Improving Our Rail Services

After two excellent articles by Mabon ap Gwynfor and Welsh Ramblings it might seem a little superfluous for me to write something else on Plaid Cymru's proposal for a not-for profit-company to take over the train operating franchise currently held by Arriva Trains Cymru; but I will, because transport is a subject that particularly interests me.

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The first thing to say is that I'm very pleased with this development, not least because it's something that I have argued for, as I said here a few months ago.

Arriva Trains Wales were awarded a 15 year operating franchise in December 2003. This was before the 2005 Railways Act and 2006 Transport (Wales) Act ... in other words before responsibility was devolved to the Assembly.

One of the problems with this is that the service criteria were set when the franchise was awarded, so it is quite difficult to negotiate new services or improvements to services. As things stand, the franchise will not expire until 2018. There is a performance review due in 2013, but unless ATW do something wrong I'm not sure it can be used as a pretext to cancel the contract. However, as soon as it can be done, I would like to see the franchise taken over either by the Welsh Government, or by a not for profit company (or one which reinvests them) which can be more flexible to service improvements as laid out by the WG.

Now of course I was just one of many who wanted to see this. The context in which I said it was in answer to a question about how we were landed with Arriva in the first place. So although there's plenty to be said about profit (which I'll come on to later) for me the main reason for being dissatisfied with the present model is because it severely limits our ability to improve the standard of rail services in Wales.
 

 
Ramblings has noted that the political consensus for privatization—something shared equally by both Labour and the Tories in Westminster—is what resulted in the current model by which railways operate in the UK. Like him, I don't think very highly of the model, but we have to accept that this is the way things are, so we need to work within those parameters in the immediate term.

In setting down 15 year franchises, the idea was to provide the TOCs with a term of contract that was long enough to enable them to make a long term investment, and each tender was bid for on the basis of providing a certain level of service. Now of course there would be nothing to stop a TOC improving the level of service if it could make more money by carrying more passengers; but that model was much more suited to lines that made a profit than to those that didn't. The rail service in Wales is not one of those that makes a profit (it receives about £150m of public money a year) so the franchise holder would certainly have no incentive to do anything more than maintain the service at the minimum agreed level.

The problem is that we in Wales want to improve our rail service rather than just keeping the same sort of service as we had in 2003. In order to do that, the Welsh Government has had to negotiate with Arriva to provide new services or levels of service, which we have had to pay for in the form of increased subsidies. As with any contract, the initial bid may well have been very competitive, but the price for additional services once the contract is in place is never going to be competitive.

For this reason we have been paying over the odds for the service improvements since 2003, and will continue to do so for any further improvements we want.
 

 
Others have mentioned that Arriva Trains makes £10m net profit after tax each year. The full figures for the last two years are here. They are very healthy figures, particularly in a time of economic crisis.

But a comparison with the figures for the Arriva Rail group as a whole is very illuminating, as this article from the Western Mail shows:

Arriva Trains Wales sees profits affected by recession

Arriva has said its Wales business was "significantly affected" by recession last year.

The company, which operates the Arriva Trains Wales service, said UK rail profits slumped 64% as expectations for passenger revenues growth on its CrossCountry franchise proved too optimistic.

The rail division made an operating profit of £12.1m, down from £33.7m a year earlier.

WalesOnline, 3 March 2010

The first thing to notice is that Arriva's business in Wales was not negatively affected by the recession at all. Instead of falling, their operating profit in Wales increased by 15.4% ... or just under £2m. But in addition to the Welsh rail franchise, Arriva Trains holds the CrossCountry franchise, which made a loss. The Welsh operating profit of £13.8m more than accounts for their total operating profit of £12.1m.

Now why should this be? It seems clear to me that being able to name their own price for the service improvements in Wales must be a major factor in enabling Arriva to not only avoid the effects of the recession unscathed, but to actually increase their profits instead. The Welsh franchise has proved to be a nice little earner, because they know that the franchise system is set up so that the only way we can get service improvements is to pay through the nose for them.
 

 
And that is why it is so important to make sure that we do not fall into the same trap again. When this franchise was awarded in 2003, responsibility for rail transport was not devolved and we had no say whatsoever in the model that was imposed on us. The 15 year contract is subject to review every 5 years, so there might be an opportunity to do something in 2013. That is why it is an important issue for the Assembly elections next Spring, as it will be something for the next Welsh government we elect to deal with.

What we do then might well be limited, because Arriva are only doing what we would expect any other company to do ... they are providing as little as their contracts oblige them to provide in order to make as much profit as possible. But I believe it would be well worth buying them out of that contract in 2013 if we can, placing the franchise instead with a new not-for-profit company, because it is only when Arriva are out of the way that we can introduce new and better services at a competitive market price rather than at the extortionate price we now have to pay for service improvements.

But even without the service improvements we so badly need, Wales is losing out to the tune of nearly £14m a year. Dividends of £10m a year go straight to the state owned Deutsche Bahn in Germany, and £3.9m in tax goes to the Treasury in London.

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4 comments:

Welsh Ramblings said...

As ever you flesh out the technical detail that my polemical writing tends to gloss over. Thanks for the compliment and it's good to get some meat on the bones of the case that we are making. CrossCountry aside, the projected growth in passenger demand (and therefore revenues) on most of the routes within Wales looks extremely strong. Those revenues need to be reinvested to keep meeting the demand and delivering the modern services that people expect.

It is a huge indictment of the Labour-Tory privatisation consensus that Welsh railfares are eventually filling out the accounts of the German state rail company.

Owen said...

This Plaid proposal is exactly the sort of idea we need from the Assembly.

"Privatised railways" my arse. Privatise the gain, nationalise the pain as always. £150m subsidy and I presume that doesn't include Network Rail infrastructure investment (no matter how small that figure might be in Wales) either.

Georgist said...

The railways should be nationalised. It makes absolutely no economic sense to privatise them, and it never did. The railways are a monopoly, and are vital for the rest of the economy, so should be run publicly for the benefit of a truly free market economy.

Any necessary capital expenditure (and a lot is necessary) can be funded from retaining the public value created by that expenditure, ie by taxing the increased land value that line extensions/new stations etc creates, rather than leaving it to be privatised for the banks through interest payments.

Rhydgaled said...

As good as the idea of a not-for-profit company is, the £10m plus of profit swallowed up by Arriva Trains Wales is small fry compared to the £29,430,000 swallowed up by the rolling stock leasing companies (that's only the Wales franchise stock). This is why nationalisation is needed.

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