This video was made possible by Hover. Setup an email address or website with a custom domain in about two minutes for 10% off athover.com/wendover. On Thursday, May 3rd, 1979, 31,221,362 votersgathered at polling stations across the United Kingdom to decide on who would fill the 650seats of the House of Commons. Now, any election is important, but this one held particular significance. Over the years leading up to it, the country’s manufacturing industrywas collapsing, inflation was reeking havoc on the economy, mass strikes were plaguingboth the public and private sector, unemployment was exploding, and it was quickly becomingclear that Britain was losing ground to Japan, Germany, the US, and other subjects of post-wareconomic booms. Margaret Thatcher and her Conservative Partyproposed a solution: they would curb the power of unions, cut personal income tax, and privatizenationalized industries—essentially, it was a complete rejection of the economic ideologyof the prior 30 years. However, in the view of the British public, the status quo waswhat got them to the turmoil of the era, so Thatcher’s message resonated. Once the ballotswere counted, the Conservative Party picked up 62 new seats, bringing their total to 339—amajority—and therefore making Margaret Thatcher Prime Minister of the United Kingdom.
The era of British privatization started quite quickly: first with British Petroleum, ofwhich Thatcher began started selling off shares just months following her appointment. Butthen, in the new decade, the trend kicked into high gear with British Aerospace, BritishGas, Rolls-Royce, British Airways, British Steel, National Express, British Telecom,British Leyland, the British Airports Authority, and dozens more state-owned enterprises beingsold off to the private sector. By the 1990s, the concept of a “state-owned enterprise”was becoming increasingly obscure, but there was just one major sector that the sells-offshad yet to really touch: the railroads. Thatcher, herself, didn't dare touch them.Politically, it was tricky: in the country, trains operated at a loss to many rural areasfrom which her party needed votes. Fully privatizing the industry would mean that those areas wouldinevitably lose service, and the Conservative Party would inevitably lose votes. In addition,in her view, railroads were one of the rare examples of sectors that just had to be publiclyrun—they were just too tricky to run both efficiently and effectively with a purelyprofit-seeking motive. Her reign ended, though, in 1990, after a leadership battle withinher own party, and her successors weren’t so cautious.Conveniently, in 1991, the European Union acted first. It issued directive 91/440, whichread, “whereas the future development and efficient operation of the railway systemmay be made easier if a distinction is made between the provision of transport servicesand the operation of infrastructure; whereas given this situation, it is necessary forthese two activities to be separately managed and have separate accounts.
” Essentially,what this said was that the companies, organizations, or agencies that actually operated the trainshad to be legally separate entities from those that operated and owned the tracks upon whichtrains operated. The reasoning stemmed from the EU's wish for private rail competition against the government run systems. They were opening the door for companies to operaterail services on any track in the European Union, as long as they paid for it.Of course, that gave the government a perfect first target for privatization. On April 1st,1994, Railtrack came into existence—a private company that now owned all of the tracks,stations, and rail infrastructure in the United Kingdom. There was much work left to do, though:British Rail’s trains went to three newly-formed rolling stock companies, their telecoms infrastructurewas sold to Racal Electronics, freight operations were split up and allocated to six newly-formedprivate companies, and this process went on and on and on, but then came the questionof passenger train services—it was very clear that the solution to privatizing thosewould not be a quick and complete sell-off. The crux of the problem was exactly what Thatcherhad identified when she decided not to privatize the railways: the public had come to expectand rely on inherently loss-making rail operations.
While running an 8:00 am train from Edinburghto London may be profitable, running a 1:00 pm train from Manchester to Buxton probablyis not. In order to run trains at the prices, to the places, and with the frequency thepublic demanded, someone had to at least sometimes take a loss.With that, a structure evolved. InterCity, British Rail’s long-distance brand, wassplit into seven segments; Network SouthEast, which primarily operated commuter servicesin and around London, was split into ten; while Regional Railways, which operated short-distanceservices throughout the rest of the country, was split into eight. These twenty-five TrainOperating Companies would at first be owned and run by the government, but through time,the operations of each would be franchised out to private companies. Now, each of theTrain Operating Companies were designed so that their advantages and disadvantages were,in the view of a private company, somewhat balanced. That’s rather important sinceany franchisee is contractually required to serve certain stations at certain times andcertain frequencies. For example, the InterCity East Coast franchise includes the super high-demand,high-frequency east-coast service from Edinburgh Waverley to London Kings Cross—two of thebusiest train stations in the UK, between which any operator should be able to turna profit.
However, this franchise also requires, for example, the operator to run at leastone train a day that leaves London Kings Cross between 11:30 am and 12:30 pm, and eventuallycalls at the small Scottish town of Kingussie, along with a corresponding southbound service that calls at the town before arriving at Kings Cross between 5:30 and 6:30 pm. Now,only some 108 people use Kingussie Railway Station each day—most to get on the regionaltrains running between Glasgow or Edinburgh and Inverness. A private company likely wouldnot choose to service a station where they’d be lucky to pick up a dozen passengers ina day, so the intention of the franchising system was to balance things out—put a littlebit of the bad with the good—so that places like Kingussie would not lose their service.To further balance things out, the government would accept bids from companies to operatethe different franchises, and what the government would receive could either be in the positiveor the negative. The government would look at all the serious bids and quite simply pickthe one that would make them the most money, in incoming franchise payments, or lose themthe least money, in outgoing subsidies. On the surface, it seemed like the perfect system—thefree market would force companies to compete to win a franchise and, in the end, the government,and by extension the British taxpayer, would spend the least amount or earn the most amountof money possible… but that’s just the view from the surface.
If you dive in and take a deeper look at the franchise agreement, the contract betweenan operator and the government, cracks begin to show. This document is the draft of thatagreement for the InterCity East Coast Franchise—the one that includes Edinburgh to London Service—published by the UK government during the latest tendering process in 2014. It beginswith definitions of terms, a statement of governing law, and other assorted legal declarations,but then moves on to exactly how the relationship between a franchisee and the government willwork. For example, in Schedule 1.1, Part A, Section 4, it lays out the idea that franchiseescannot alter the timetable without a long, arduous process of consultation with the governmentand other stakeholders—including the public. Section 7 established the requirements foroperators to, on average, have the capacity for anyone to find a seat immediately uponboarding on off-peak trains, and within 20 minutes of boarding for on-peak trains. Section12 introduces the concept of breach performance levels—which, if a franchisee exceeds, willput them in breach of contract. For example, the InterCity East Coast franchisee must notexceed 0.0235 cancellations per 1,000 miles or 1,600 kilometers travelled in its secondyear of operations, and by the end of year 10, if their franchise even lasts that long,the level must be down to 0.0119.
Schedule 1.2, Part A, Section 6 lays out the requirementsfor alternate transportation in the event of train cancellation; this section outlinesthe requirements for timetable publishing and poster display at stations; this one definesthe operator’s data reporting requirements; this outlines the requirement for operatorsto accept folding bikes on all its services, and full-size bikes “wherever reasonably practical”; this establishes the prohibition of the franchisees engaging in any businessexcept for the operation of trains and certain ancillary services like selling food onboard;this lays out the train fleet for which the franchisee must take over the leases; thisoutlines the franchisee’s ban on entering into any leases without government approval,and the leases for stations, depots, and other facilities that it’s required to enter into;and this section summarizes what that franchisee is legally required to help with for the operationof the Queen or subsequent monarch’s train. So, the government tells franchisees wherethey must operate, when they must operate, which trains they must operate, which facilitiesthey must lease, the maximum amount they can charge, how long they can operate: so thequestion is, with very, very little ability to choose how to run their trains, where arethey supposed to compete?
The answer is the bidding process. That’sessentially the only step in this process where free-market competitive economics comeinto play, but these forces pushed bidders to over-promise and under-deliver. They’dsay they expected a certain number of passengers, translating to a certain amount of profit,leading to a certain hypothetical future franchise payment: the main number that the governmentlooks at in a bid. If those passengers didn't appear as predicted, then the profit didn’tcome either, and the franchisee would fail to make the payments upon which it bid. Thisis a cycle that happened time and time and time again. GNER, owned by Sea Containers,was the first operator of the InterCity East Coast Franchise, before it overbid in itsrenewal, failed to make its payments to the government, and lost the franchise early.To replace them, the government awarded the franchise to National Express in 2007, whowould operate the services under the National Express East Coast brand. However, just twoyears later, it emerged that they too had forecast more passengers than emerged in reality,were not able to make the payments they had bid on, and so they lost the franchise in2009. After this experience, the government temporarily re-nationalized the railway underthe “operator of last resort” scheme that had been set up for this exact situation.The succinctly named “East Coast” company, owned and run by the government, operatedthe line until a new bidding process was opened in 2013.
A joint venture between Stagecoach and the Virgin Group won the bid, and operated services under the Virgin Trains East CoastBrand. It turned out that passenger, and therefore revenue, growth had not matched the levelsthey based their bid upon, therefore they were hemorrhaging money, therefore they couldnot make their franchise payments to the government, therefore they lost the franchise in 2018,and once again, the government re-nationalized the line and operated services under the LondonNorth Eastern Railway Brand. Throughout this nearly 25-year cycle, onlyone period stood out from the rest. Between November 14th, 2009 and February 28th, 2015,when the line was run by the government owned “East Coast” train operating company,things went… well. In its final full year of operation, it was tied for fourth among23 train operating companies in terms of overall passenger satisfaction, fifth for punctuality,fourth for value for money, and, even while being one of the most popular train companies,it generated over £1 billion in profit over the years that went straight back to the government and, by extension, the British public. Therefore, when it was announced that the franchise wasto be reprivatized, many asked why? Why should the government hand over a well-run, well-liked,well-profitable company to private hands which will, at best, just take a portion of thoseprofits away from the British government and people?
Over the following years, this and other related questions, doubting the merits of this almostentirely unique franchise model, grew louder and louder. By the start of 2020, an increasingnumber of railways stopped operating under the franchising model: instead, they wererun as concessions, where the government contracts a company to operate trains while taking thefinancial risk themselves; open access operators, where private companies simply pay for trackaccess, typically on the most lucrative routes, without any additional agreement with thegovernment; or the operator of last resort model, such as with the East Coast franchise,where a line is renationalized and government-run. Simultaneously, it was getting tougher andtougher to find new, reputable bidders for franchises up for renewal. Many were extendedthrough direct award, where the government skips the competitive bidding process, whichgoes against the original vision of rail franchising.
All around, the viability of the franchisingmodel was coming more and more into question both domestically and internationally, wherecomplete rail privatization was something few countries had even considered—let aloneimplemented. Like with so many things, though, March, 2020dealt a death blow to the United Kingdom’s privatized railroads. With the onset of stay-at-homeorders in Britain, passenger numbers fell through the floor, and it became very clear,very quickly that no franchisee would be able to fulfill their obligations to the government.Therefore, after years, even decades of debate on whether the railroads should be renationalized,it just happened… in a day. Secretary of State for Transport Grant Schnapps issueda letter to Parliament, stating that all franchisees would immediately be shifted to a concession model. The government would pay all their costs, plus a small management fee equal tono more than 2% of the company’s costs in the year leading up to the pandemic. Underany definition, even if private companies were operating the trains, this was a nationalizedrailway. Originally, this was to go on only for six months, just as a temporary measure,but in the final days of that period, on September 21st, another announcement was made: after24 years, rail franchising, as an operating model, was done… forever.Now, as of yet, it’s not yet known exactly how the country’s railways will operateonce the provisional recovery measures lapse.
The most we know comes from the TransportSecretary, who said in the initial announcement, “The model of privatisation adopted 25 yearsago has seen significant rises in passenger numbers, but this pandemic has proven thatit is no longer working. Our new deal for rail demands more for passengers.It will simplify people’s journeys, ending the uncertainty and confusion about whetheryou are using the right ticket or the right train company. It will keep the best elementsof the private sector, including competition and investment, that have helped to drivegrowth, but deliver strategic direction, leadership and accountability. Passengers will have reliable,safe services on a network totally built around them. It is time to get Britain back on track.”Now, there has always been and will always be debate on whether the privatization ofthe UK’s railways was a failure. It brought the highest number of passengers onto therails in the country's history—higher even than during the golden age of rail transportin the early 1900s—but it also brought, by most measures, some of the highest faresin all of Europe. It increased the public’s satisfaction in the railroads and broughtit to one of the highest levels in Europe, but, counterintuitively, it also pulled the government's rail subsidy up to its highest level in history. Quite decisively, after privatization, the decline of the UK's rail industry turned around for the better, butwhat's not clear is how much of that can be attributed to the privatization itself—ratherthan the increased focus that privatization brought to the rails.
What is clear, though,is that the experiment, itself, failed in proving the resilience of the franchisingmodel. Despite positive public sentiment about the railways as a whole, an overwhelming majorityof the British public supported renationalization. Therefore, it did not start a domino effectof rail privatization across Europe and the world, it did not convince the general publicin its merits, and it proved, most of all, that the model was fundamentally flawed asit only worked in the best of times, and the worst of times will always eventually come.While the privatization and deregulation of the air transport industry, for example, rail'smost direct competitor, is almost universally viewed as a success that brought lower faresand industry growth to the point that state-owned airlines are now largely a relic of antiquity,the same cannot be said for rail. No country has really cracked the nut of fully privatizedpassenger train service in the 21st century. While many have taken half-measures such asprivatizing freight, the rails, awarding concessions to private operators but taking on the financialrisk like the UK now does, or even doing as the UK did before and effectively fully privatizingrailways, none have landed on a privatization model successful enough for other countriesto replicate it en mass. So, even if the UK’s privatization experiment accomplished someof its goals, it failed on the most elusive one: it failed to convince the UK public andthe world that the privatization of railroads was the best path forward for passenger traintravel in the 21st century.
What the past year has proven time and timeagain is just how important digital presence is. Have a nice, clean digital presence isgetting to be almost as important as having a nice, clean physical presence. Whether you’restill in school or in the big, scary world of employment, this still applies and oneof the quickest and easiest ways to improve your digital presence is with a custom domainfrom Hover. Even if you don’t want to build a website just yet, it’s worth getting onefor three main reasons: first, you can redirect it to your LinkedIn, YouTube, Twitter, orany other page, so when you share those with someone, it’s just one simple link; second,you can set up a custom email address at that domain, which just looks and feels so muchmore professional than one ending in @gmail, @yahoo, @icloud or something else; and third,domains are going away with every minute, so if you want one that corresponds to yourown name, company name or anything else, it’s worth getting now before it’s gone. Hovermakes all of that super simple and quick, they help you find super-unique domains withtheir over 400 extensions, their pricing is very transparent and fair, and best of allyou can get 10% off and help support this channel by going to hover.com/wendover. So,professionalize your web presence and get your domain before it’s gone for 10% off,once again, at hover.com/wendover.
Reviewed by Kashif
on
August 26, 2021
Rating:
No comments: