Nationalising the East Coast Mainline

I see that national Express is walking away from its franchise for the East Coast Mainline.

The government is to nationalise Britain’s largest rail franchise after National Express confirmed that it can no longer afford the £1.4bn east coast contract.

In a serious blow to franchise policy, the Department for Transport will take the London-to-Edinburgh route into public ownership at the end of the year. The transport secretary, Lord Adonis, said the contract will be put back up for auction to private companies at the end of next year but it is expected to fetch much less than £1.4bn, leaving the state with a gap in its rail budget.

Given that GNER did something very similar a couple of years back, this should come as no surprise. The DfT is unimpressed:

“It is simply unacceptable to reap the benefits of contracts when times are good, only to walk away from them when times become more challenging,” said Adonis.

Either you have the dosh or you do not. Walking away is sometimes the only option.

Having watched developments in the industry from my time with BR back in the early nineties as it was initially privatised in what can only be described as politically driven chaos, the only surprise for me is that this has taken so long. For all the talk of it being private, it still swallows huge chunks of public money. The franchise idea with penalty clauses simply led to an industry within an industry as each company tried to pass off the cost of delays to each other. A good trust dealy attribution clerk is worth their weight in gold.

I have no ideological opposition to a privately run railway (I did once, but changed my mind). However, if it is impossible for it to be truly private and for the company to operate the whole system without paying huge sums to the government in franchise fees while another company takes it back to pay for the infrastructure and charges the train operator to run on it, and they all squabble about who is responsible for every minute’s delay then perhaps it’s time for a rethink.

One other problem – unrelated to franchises, but an unexpected consequence of privatisation – is that as Network Rail draws track work back in-house, small companies fall by the wayside. Unfortunately, this also means that there is a danger of specialist expertise being lost and no one noticing until they need it. Just thought I’d drop that one in.

Anyway, why it took this long for franchisees to decide that it ain’t worth it, baffles me.

6 Comments

  1. I don’t get a lot of logic in all of this.

    The Government wanted a private company to bear the risk of investment and at the same time to make a guaranteed income. This did this be means of a sealed bid auction which is probably the worst kind. At the same time the Government also wanted to control fares and and insist on expeniiture targets for improvements.

    Firstly, the Govt must have know what revenues were available, give or take a few %, as they employed shed loads of management consultants. They must have known that the realistic returns would be, so why plan for something higher?

    Secondly, the bidders were mad. Again they must have looked at a range of business cases and come up with a number of scenarios, from the herioc to the conservatives. When they made their bids they must have had “sign off” on the value so all I can think of is that it became a case of corporate swinging dick hubris.

    When the bids came in and the Govt looked at them they must have known that the highest bids were fantasy land. So if they wanted success and guaranteed payments why not select one that looked sensible? Then if they did turn out to be very profitable at least they would get the tax on the profits and they wouldn’t have this hole in the budget.

    This was all about greed, private sector greed and, worse, Government greed in thinking they could make money from thin air.

  2. I’m not sure there is a lot of logic in it. Greed is about right, I think.

    This had “it’ll all end in tears” writ large all over it from 1994 or so… Why anyone in their right mind would bid for a rail franchise beats me.

  3. The history of railways is about synonymous with the emergence of the nation-state. Steam power was first practically applied in transportation at about the time of the Reform Act of 1832, but in Europe and North America really only got going after the Civil and Blanc Mange-Bratwurst wars. The size and power of railways and railroads was in direct proportion to how much they were yielded by states at the outset of a company’s existence, notably in grants of right of way. Without these valuable rights in real property, the scale of capitalization to allow construction of an “Allegheny” or “Big Boy” locomotive it seems to me should have been inconceivable. Like Conrad’s sailing ships, these are indeed things of beauty called into being by a crass motive. In short, from the eve of High Modernity right down through the end of the late-modern age of 1865-71 to 1989, there has been this complex economic dance of government and corporate finance. Perhaps Dr Hayek and Dr von Mises have gotten somewhere in the study of it all, but I will be Goddess-condemned if I know how ever we are going to get the wonderful Nellie engines without these awful embroilments and constant public hold-ups!

    (Speaking of “Goddess,” how is…ta chat, Maman?)

  4. Railways are not meant to be businesses. They are there in the service of the people and I expect part of my tax pound to go to maintaining it. I ride a bike but it doesn’t matter – railways are part of us and so I’m happy to pay. But it needs to be done properly.
    .-= ´s last blog ..[cancer] at any time, to anyone =-.

  5. My little grey and pink English Smoke kitty, Bogus, disappeared in the Spring and was mewing piteously…finally, I looked UP and there she was on the roof! No Mrs Wook about it, /I/ had to fetch the effing ladder!

    ‘Railways are not meant to be businesses. They are there in the service of the people and I expect part of my tax pound to go to maintaining it.’

    I wish it were so…I expect that many of us who are libertarian indeed mourn the fact that people as yet are not good quite enough to make the public sector work really well! “A bunch of God-damn hogs posing as commies!” said my ninety-one-years’ old farm neighbour, Mr Judson Andersen, once — and, I believe, HE never seen a copy of /Animal Farm/ in his life!

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