You have set up two straw men in this response:
- You have clearly misunderstood the thinking behind the creation of the ROSCOs
- You claim that I wrote that the Railways Act got franchising ‘right’.
This is a long post - I’m sorry, but such an issue cannot be dealt with in the written equivalent of a ’sound bite’.
Rather than try to write my own response to the first point from scratch, I thought it would be more useful to return to original sources. The following is adapted from Chapter Five in the definitive book on rail privatisation ‘All Change British Railway Privatisation’ edited by Freeman and Shaw and published by McGraw-Hill in 2000. The chapter was written by John Prideaux who was Director of InterCity between 1986 and 1991 - you can be assured that it is accurate.
The government’s decision to privatise British Rail in a vertically integrated form raised three major questions about the trains:
- who should own them?
- who would use them?
- who would look after them?
The question of who would build them was already decided as they had been bought in a free market for sometime but the answers to the other questions would determine who would influence the design and specification of new trains in the future.
Different solutions were adopted for freight and passenger trains. This reflected the different approaches taken to operating those two parts of the industry. The three trainload freight companies (which eventually became EWS, Railfreight Distribution and Freightliner) were sold outright, but the position of the passenger railway was very different: passenger train operating companies were to be franchised for a fixed term of between five and 15 years. The outcome was that rolling stock in the freight business - other than some which was already leased - passed directly to the new freight companies, whereas in the passenger business it passed to three specially created rolling stock companies. These companies would own the rolling stock for the whole of its 30 to 40 year life, the equivalent of up to five franchise terms.
The decision to adopt a leasing structure for passenger rolling stock reflected trends in the transport industry in general and answered a long-standing criticism that public sector spending restrictions had inhibited investment in rolling stock. The need for leasing was actually identified by ministers and officials prior to the 1992 general election and was confirmed as policy shortly afterwards. (In this context I would add that these restrictions were also a significant driver for the privatisation of other industries such as British Airways and the water authorities - the demand for capital for necessary investments to improve water and beach quality and reduce the number of leaking pipes and the need to buy Boeing 747s as well as all the other capital expenditures which were mounting up in other nationalised undertakings was more that the public purse could accommodate without a significant increase in taxation).
There were three main reasons underpinning the decision to adopt a leasing structure:
- separating train ownership from operations would drastically reduce the barriers to entry facing a potential franchisee by limiting the amount of capital needed to acquire a TOC
- it was recognised that franchises could be let for periods much shorter than the life of assets
- there was a belief that because privatised rolling stock companies would be outwith the public sector funding requirements they would be free to invest.
It is clear from the way the ROSCOs were structured and the allocation of rolling stock between them that there was little or no expectation that the ROSCOs, at least in the short term, would be competing to supply the TOCs with trains.
Why three Roscos? It was felt that three was the minimum number of substantial companies needed to make
future markets competitive. Although the Treasury would have liked more, it accepted the Department for Transport’s argument that to create too many ROSCOs may have rendered the new companies unsaleable; selling two would have been less difficult but on the other hand only two wouldn't have created the conditions for competition.
The preference within BR was for the three companies to reflect the identity of the existing business sectors. This was quickly ruled out however on the grounds that it would not promote competition, moreover the number of numbers of vehicles allocated to the companies would have differed widely with the ex-Network SouthEast company having by far the largest number. The Treasury’s preference was to divided every type of rolling stock into three but this was problematic because it would have meant replicating numerous functions in all three companies and subdividing some very small classes. The outcome of the discussion was that one large class of vehicle (Class 423, 4VEP) was divided between the three companies, the remaining large classes were divided between two companies and the smaller classes were allocated to one or other of the companies.
To the second point. If you had correctly parsed my sentence you would have realised that I was referring to the separation of functions, so no one body would be simultaneously judge, jury and executioner.