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This seems a good time to remind all those running passenger railways that privatisation was based on franchises. You can put the staff in fancy uniforms, you can paint the trains in the livery of your choice, you can give the franchise a gnomic name. But for all that you are simply a contractor running a bit of railway for the Franchising Director.
And when he tells you your time is up you have to hand back the trains and infrastructure which you only leased anyway. A franchise is a virtual railway where the operator owns nothing.
Well, not necessarily nothing. If you are clever, like Virgin with thetrainline dot com or National Express with Maintrain you can build a new business on the back of the franchise which is yours to keep. But in general a franchise is here today and gone tomorrow.
Which not good news for Deputy Prime Minister John Prescott or the Shadow Strategic Rail Authority . John Prescott, seems to think that the current round of franchise renegotiation will see train operators queuing up to meet higher standards, backed by stiffer penalties and with real pounds in the ground (or on the rails) investment – all for less subsidy. Sir Alastair Morton says that anyone thinking that they can win a franchise solely on the back of investment by Railtrack and the Rolling Stock Companies is deluding themselves: Train operators will have to take risks is his message.
What? With five year break points in the new replacement franchises? Surely in business the only risk you take is the risk you can manage and the only things the TOCs manage are revenue and a small proportion of essentially fixed costs. Sir Alastair might ponder the difference in investment terms between a 15-20 year franchise, which you can lose at five year intervals and a 99 year concession like the Channel Tunnel. And if he can't see which is the least attractive, his banker chums undoubtedly will.
If the TOCs are to invest , in additional to paying increased train rentals and track access charges from their revenues as their contribution to a significantly better railway, they are likely to seek higher, not lower, subsidies. And we can't see the Treasury wearing that, giving that privatisation was predicated on declining subsidy.
But there is a pot of gold within the privatised railway which could make a sizeable dent in future investment, particularly if were used to leverage external funding.
Remember that the railway was franchised. That is to say, would be operators 'bought' the right to run the franchise from the government. Because most TOCs were subsidised, the winning bid was not the one which offered the highest prices but the offer which required the lowest total subsidy.
But in some cases the highest bid did win, where subsidy switched to premium payment. Gatwick Express and Thameslink already paying £27million to the government. Next year Midland Main Line kicks in and the premium is up to £35million.
But in 2003/4, when the current seven year franchises end, the premia will total £143million, with just over a third coming from Virgin West coast. In fact between 2002-03 ad the end of the franchise, Virgin West Coast will pay £1.4billion to the Government. By the end of the franchise this will represent a ‘tax' of £10 a head on each passenger.
Not surprisingly, Sir Alastair, is working hard on his old bete noire, the Treasury to let the Strategic Rail Authority, when it becomes legally established, to keep this sort of money for good works on the railways. Virgin Trains Chief Executive Chris Green, and no doubt his counterpart at Railtrack Gerald Gerald would like to keep it in the West Coast Main Line. You could fund more and longer Pendolini, 140mile/h running north of Crewe and install higher power capacity electrification to let more, faster and heavier passenger and freight trains use the line more efficiently from that sort of money and have change over for a fish supper.
Of course, these premia help support the spurious impression of massively reducing subsidies, well, massively reducing back to BR in equivalent boom times. Keep them in the railway and the on going heavy subsidies for the ‘Regional' franchises become transparent – as they should be. Hence the need to hand over urban services to the metropolitan authorities who already determine service levels, fares structures and intermodal integration – in exchange for direct funding.
So the message is simple. Where the passenger railway is cash positive, that money should be fed back into the railway under the guiding hand of the SRA. That is the battle Sir Alastair has to fight and win – and one we are sure he relishes.