Andrew Davies looks into a not-for-profit model for the Wales and Borders Rail Franchise
Welsh Transport Minister Edwina Hart has confirmed that the Wales and Borders rail service will be run on a not-for-dividend basis. She announced at the recent Welsh Labour conference that a company is being set-up to deliver on this manifesto commitment and to take forward plans for an integrated Metro transport system in south east Wales. So what lay behind these announcements?
How our public utilities are owned and run is unlikely to be a major issue of debate in the forthcoming General Election campaign. One of the features of current UK political debate is the disconnect between the widely-held beliefs of a majority of the electorate and the clear consensus on those issues by the major UK political parties, which appears to be that the privatisation of public utilities started under Mrs Thatcher in the 1980s is non-negotiable. Yet public opinion has consistently shown a large majority in favour of the public ownership of utilities, with a YouGov poll in November 2013 showing 66% supporting nationalising our railways.
The public clearly remain unconvinced by claims put forward from the 1980s that privatisation would lead to competition and better, more responsive and efficient services. In the case of rail, the outcome has been greatly increased prices, bigger profits for the privatised companies, requiring even higher levels of public subsidy than when a nationalised industry.
An early achievement of devolution was the organisation of rail services on an all-Wales basis when the UK Government announced in 2000 the creation of the Wales & Borders rail franchise. In 2003 the Strategic Rail Authority awarded Arriva the new 15-year franchise and Arriva Trains Wales (ATW) took over the services later that year. Since 2010 Arriva has been owned by Deutsche Bahn, the German Federal Government-owned company.
As Transport Minister I negotiated the 2005 Railways Act and 2006 Transport Wales Act which transferred responsibility for the franchise to the Welsh Government. Over this period I worked closely with Arriva to develop the railways with the reintroduction of passenger services on the Vale of Glamorgan and Ebbw Vale lines and improved services between North and South Wales.
I oversaw the expansion of local rail services in Wales but as Welsh Government had inherited the terms of the franchise from the UK Government, I was frustrated that while being accountable for these services I had had little or no power to effect change. If as Minister I wanted to change the terms by, for example, varying the service or introducing new routes, e.g. the Vale of Glamorgan line, then this would only be done by increasing the level of subsidy to ATW.
The annual subsidy that Arriva receives from Welsh Government is now £180 million. It strikes me as ironic that while re-nationalisation of our public services has been ruled out by most major UK political parties, it is permissible for foreign governments to own our utilities, with any profit going to Deutsche Bahn and a transfer of assets from Welsh rail passengers and taxpayers to the German Government!
At the time of privatisation in 1993 it was argued that the private sector would invest in new services, the new Train Operating Companies (TOCs) would take on the risk, with better and more comfortable rolling stock and improved services. An analysis by Manchester University has shown that none of these claims have been fulfilled.
Arriva is dependent on the subsidy it receives, incidentally the highest subsidy per passenger mile of any rail franchise in the UK. Passenger numbers have increased significantly in the last 20 years so Arriva also receives a considerable income from annual ticket sales. It does not even have to buy its own carriages, as these are leased, and neither does it operate the track and signalling on the franchise as this is the responsibility of Network Rail. Over 90% of new investment in rail is financed by Network Rail, mainly through borrowing, and as this is mainly funded by the UK government its funding comes from you and I as taxpayers. With debts of over £30 billion, Network Rail is now spending more on repaying this debt than on railway maintenance,.
Trains are also now much older, as anyone travelling on ATW trains will confirm. There has been a 60% increase in passengers since 1994/95, but only a 3% increase in new carriages and the result has been serious overcrowding on many services. Most investment had been focused on London and rail passengers outside the south-east of England are expected to put up with “cast-off” trains.
The UK also has the most expensive rail fares in Europe, which increased at three times the rate of wages between 2008-2012. Rail travel in the UK is around twice that of France, Germany, Italy and Spain, which have publicly-run rail systems. Poor value for money is still the main gripe of rail users as surveys by rail watchdog, Passenger Focus, show.
What to do about it? I have long been struck by the success of Glas Cymru, and in October 2009, at an Institute of Welsh Affairs seminar on ‘The New Mutualism’, I argued that the Wales & Borders franchise should be run on a not-for-profit or mutual basis similar to Glas Cymru, company that owns and runs Welsh Water. As a not-for-profit company, any profit Glas Cymru makes is either re-invested into the company or returned to its consumers in the form of a dividend or price reduction. Unlike many public bodies it can borrow money on the financial markets for investment into water supply infrastructure, water treatment works, etc.
Running the rail franchise on such a not-for-profit model would maximise the benefits for passengers and citizens and Welsh taxpayers, with any surplus being re-invested into better rolling stick and services or maintaining ticket prices at a more reasonable level. With a guaranteed annual subsidy from Welsh Government and income from ticket sales, a not-for-profit company could also borrow money to invest in improving services.
It was for all these reasons that I included the commitment when writing Labour’s manifesto for the 2011 Assembly elections for First Minister Carwyn Jones. It was also why the Welsh Commission on Co-operatives and Mutuals, which I chaired, made this recommendation in our report.
Once this manifesto commitment is delivered, Wales could be showing the rest of the UK a radical way of delivering public services.