act expanded their jurisdiction to cover

fares, marketing, information, punctuality &
availability of services, competition, timetable
changes, crowded trains, sanitation, & comfort
of trains & stations.
LEGAL AND CONTRACTUAL AGREEMENTS TO PROMOTE
OPERATIONS

Track-access contracts
Infrastructure maintenance contracts
The Performance Regime
The Passenger Service Requirement
The Public Performance Measure
WAS PRIVATIZATION FAILURE OR SUCCESS?

The commercial figures show substantial

growth in traffic from1994 to 2000 (+36% in
passenger-km and +42% in tonne-km).
WAS PRIVATIZATION FAILURE OR SUCCESS?
THE OFFICIAL VIEW.

An average 34.5% growth in revenues from

passenger operations.
WAS PRIVATIZATION FAILURE OR SUCCESS?

Mixed service quality (Most complaints centred

around reduced punctuality and overcrowding
during rush hour).
WAS PRIVATIZATION FAILURE OR SUCCESS?

• No reduced subsidies
• Safety decline
• Separation of wheel technology from rail
technology
• Lack of strategic vision
• A Private Monopoly Responsible for
National Railway Infrastructure
• Underinvestment
WAS PRIVATIZATION FAILURE OR SUCCESS?

Please read opinions 20 years down the line for

a balanced perspective on the results.
THE GREAT TRAIN ROBBERY: A DIFFERENT
PERSPECTIVE
The Great Train Robbery:
rail privatisation and after
Andrew Bowmana, Peter Folkmana, Julie Froudb, Sukhdev
Johalc,John Lawd, Adam Leaverb, Mick Moranb, Karel
Williamsa
CRESC, University of Manchester
Manchester Business School
School of Management, Royal Holloway, University of London
Sociology Department, Open University
A DIFFERENT PERSPECTIVE
Rail privatisation was politically sponsored with
promises that have disappointed. The promise was
that rail privatisation would deliver a better, cheaper
service for rail users and tax payers. It was expected
that private rail companies would bring in capital and
innovate in ways that incidentally reduced public
subsidy, because they were credited with generic
enterprise characteristics and the capacity to
transform any sector.
A DIFFERENT PERSPECTIVE

The outcome is disappointment because the

privatised rail system requires more taxpayer
subsidy, charges higher fares and has negligible
private investment in ageing infrastructure and
rolling stock with few improvements that can be un-
ambiguously attributed to the private sector.
A DIFFERENT PERSPECTIVE

Charge1:
Privatisation created a habitat for value
extraction at the public expense where (a) the
TOCs play heads they win/tails we lose and (b)
the ROSCOs find that every ticket wins.
A DIFFERENT PERSPECTIVE

Charge 2:
Network Rail enables the charade by low track
access charges which depend on public
subsidy.
A DIFFERENT PERSPECTIVE

Charge 3:
Franchising is predatory contractualism where
unrealistic bidding against the public interest
generates a simulacrum of capitalism.
A DIFFERENT PERSPECTIVE

Charge 4:
The TOCs’ public service defence is a farrago of
half-truths
A DIFFERENT PERSPECTIVE

Charge 5:
Government has avoided sector specifics by
forgetting the pre 1948 history of privately
owned railways and by making a straw man out
of British Rail
A DIFFERENT PERSPECTIVE

Charge 6:
Business led policy reviews and the official
mentality are part of the railway problem not the
solution
PLEASE READ
WHITE PAPER
Secretary of State for Transport (1992), New
Opportunities for the Railways: The
Privatization of British Rail. Available at
http://www.railwaysarchive.co.uk/documents/Do
T_WP001.pdf
GOOD NIGHT
GOOD LUCK