The privatisation of British Rail was the result of the Railways Act 1993 introduced by John Major's Conservative government. The operations of the British Railways Board (BRB) were broken up and sold off. Some "non-core" parts of the BRB's operations had already been disposed of, by the administration of Margaret Thatcher, as early as the first years of the 1980s.
Situation in 1979
Historically, the pre-nationalisation
railway companies were almost entirely self-sufficient, including, for example, the production of the steel used in the manufacturing of rolling stock and rails. As a consequence of the nationalisation of the railways in 1948 some of these activities had been hived-off to other nationalised industries and institutions, e.g. "Railway Air Services Limited" was one of the forerunners of British Airways
; the railways' road transport services, which had carried freight, parcels and passengers' luggage to and from railheads, ultimately became part of the National Freight Corporation, but not until 1969.
The preferred organisational structure in the 1970s was for the BRB to form wholly owned subsidiaries which were run at an arm's-length relationship, e.g. the railway engineering works became British Rail Engineering Limited (BREL) in 1970; the ferry operations to Ireland, France, Belgium and the Netherlands were run by Sealink (U.K.) Ltd, part of the Sealink consortium, which also used ferries owned by the French national railway SNCF, the Belgian Maritime Transport Authority Regie voor maritiem transport/Regie des transports maritimes (RMT/RTM), and the Dutch Zeeland Steamship Company. However, the BRB was still directly responsible for a multitude of other functions, such as the British Transport Police, the British Rail Property Board (which was responsible not just for operational track and property, but also for thousands of miles of abandoned tracks and stations arising from the Beeching Axe and other closure programmes), a staff savings bank, convalescent homes for rail staff, and the internal railway telephone and data comms networks (the largest in the country after British Telecom's), etc.
In 1979 the organisational structure of the BRB's railway operations still largely reflected that of the "Big Four" private railway companies, which had been merged to create British Railways over 30 years previously. There were five Regions (Scotland being a separate region), each region being formed of several Divisions, and each division of several Areas. There was some duplication of resources in this structure, and in the early 1980s the divisional layer of management was abolished with its work being redistributed either upwards to the regions or downwards to the areas.
The Thatcher administration developed a policy of selling off the nationalised industries into private ownership, or privatisation. As far as the railways were concerned, the government's policy had little effect during the whole period of the Thatcher administration except in relatively small areas, as it was considered that privatising core railway operations would be too difficult.
The chain of British Transport Hotels was sold off, mainly one hotel at a time, in 1982; Sealink (UK) Limited was sold in 1984 to Sea Containers Limited, who ultimately sold the routes to their current owner, Stena Line. In 1988 British Rail Engineering Limited was split between the major engineering works, which became BREL (1988) Ltd, and the (mostly smaller) works that were used for day-to-day maintenance of rolling stock, which became British Rail Maintenance Limited (BRML).
BREL (1988) Ltd was soon sold to the Swiss-Swedish conglomerate ASEA Brown-Boveri, which renamed the company ABB Transportation. A merger between ABB Transportation and Daimler Benz created ADtranz on 1 January 1996; ADtranz was subsequently taken over by the Canadian-owned conglomerate, Bombardier.
For reasons of efficiency and to reduce the amount of subsidy required from government British Rail undertook a comprehensive organisational restructuring in the late 1980s. The new management structure was based on business sectors rather than geographical regions, and first manifested itself in 1982 with the creation of Railfreight, the BRB's freight operation, and InterCity, though the Inter-City branding had been carried on coaching stock since the early 1970s. Commuter services in the south-east came under the London & South East sector, which would become Network SouthEast in 1986. Services in Scotland were operated by ScotRail, and Provincial sector handled local and rural routes. The regional management structure continued in parallel for a few years before it was abolished. Sectorisation was generally regarded within the industry as a great success, and it was to have a considerable effect on the way in which privatisation would be carried-out.
In 1985 what may in retrospect be viewed as the harbinger of private rail operation occurred when the quarry company Foster Yeoman bought a small number of extremely powerful 3600 hp locomotives from General Motors' Electromotive Division (GM-EMD), designated British Rail Class 59, to operate mineral trains from their quarry in Wiltshire. Although owned and maintained by Foster Yeoman, the Class 59s were manned by British Rail staff. During acceptance trials, on 16 February 1986 locomotive 59001 hauled a train weighing 4639 tonnes – the heaviest load ever hauled by a single non-articulated traction unit. Foster Yeoman's class 59s proved extremely reliable, and it was not long before quarry company ARC and privatised power generator National Power also bought small numbers of Class 59s to haul their own trains.
Also in 1986, the possibility of breaking up British Rail was explored when discussions were held with Sea Containers Ltd, later the franchise operators of GNER, concerning the possible takeover of the railway on the Isle of Wight. However, the discussions proved abortive.
In Sweden in 1988 the State Railways, Statens Järnvägar, was split into two – Banverket to control the track network, and SJ to operate the trains. This was the first time a national railway had been split in this manner, and it allowed local county authorities to tender for local passenger services to be provided by the number of new train operators that appeared. The Swedish system appeared to be very successful initially, although some train operators have subsequently gone bankrupt, and the Swedish experiment was watched with great interest in other countries. Some observers — including the head of the Swiss Federal Railways, widely regarded as one of the best railways in the world — still argue that the whole idea of separating track from train operations in this way is fundamentally misconceived, being based on the model of air transport, where the infrastructure, engineering and operational considerations are entirely different. On this view, the rail/wheel interface is an integral entity at the heart of what makes railways function, and hence the worst possible point at which to make a split, especially on an intensively-worked but multifunctional network such as Britain's.
The move to privatisation
In 1991, following the apparently successful Swedish example and wishing to create an environment where new rail operators could enter the market, the European Union
issued EU Directive 91/440
. This required of all EU member states to separate 'the management of railway operation and infrastructure from the provision of railway transport services, separation of accounts being compulsory and organisational or institutional separation being optional', the idea being that the track operator would charge the train operator a transparent fee to run its trains over the network, and anyone else could also run trains under the same conditions (open access). Directive 91/440 did not, of itself, require that the railways be privatised; it was principally an accounting means of ensuring a level playing-field for incumbent train operators and new companies entering the rail transport market. However, Directive 91/440 provided the British government with an excuse for carrying out a far more dramatic reorganisation of the railway industry, while at the same time being able to pass on some of any opprobrium to "Europe". As of 2004, Ireland
have yet to comply with Directive 91/440 and its successor. Ironically, the United Kingdom has not fully complied with the directive, as no moves towards compliance were made to the state-owned Northern Ireland Railways
, which has always been separate from British Rail.
In Britain, Margaret Thatcher was replaced by John Major as leader of the Conservative Party at the end of 1990. The Thatcher administration had already sold off nearly all the former state-owned industries, apart from the national rail network. Although the previous Transport Secretary and arch-Thatcherite Cecil Parkinson had advocated some form of privately or semi-privately operated rail network, this was deemed 'a privatisation too far' by Thatcher herself. In its manifesto for the 1992 General Election the Conservatives included a commitment to privatise the railways, but were not specific about how this objective was to be achieved. They unexpectedly won the election on 9 April 1992 and consequently had to develop a plan to carry out the privatisation before the Railways Bill was published the next year. The management of British Rail strongly advocated privatisation as one entity, a British Rail plc in effect; Prime Minister John Major favoured the resurrection of something like the old "Big Four" geographical railway companies that had existed before 1948; however, the Treasury, under the influence of the Adam Smith Institute think tank advocated the creation of seven, later 25, passenger railway franchises as a way of maximising revenue. In this instance it was the Treasury view that prevailed.
The Railways Act 1993
The Railways Bill, published in 1993, established a complex structure for the rail industry. British Rail was to be broken up into over 100 separate companies, with most relationships between the successor companies established by contracts, some through regulatory mechanisms (such as the industry-wide network code and the multi-bilateral star model performance regime). Contracts for the use of railway facilities - track, stations and light maintenance depots - must be approved or directed by the Office of Rail Regulation
, although some facilities are exempt from this requirement. Contracts between the principal passenger train operators and the state are called franchise agreements, and were first established with the Office of Passenger Rail Franchising
), then its successor the Strategic Rail Authority
and now with the Secretary of State for Transport
The passage of the Railways Bill was controversial. The public was unconvinced of the virtues of rail privatisation and there was much lobbying against the Bill. The Labour Party was implacably opposed to it and promised to renationalise the railways when they got back into office as and when resources allowed. The Conservative chairman of the House of Commons Transport Committee, Robert Adley famously described the Bill as "a poll tax on wheels"; however Adley was known to be a rail enthusiast and his advice was discounted. Adley died suddenly before the Bill completed its passage through Parliament.
The Railways Bill became the Railways Act 1993 on 5 November 1993, and the organisational structure dictated by it came into effect on 1 April 1994. Initially, British Rail was broken up into various units frequently based on its own organisational sectors (Train Operating Units, Infrastructure Maintenance Units, etc. - for more details see below) still controlled by the British Railways Board, but which were sold off over the next few years.
Privatisation under the New Labour government
The New Labour
government (elected in 1997 once almost all of the privatisation process had been completed) did not fulfil its earlier commitment to keep the railways in the public sector. Instead, it left the new structure in place, even completing the privatisation process with the last remaining sales. Its one innovation in the early years was the creation of the Strategic Rail Authority
(SRA), initially in shadow form until the Transport Act 2000 was brought into force on 1 February 2001 and the SRA assumed its full legal powers.
The Labour government always had an unhappy and uncomfortable relationship with the privatised railway industry, never really accepting that the assets and businesses had been sold to the private sector, frequently complaining that as the public subsidy which went into the industry was so large and likely to continue in perpetuity, the government was its principal paymaster and should make or substantially influence all major decisions. The intensity of political intervention came to a head immediately after the Hatfield rail crash in 2000, when Railtrack imposed over 1200 emergency speed restrictions on its network because it did not know where else on the network the type of metal fatigue - called gauge corner cracking or rolling contact fatigue - which had caused the crash might occur. The politicians intervened, with the Secretary of State for Transport John Prescott saying that Sir Alastair Morton, chairman of the Strategic Rail Authority, would impose a solution. Morton had neither the knowledge nor the powers to do this, and eventually the passenger and freight train operators - who were losing very large sums of money as a result of the severe operational disruption which was taking place - applied to the Rail Regulator for enforcement action against Railtrack. That action was taken almost immediately and normal network performance was established a few months later.
The aftermath of the Hatfield crash led to severe financial difficulties for Railtrack and just under a year later - on 7 October 2001 - the company was put into railway administration (a special kind of insolvency for railway companies which ensures continuity of operation of railway services) by the English High Court on the application of the then Secretary of State for Transport Stephen Byers. The circumstances of that step were very controversial (and eventually led to the largest class legal action in English legal history). The administration of Railtrack led to an explosion of costs as the discipline of the company's equity had been lost, and very sharp falls in performance. It lasted for a year; on 2 October 2002 the administration order was discharged and a new organisation, Network Rail, bought Railtrack PLC from its parent Railtrack Group PLC. Network Rail has no shareholders and is a company limited by guarantee. This new corporate structure for the national railway infrastructure owner satisfied many in the Labour party who thought that a company cannot serve both its shareholders and its customers in a way which facilitates and promotes the public interest. The time had come, they said, to "take back the track". In Parliament on 24 October 2005, Stephen Byers said he "[made] no apology for .. unwinding the Tory privatisation that was Railtrack" (House of Commons, Official Report (Hansard), 24 October 2005, column 66).
Further changes have followed, which have seen the government take back a greater degree of control, but the early demise of the SRA, which was its creation, suggests that the situation is still in flux and the right formula for the long-term health of the rail industry has not yet been found.
As an interesting postscript to the privatisation, in July 2006 the Conservative Party's shadow transport spokesman, Chris Grayling, admitted that the 1996 split of the rail industry into track and train components was a mistake which had increased costs: "We think, with hindsight, that the complete separation of track and train into separate businesses at the time of privatisation was not right for our railways. We think that the separation has helped push up the cost of running the railways - and hence fares - and is now slowing decisions about capacity improvements. Too many people and organisations are now involved in getting things done - so nothing happens. As a result, the industry lacks clarity about who is in charge and accountable for decisions." .
Organisational structure created by the Railways Act 1993
The original privatisation structure, created over the three years from 1 April 1994, consisted of:
- Infrastructure Owner: Railtrack took over ownership of all track, signalling and stations. Railtrack let out most of the 2509 stations to the franchised passenger train operators, managing only a handful (12, later 17) of the largest city termini itself; maintenance and renewal of the infrastructure was also contracted out to British Rail Infrastructure Services, leaving Railtrack's directly-employed staff consisting mostly of signallers. In the original privatisation plan, Railtrack would have been the last part of British Rail to be sold, but with the approach of a General Election in 1997 Railtrack was hastily privatised in May 1996 in an attempt to ensure that the new structure could not be reversed.
- Regulation: The Rail Regulator (the statutory officer at the head of the Office of the Rail Regulator (ORR)) was established to regulate the monopoly and dominant elements of the railway industry, and to police certain consumer protection conditions of operators' licences. He did this through his powers to supervise and control the consumption of capacity of railway facilities (his approval was needed before an access contract for the use of track, stations or certain maintenance facilities could be valid), to enforce domestic competition law, to issue, modify and enforce operating licences and to supervise the development of certain industry-wide codes, the most important of which is the network code. Probably the Rail Regulator's most significant power was the establishment , usually every five years, of the financial framework in which Railtrack (now Network Rail) operates, through the carrying out of access charges reviews. This settled the structure and level of access charges which the infrastructure provider is entitled to charge train operators for the operation, maintenance, renewal and enhancement of the national railway network. ORR's role only covered economic regulation; safety regulation remained the responsibility of the Health and Safety Executive, but that position changed in 2005 when safety regulation was transferred to ORR under the Railways Act 2005. The first Rail Regulator was John Swift QC
- Franchising: The Director of Passenger Rail Franchising took responsibility for organising the franchising process to transfer the 25 passenger train operators to the private sector and then develop the refranchising programme for the future. The first round of franchising was based solely on the lowest cost bidder wins. The first Director of Passenger Rail Franchising was Roger Salmon.
- Passenger Train Operators: 25 passenger train operating units (TOUs), converted to Train Operating Companies (TOCs) shortly before each was privatised, split by geographical area and service type. This meant that, for example, a major city terminus would be served by an ex-InterCity TOC and one or more local commuter TOCs, with consequent competition for train paths into and out of the stations, which had to be resolved by Railtrack and the Rail Regulator. The TOCs owned virtually nothing, hiring most of the assets required from Railtrack and the ROSCOs and contracting suppliers to undertake heavy maintenance on the trains or provide onboard catering. (The special adviser to the UK chancellor of the exchequer, Ms Shriti Vadera, memorably described the privatised passenger train operating companies as "thinly-capitalised equity profiteers of the worst kind", a phrase which betrayed a disdain which was intensified when it came to the collapse of Railtrack in October 2001.)
- Train Owners: 3 Rolling Stock Leasing Companies (ROSCOs), Angel Trains, Porterbrook Leasing, and Eversholt Trains (later HSBC Rail), which were allocated all of British Rail's passenger coaches, locomotives, and multiple units. Freight locomotives and wagons were owned by the freight train operators.
- Freight Train Operators: 6 Freight Operating Companies (FOCs), including three geographical units for trainload freight (Mainline Freight in the south-east, Load-Haul in the north-east, and Trans-Rail in the west), Railfreight Distribution (international and wagonload trains), Freightliner (UK) (container-carrying trains) and Rail Express Systems (parcels and mail trains).
- Infrastructure Maintenance and Renewal: British Rail Infrastructure Services (BRIS), which took responsibility for the engineering requirements of the railway. BRIS was subsequently organised for privatisation on the basis of 7 Infrastructure Maintenance Units (IMUs), which maintained the railway, and 6 Track Renewal Units (TRUs), which replaced rail lines, both organised geographically.
- Specialist Companies: A variety of other companies created to undertake specific functions, including European Passenger Services (to operate the UK part of the Eurostar service) and Union Railways (to implement the High Speed 1 construction project).
Changes to the structure since the Railways Act 1993
Since 1997, considerable changes have taken place to the original structure of privatisation, of which very little is left unaltered. The principal changes are as follows:
- Infrastructure Owner: Railtrack was placed into railway administration on 7 October 2001 and, the following year, its functions as the track owner were taken over by Network Rail, which is a company limited by guarantee, nominally in the private sector but with members instead of shareholders and its borrowing guaranteed by the government.
- Regulation: ORR has been renamed the Office of Rail Regulation and the Rail Regulator replaced by a board in line with changes to the regulation of other privatised industries. ORR has also been given the responsibility for safety regulation which was previously the remit of the Health and Safety Executive. The last Rail Regulator was Tom Winsor whose powers to decide how much money the Government should spend on Railways were resented by many in Whitehall. As a result the ORR, presently chaired by Chris Bolt has substantially less powers than Winsor enjoyed.
- Franchising: OPRAF was replaced by the Strategic Rail Authority, whose remit also included the promotion of freight services. The SRA has since been wound up and its franchising functions passed to the Department for Transport. The most recent rounds of franchising have considered the planned improvements and previous good service delivery of bidders as well as the cost element. As part of the devolution process since 1997, the Scottish Executive has been given a greater role in determining the franchising of ScotRail, Merseytravel (the Merseyside Passenger Transport Authority) is responsible for Merseyrail, and the Mayor of London has some input in decisions on rail services in the Greater London area.
- Passenger Train Operators: The number of passenger franchises has been reduced and further amalgamations are planned. Many of the franchises have changed hands between private sector operators and one, Southeastern (train operating company), has been operated in the public sector after Connex was removed from control by the SRA and before a new private sector operator could be appointed. However, two new open access operators have appeared to run new services; Heathrow Express and Hull Trains. A third, Grand Central Railway was due to start operating in December 2006, but suffered delays, including franchised operator GNER taking the Rail Regulator to Court over his decision to grant access rights. In September 2007, the Office of Rail Regulation granted track access rights under Section 17 of the Railways Act 1993 to Wrexham, Shropshire and Marylebone Railway Company Limited to run 5 trains a day between London Marylebone and Wrexham, although there were conditions attached to the right to call at Wolverhampton. Other applications by potential open access operators have been turned down by ORR, but a number of new open access operations are waiting in the wings and may materialise in the near future.
- Freight Train Operators: Despite going to the expense of setting up separate management structures for the three parts of the trainload freight sector, on 24 February 1996 all three units were sold to "North & South Railways", a subsidiary of the American Wisconsin Central Railroad, which soon renamed the operation English, Welsh and Scottish Railway. EWS also acquired Rail Express Systems, Railfreight Distribution (the last part of the nationalised railway to be sold, after Labour had been elected) and National Power's railfreight operation. Wisconsin Central has itself since been taken over by Canadian National, which is now the ultimate owner of EWS. Current freight train operators other than EWS include Freightliner (UK) (purchased by a management buyout) and two open access freight operators: Direct Rail Services and FirstGBRf. EWS were bought by Deutsche Bahn in 2007 and are thus effectively are now state owned - but by the German rather than United Kingdom state.
- Train Owners: The three ROSCOs continue to exist as originally established, the only part of the privatised railway to remain unchanged, although some now lease freight locomotives and wagons to the FOCs. They have been joined by a variety of small-scale train owners ready to let old railway stock on short-term leases, including FM Rail, Harry Needle Railroad Company and West Coast Railway Company. Also, Railtrack and Network Rail have purchased some rolling stock themselves.
- Infrastructure Maintenance and Renewal: In 2004 infrastructure maintenance, (Track, Signal, and OHLE), was taken back 'in-house' by Network Rail, but track renewal remains contracted out to the private sector.
- Specialist Companies: After Union Railways ran into trouble with the construction of the CTRL, it was rescued by Railtrack.
Effects of privatisation
There is considerable debate around the effect of railway privatisation, especially since the structure now in place is considerably different from that originally envisaged at the time of the Railways Act 1993. Some of the most common arguments for and against are:
- Customer Service: Privatisation was supposed to bring improved customer service and many rail lines have seen improvements in this field with better on-board and station services. In the early years, however, customer service was dented when too many drivers were given voluntary redundancy by the new TOCs and trains had to be cancelled. Also, the impact of the Hatfield rail accident in 2000 left services seriously affected for many months after.
- Fares and Timetable: In an attempt to protect passengers' interests, certain fares (mostly commuter season fares) and basic elements of the timetable were regulated. However, the TOCs still had quite a bit of latitude in changing unregulated fares and could change the number of trains run within certain regulatory and practical limitations. While average fare prices have changed little since privatisation, this masks substantial changes. Although the price of commuter season tickets has fallen in real terms, many unregulated fares have increased as demand levels shifted, particularly 'walk-on' fares on inter-urban routes where operators have urged passengers to user the cheaper 'advance purchase' tickets. In fact, this has become so common that Virgin Trains now charge £219 for a standard open return ticket between Manchester and London, a journey of only 200 miles. So far as the timetable is concerned, many more trains are being run each day than under BR as operators have tried to run more frequent, but usually shorter, trains on many routes to attract more customers.
- New Trains: The promoters of privatisation expected that the ROSCOs would compete against each other to provide the TOCs with the rolling stock they required. In practice, in most cases the individual TOCs required specific classes of trains to run their services, and often only one of the ROSCOs would have that class of train, resulting in their having to pay whatever the ROSCO concerned cared to charge for leasing the trains. Old rolling stock was extremely profitable to the ROSCOs, as they were able to charge substantial amounts for their hire even though British Rail had already written off their construction costs. As trains grow older, the cost of their lease does not decrease. This was due to the adoption of 'indifference pricing' as the method of determining lease costs by the government, which was intended to make purchasing new trains more attractive when compared to running life-expired trains. In practice, the average age of trains in the UK is no different to that under the last years of BR.
- Rolling Stock Manufacture The rolling stock manufacturers themselves suffered under privatisation; with the hiatus in new orders for new trains caused by the reorganisation and restructuring process, the former BREL works at York (now owned by ABB) had been severely downsized and eventually closed. The former Metro Cammell plant in Birmingham (later owned by Alstom) followed suit in 2005, closing its doors once the last of Virgin Trains' new Pendolino units had rolled off the assembly line. Only the former British Rail research centre and associated BREL works in Derby and Crewe survive to the present day; now owned by Canadian conglomerate Bombardier.
- Punctuality and Reliability: The privatised railway has not shown the improvement in punctuality and reliability that was hoped for. The contracts in place between companies were intended to incentivise improvements in these areas, but with the large increase in the number of trains run while using more or less the same amount of rolling stock and track, there has been less room for manoeuvre when problems occur, with consequent impacts on punctuality. This was also compounded by post-Hatfield disruption.
- Level of Traffic: It is unclear whether privatisation was intended to increase traffic, but that is what happened in the early years of the privatised railway with many more trains run, more passengers carried and more freight (in terms of weight and distance - in terms of weight alone there was little change) lifted. Opponents of privatisation argue that some increase would have been expected anyway in line with the improved UK economy and the sharp rise in road congestion and bus fares; it took until just 1997, three years after privatisation before traffic exceeded to the levels achieved by BR in the late 1980s at the height of the previous economic boom. More passengers are now being carried each year than at any time since 1957, when the network was twice the mileage. In addition rail's total passenger kilometres has reached the highest level since 1946.
- Safety: The railway can point to continued improvements in safety under privatisation; in fact the rate of improvement has increased compared to that experienced in the last years of BR. However, four serious rail accidents in the post-privatisation period (Southall (1997), Ladbroke Grove (1999), Hatfield (2000) and Potters Bar (2002)) all undermined confidence in the safety of the railway. A total of 48 people were killed and 820 injured in these crashes. Two other serious fatal accidents that have occurred since privatisation (Great Heck (2001) and Ufton Nervet (2004)) were due to cars blocking the rail line being struck at speed. The Grayrigg incident in 2007 saw the death of one person when a Virgin Pendolino derailed on a poorly maintained set of points and crashed down an embankment - the exact same cause of the Potters Bar tragedy.
- Investment: It is a common view that the railways had been systematically starved of government investment since the 1960s as successive governments openly favoured road transport, and that when the railways were privatised they were already in bad shape and in need of renewal. However, the journalist Roger Ford (in the industry trade magazine Modern Railways) argued that this is largely a myth. While BR received less financial support than in most European countries from the government, it was able to maintain the network to a reasonable standard. Indeed, in BR's final years it could claim to run more trains at more than 100 mph (160 km/h) than any other railway in the world. This was largely because investment in the UK was spread across all rail lines rather than being pumped into developing a small number of high-speed lines. Since privatisation there has been considerable expenditure on modernising the system, but largely confined to a few routes. The consequences of the Hatfield accident in 2000 caused Railtrack to undertake large-scale track relaying without sufficient planning, and much of the work was substandard and subsequently had to be re-done. Railtrack's poor project management abilities were exemplified with the West Coast Route Modernisation project, which was intended to deliver a 140 mph (225 km/h) route in 2005 at a cost of £2 bn, but is finally likely to deliver a 125 mph (200 km/h) route in 2008 at a cost approaching £13 bn, which was a major factor in the company's financial collapse.
- Funding: Privatisation was intended to allow private borrowing to fund investment and remove the short-term constraints of Treasury budgeting from the railways. However, it was always recognised that there would be a requirement for some public subsidy to maintain unprofitable but socially desirable services. Indeed, of the three passenger sectors (Intercity, Network South East, and Regional Railways), only the first could hope to be independently commercial. The conflict between trying to maximise private sector investment while subsidising and regulating the industry to provide desirable services has proved difficult to reconcile. Neither most pro- nor anti-privatisers believe the current balance is correct. Nevertheless, privatisation has brought some private sector investment into the railway. However, due to what many believe to be a largely inefficient structure, government subsidy has spiralled. In 1994, the total government support received by BR was £1,627m, (£2,168m in 2005 terms, adjusted by RPI), while in 2005, government support from all sources totalled £4,593m., despite a lack of any particular increase in government investment in improving infrastructure.
- Profitability and Efficiency: One of the principal expectations from privatisation was that the railway service could be delivered more efficiently in the private sector because of the profit motive. The expectation that there were considerable costs that could be slashed from the system was not fulfilled; new operators found that BR had already done much of what could be done to improve efficiency. In addition, the profit motive was diluted when some of the passenger franchises ran into financial trouble and entered into management contracts with the franchising authority, which reduced the incentive to innovate. In addition, new health and safety requirements and the complexity of the privatised structure has thrown up additional costs in the industry. In all, the subsidy to the railway from the Government is considerably larger now than it was for BR.
- Political Control: One the benefits promoted for privatisation is that it would remove railways from short-term political control which damaged an industry like the railways, which had long-term investment requirements. This has not happened and, with the latest changes that have been made to the railway structure, the industry is more under government control than ever before. The railways also suffer from the effects of short term control because the franchises given to TOCs typically last for a short time.
The rail franchising system has in the past been a subject of criticism from companies, passengers, union leaders and some MPs. It has been said that the system is too complex and involves too many companies, some of which were sub contracted. This has led to confusions in responsibilities, incidents and incurring of high costs for companies and passengers. This is one of the reasons which led Network rail to take in all responsibility of maintenance, whereas previously the company had subcontractors. Another example of a problem with the system involves GNER who went into bankruptcy protection after huge losses in money due to various payments.
The administrative burden of the franchising rules, along with the many other regulatory overheads is extremely problematic for lightly used routes that have a high social value. As a result of this the state introduced the concept of a community railway. By loosening the regulatory rules on such lines the Department of Transport seeks to increase usage while driving costs down. It also provides a mechanism to directly involve the communities it serves and to work with them in improving effectiveness.
The Conservative Party, who initiated privatisation, are consulting upon options for the future should they regain power. Several changes have been proposed including a shift to regional operators owning the track and trains for their regions. In their view the separation of track ownership from the service providers has proved a failure, and "the separation has helped push up the cost of running the railways' . Such a shift would represent a return to the old British Rail model, but implemented by non-government organisations and franchise holders.
The Labour Party currently in power also plans to reform the existing system, and is reviewing options including a trial re-integration in Scotland. There has been discussion about the extremely high profits the ROSCOs make and proposals that would allow TOCs to own more rolling stock, or even to allow Network Rail to lease some stock. There have also been some market led changes in this area already with TOCs hiring in rolling stock and even locomotives from heritage railway organisations.
In 2004, the Labour Party Conference voted by 2 to 1 in favour of a TSSA motion calling on the government to take the TOCs back into public ownership as franchises expired. The policy was however immediately ruled out by the then Transport Secretary Alastair Darling.
EWS has performed studies with Network Rail on the cost of maintenance and as a result is currently pursuing an attempt to persuade the government to allow freight only line maintenance (particularly of the many short lines linking industrial sites) to be derogated from Network Rail control. Based upon analysis performed and on American/Canadian working practices for such freight routes they believe this could halve their maintenance costs. Such an approach would however only be appropriate for freight only routes.