Private rail firms to face franchise fight with state under Labour plan
Plan for competitive bids drawn up, ruling out proposals that expired franchises be returned automatically to the public sector.
Labour is to raise the prospect of further parts of the rail network being taken back into public ownership when it announces plans to subject franchises to a competitive bid between the state and private sector as they come up for renewal.
But Ed Miliband will anger rail unions and some Labour MPs in the announcement next week by ruling out proposals that all expired franchises under a Labour government be returned automatically to the public sector which would amount to a form of staggered renationalisation.
Senior shadow cabinet figures have agreed that a pragmatic choice between the state and private sector based on price, reliability and quality of service will provide a solution that allays commuter frustration, provides a fair deal for the taxpayer and does not amount to a return to British Rail.
Labour has been briefing industry sources that the announcement will be made next week, although the party said this was “pure speculation”.
The rail industry insisted any bids for franchises already under way must not be thrown up in the air by allowing the state sector to belatedly join the bidding process.
It also claimed that any bidding competition between state and private train companies ran the risk of destabilising the industry if the government was in effect the jury and the beneficiary of a decision to return a franchise to the state sector.
It is estimated that it costs a little over £5m on average to bid for a franchise, so any public bidder would have to be prepared to raise, and potentially lose, that kind of cash. With at least seven franchises up in the next parliament, that amounts to £35m.
It is also argued that if the state-owned company won the franchise, an extra risk would be imported on to the public sector balance sheet, as with national rail investment.
Franchises due to expire after the 2015 general election include Southern, London Midland, Wales and Borders, TransPennine Express, East Midlands and CrossCountry. Under the Labour proposal, successfully run private franchises would be allowed to bid again.
The rail unions have been pointing to opinion polls showing strong support for phased renationalisation, including in marginal seats with large numbers of commuters. They point to the success of the state-run East Coast Trains, although there is a dispute about whether the line has been more efficient than other franchises or is simply at a point in its cycle where less stock investment is needed, so reducing costs.
Ed Balls, the shadow chancellor, expressed his support at the weekend for competitive bidding for franchises, saying: “I think actually the franchising process of the last years has delivered more passenger numbers. There’s been big public investment as well.” He said he thought East Coast had been doing a really good job as a public operator.
He added: “I think it’s a good thing for us to say in the bidding process we’re happy for private and East Coast to bid into that process on a level playing field. I’m not going to take an ideological approach. I don’t want to go back to the nationalisation of the 70s.
“I think many people would say that some of these franchises have operated in a pretty unfair way to consumers and in the East Coast it failed. So let’s get to a level playing field, not be ideological.”
The Labour decision, relayed to key players in the industry, comes at the end of a week in which Miliband has tried to reassure business through detailed announcements that his attack on failing markets should not be mistaken for an attack on the private sector.
A group of prospective Labour MPs including some in marginal seats wrote an open letter to the Observer two months ago calling for an extension of the system of national ownership that has operated successfully on the East Coast mainline since 2009, when the franchise run by National Express failed.
“A commitment to extend this successful model to the rest of the rail network, as existing contracts come to an end, would mean that hundreds of millions currently lost in private profit would be available to fully fund a bold offer on rail fares,” they said.
The Rail Delivery Group, the organisation that represents the train operating companies, freight companies and Network Rail, claims the network now generates £9bn, enough to cover its day-to-day operating costs. Government support of £4bn goes to Network Rail – which owns and operates the rail infrastructure – to improve the rail network.
The RDG argues that the amount of money returning to the government from passenger operations has risen by £1.56bn since 1997-98, showing franchising is effective in capturing value for the taxpayer.
It also claims that profit margins have fallen owing to a combination of competitive bidding and the prolonged impact of the recession. It says government funding per journey is £2.35, 29% lower than in the first full year of privatisation, and the same as or lower than in seven of the last 12 years of British Rail.
Labour said the planned announcement was “pure speculation”, adding: “We will set our policy at the appropriate time.”
Mick Cash, the acting general secretary of the RMT union, said: “What we have seen looks like a total cop-out. Let’s be clear, RMT wants to see the entire rail network taken back into public ownership, closing the door on two decades of greed and exploitation. That position is supported by 70% of the British people.
“No doubt the wealthy train companies would use their cash piles to rig any changes to the franchising system in their favour. The only workable solution is to take the whole lot back under public control full stop.”
- The Guardian,