Labour could be planning to allow public sector to bid for franchises

[Manchester77]

http://www.theguardian.com/politics/2014/jul/03/rail-network-franchises-labour-plan

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 brings together the train operating 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.

 

[ExRes]

Would it be unfair of me to expect any future Labour government to do just as much in reversing private ownership of the railway as the last one did during 13 years of power ?

 

[BantamMenace]

Surely the current system but where DOR or any other public company is allowed to bid is as good as we're ever going to get and surely it's better than a fully franchised or fully public system. It ensures that the best bid is accepted regardless of whether it's from the private sector or the state.

As a side note I'd like to see a bit more direct competition and the breaking down of barriers to enter for OAOs.

 

[Xenophon PCDGS]

Will this include the South Yorkshire Supreme Soviet Autonomous Oblast..

 

[tbtc]

Would it be unfair of me to expect any future Labour government to do just as much in reversing private ownership of the railway as the last one did during 13 years of power ?

Well, the collapse of Railtrack during Labour's time meant that the physical railway reverted to effective public ownership.

Surely the current system but where DOR or any other public company is allowed to bid is as good as we're ever going to get and surely it's better than a fully franchised or fully public system. It ensures that the best bid is accepted regardless of whether it's from the private sector or the state

I don't have any problem with using DOR as a benchmark bidder for other (private) bids to be assessed against - as a "vanilla" option...

...however the costs bandied about during the WCML franchise omnishambles (something like £15m being spent by the four serious bidders?) could see a lot of money being wasted for the sake of proving a point.

 

[Railsigns]

Surely the current system but where DOR or any other public company is allowed to bid is as good as we're ever going to get and surely it's better than a fully franchised or fully public system. It ensures that the best bid is accepted regardless of whether it's from the private sector or the state.

It's only the best system if the high cost of holding franchise competitions can be recouped. A "fully public system" would avoid these costs altogether.

The franchising system is a bit like building a bridge that's good enough to last well over a hundred years, but then choosing to knock it down and rebuild it every fifteen years just so that different construction companies are given a chance to bid for work, thus creating "competition".

 

[Dave1987]

My god I agree entirely with labour for once

 

[ExRes]

My god I agree entirely with labour for once

You may indeed agree with Labour but .......

If they were to gain power would they actually do something this time rather than make empty promises and deliver nothing, rhetoric comes cheap while their last 13 years didn't make much difference to the railway system we've had for almost 20 years, actually that's a frighteningly large percentage of Labour v Conservative, while we have as fragmented and wasteful a railway as we've ever had

Neither party can be trusted because they have too many 'friends' to keep sweet

 

[NSEFAN]

Neither party can be trusted because they have too many 'friends' to keep swee

It makes you wonder why people still vote for them. Are peoples' memories really that short?

 

[David Barrett]

It makes you wonder why people still vote for them. Are peoples' memories really that short?

Evidently so, I understand that the thinking behind it all is that most people have forgotten any particular deed after six months or so. Cynical in the extreme but harsh reality and is taken advantage of by politicians of all persuasions with few exceptions.

 

[AndrewP]

This sounds like a reasonable idea - if it is done fairly - as an in house bid can be a good benchmark for any external bids so that demonstrates value and quality improvements are being received.

What if the in house / public sector bid wins? They get the job as they have offered the best value proposal - if they can't deliver then they lose it just like an external company would.

I just wish that Labour could be trusted.

 

[northwichcat]

If they were to gain power would they actually do something this time rather than make empty promises and deliver nothing, rhetoric comes cheap while their last 13 years didn't make much difference to the railway system we've had for almost 20 years, actually that's a frighteningly large percentage of Labour v Conservative

Labour gave approval to Thameslink, Thames Valley electrification, North West electrification. If you're saying that it's the Coalition who should be given credit for those by not withdrawing the projects as part of their spending review, then maybe give Labour credit for the WCML upgrade which John Major's government approved but the work was done under Tony Blair's government.

How much new rolling stock was introduced under the previous Labour government? I seem to recall there were new train orders left, right and centre around the turn of the millennium.

 

[ExRes]

Labour gave approval to Thameslink, Thames Valley electrification, North West electrification. If you're saying that it's the Coalition who should be given credit for those by not withdrawing the projects as part of their spending review, then maybe give Labour credit for the WCML upgrade which John Major's government approved but the work was done under Tony Blair's government.

How much new rolling stock was introduced under the previous Labour government? I seem to recall there were new train orders left, right and centre around the turn of the millennium.

And an awful lot of new rolling stock and infrastructure work has been introduced under the present government, so quite honestly that means nothing whatsoever, in fact should we all give Maggie Thatcher a big cheer for being in power when the two sides of the Channel Tunnel met ?, what wasn't introduced under the previous Labour government however, was any type of reform of the privatisation that Labour were supposedly so much against and were going to put right as soon as they took power

 

[northwichcat]

And an awful lot of new rolling stock and infrastructure work has been introduced under the present government, so quite honestly that means nothing whatsoever, in fact should we all give Maggie Thatcher a big cheer for being in power when the two sides of the Channel Tunnel met ?, what wasn't introduced under the previous Labour government however, was any type of reform of the privatisation that Labour were supposedly so much against and were going to put right as soon as they took power

You were saying the previous government did nothing with regards to rail just broken promises so I was pointing out what they did do.

I seem to recall a story about there being a period with no train orders under the current government which was the longest period since privatisation between new train orders.

 

[sonorguy]

The only note of cution I'd raise with this is where this process has been carried out in other public sector organisations (the NHS is an example where I've been involved in the process) the public sector (on tender) are nearly always more expensive, less efficient and with less clear goals and outcomes. Actual performance tends to reflect that as well.

If DOR can avoid this then the Labour process would be a good thing as long as the judgement criteria were equitable and not skewed one way or the other.

 

[Oswyntail]

You were saying the previous government did nothing with regards to rail just broken promises so I was pointing out what they did do.

I seem to recall a story about there being a period with no train orders under the current government which was the longest period since privatisation between new train orders.

The previous government were notorious for "authorising" just about anything anyone asked for, then doing tiddly squit, except quietly cancelling things later (or, more often, leaving them hanging while reallocating funding without telling anyone). As for train orders, I thought they were down to the franchises

 

[Simon11]

Whats to stop DOR over bidding for a franchise to win it (giving the directors a better CV), thus operating a "loss" making franchise which the government will have to bail out.

I don't see how DOR bid will make any improvements over a new private entrant to the market? For example, MTR have yet to win a franchise, however I'd rather they won it with their experience abroad than DOR who have no experience and would need to pay hard cash to bring that experience to the team (i.e. simply nicking experienced staff from other bidding teams, thus increase costs for all TOCs with higher wages).

As for a benchmark, what will this really prove? Bidders are free to decide what they wish to put in their bid. There is no point spending a lot of money, when they aren't going to put in a competitive bid!

 

[Deerfold]

As for train orders, I thought they were down to the franchises

Almost never.

I can count the number of orders not specified by central government on the fingers of one hand.

 

[Oliver]

Whats to stop DOR over bidding for a franchise to win it (giving the directors a better CV), thus operating a "loss" making franchise which the government will have to bail out.

That's the problem, except for "government" read "taxpayers".

 

[LNW-GW Joint]

A franchise bid involves risk and up-front cash, whether public or private.
Which public sector organisations are able to raise that sort of cash and take the risk?
DOR are not acting like a franchisee with EC - they have a service agreement instead, are backed by the DfT and take no risk.
They would surely not be allowed to bid in any case as it is owned by the procurement agency DfT.
DRS and TfL are the only two public sector organisations I can think of with rail expertise, and then only in specific sectors.
I could see a PTE growing an operational arm, but none has to date.
They would have to operate at arms length from the procurement agency.
The fantacists in Cardiff and Edinburgh might have a go I suppose.

 

[jon0844]

I wonder how DOR would work with a somewhat harder franchise than a nice Intercity route along a, fairly, reliable line (and when things go wrong, it's usually Network Rail - thus EC gets paid compensation) with just two types of train, and priority over just about everything else on the same tracks?

The many stories I've heard on here and elsewhere about a rather lax attitude to revenue protection suggests that DOR could perhaps make more money (or save it), but doesn't really have any need to. Just do the basics, and that's it.

That could a disaster for other operations.

 

[AM9]

That's the problem, except for "government" read "taxpayers".

for 'taxpayers' read public funds, i.e. cuts would be ordered elsewhere to avoid tax increases.

 

[Bill Stanier]

If Labour gets in again we'll a lot more to worry about than who bids for rail franchises.

Economic Armageddon, anyone?

 

[Tibbs]

Whats to stop DOR over bidding for a franchise to win it (giving the directors a better CV), thus operating a "loss" making franchise which the government will have to bail out.

I don't see how DOR bid will make any improvements over a new private entrant to the market? For example, MTR have yet to win a franchise, however I'd rather they won it with their experience abroad than DOR who have no experience and would need to pay hard cash to bring that experience to the team (i.e. simply nicking experienced staff from other bidding teams, thus increase costs for all TOCs with higher wages).

As for a benchmark, what will this really prove? Bidders are free to decide what they wish to put in their bid. There is no point spending a lot of money, when they aren't going to put in a competitive bid!

The Private Companies are immune as well. They can just hand the keys back if it doesn't make any money, q.f. East Coast.

 

[Latecomer]

Perhaps run things as a concession rather than a franchise? It seems like a reasonable mix of public sector control with innovative and dynamic private sector input without the profits sapping the public purse. I know the TfL model doesn't automatically suit everywhere but its worked pretty well so far in London with hopefully more to come. I do think public ownership is best for rural lines which may be less profitable, although requirements could be stipulated in a concession arrangement. I advocate concession because whilst I would prefer a fully public sector rail industry there is no way it could be instantly successful with what's happened over many, many years.

Sometimes there needs to be an appreciation that 'society' is about looking after all and serving all and a concession ensures far greater control to ensure the fat cats and shareholders aren't going to ignore the transport needs of those who aren't considered a decent source of profit. Privatisation (in the rail industry at least) eroded accountability at the same time that it demoralised and isolated some of the most in need.

 

[SS4]

If Labour gets in again we'll a lot more to worry about than who bids for rail franchises.

Economic Armageddon, anyone?

The sick and unemployed may even be treated like human beings

 

[Bill Stanier]

The sick and unemployed may even be treated like human beings

Nope. You need some money for that.

 

[Oswyntail]

The sick and unemployed may even be treated like human beings

Like they are now - or do you believe all you read in the press

 

[Manchester77]

Nope. You need some money for that.

A sad statement that sums up the modern westernised world, the sick and unemployed can't be treated like human beings based on money not basic human need!

 

[Bill Stanier]

A sad statement that sums up the modern westernised world, the sick and unemployed can't be treated like human beings based on money not basic human need!

What an odd thing to say.

If you have NO MONEY how can you care for sick or give help to the unemployed?

There's no such thing as the money fairy, despite what Gordon Brown believed. You need money to make things happen. Without it, they don't.