Britain's privatized railway system - Literature review Example

? Britain's Privatized Railway System: A Literature Review BRITAIN'S PRIVATIZED RAILWAY SYSTEM: A LITERATURE REVIEW Introduction The Conservative government in the UK began British Rail’s privatization in January of 1993 with the enactment of the British Coal and British rail Act 1993 (Jupe & Crompton, 2006: p1036). This freed up the Secretary of State to give the relevant board directions concerning the disposal of its holdings. This Act was necessary because the government at all times had to act by the rules that were established by various Acts covering transport and railways, which would have stopped the board from disposing of the assets. Following the Secretary of state’s actions, he directed for the formation of Rail-track PLC, which, in turn, paved the way for 1993’s Railways Act. The British Railways Board’s operations were subsequently sold off. At the time, the process was riddled with controversy and some of the results have lent credence to the criticism that came its way. The manner of the privatization also led to widespread criticism from over twenty companies involved, especially for its complexity. This literature review will explore various key studies conducted on the privatization of British rail. The History of the Privatized Railway System Following the Swedish example that seemed apparently successful, the BEU issued directive 91/440, wishing to enable new rail operators to access the market (Jupe & Crompton, 2006: p1038). EU member states were required to separate infrastructure and railway management operations from transport services with account separation termed, as compulsory to all industries that were formally owned by the state with while separation with institutions being optional. The EU hoped that track operators would levy a transparent fee that would allow operators to run networked trains under open access (Jupe & Crompton, 2006; p1038). British Rail was privatized between 1994 and 1997 with Rail-track given ownership of infrastructure and track in April of 1994. Following this, there was franchising of passenger operations to operators in the private sector with outright sale of freight services. BRB Ltd. got the remaining British rail obligations. When John Major replaced Margaret Thatcher as the Conservative party leader in late 1990 the privatization of the British Rail begun to pick up steam. The government under Thatcher had sold off almost all industries that were formally owned by the state with the exception of British Rail. Even though, Cecil Parkinson, the previous Secretary for Transport had led advocacy for a form of semi-private or private ownership of the British rail network, Thatcher had deemed it too much (Jupe & Crompton, 2006; p1039). In the 1992 elections, the Conservative manifesto included a privatization commitment for the British rail network, although the specifics were not set out clearly. Triumphing over opinion polls, the Conservatives won the 1992 elections and had to, consequently, come up with a plan to privatize British Rail prior to the publishing of the Railways Bill the following year (Haywood, 2007: p200). British Rail’s management led a strong advocacy campaign for the privatization of British Rail under a single entity with John Redwood, a Cabinet Minister, arguing for the regional companies that were in charge of trains and track, although the Prime Minister did not back this at the time. Consequently, following pressure from a think tank fronted by the Adam Smith Institute, the treasury advocated for seven franchises for passenger railways, which later expanded to 25, as a means of revenue maximization. The treasury prevailed in this instance. In addition, privatization of British Rail became a reality. In 1997, the Labor government took over after almost all privatization had been carried out and failed to act, on its earlier promise, to return to the public sector the railway system (Haywood, 2007: p200). It, instead, elected to leave the structure as it was and even oversaw the completion of the process, enabling the remaining sales Has the privatization succeeded? Privatization of British Rail was successful in a number of ways. First, the privatization was meant to allow the railway system to focus less on meeting political requirements in the short term and more on planning, in the long term (Smith, 2006: p9). Before privatization, the rail sector had been inefficient, and it was expected that privatization would make it more efficient, as well as allow it to operate where the price was equal to the marginal cost. Management by the private sector ensured that it became more motivated with greater emphasis laid on the provision of client service. Shortly after privatization, price regulation occurred with firms initially struggling to break even, which forced rail operators to lower wastage, as well as costs. This led to rail firms being more efficient as now they could produce nearer the bottom of the long run curve of average cost compared to when there was no price regulation (Smith, 2006: p9). These firms also became increasingly efficient in production since the private sector firms had decreased government support. Introduction of increased competition as firms bid, against others, to own a franchise was another benefit of British Rail’s privatization. This led to firms trying to utilize competition strategies that were not based on price with investment in R&D so as to use innovation as a way of improving market share (Smith, 2006: p10). This helped the firms to become more efficient dynamically with an increase in service quality. It also provided for a new investment source for projects in the infrastructure sector, especially since borrowing in the public sector had been limited by time. This was particularly so in relation to demands that other sectors were placing on the British exchequer. However, soon after privatization, trouble begun to stalk rail-track in 1996. Thirty-eight people had died by 1999 with more than six hundred injuries in crashes occurring in the main line. In 2000, another major crash happened in Hatfield killing an additional four before it was finally nationalized and renamed national Rail (Smith, 2006: p20). The formation of the public ownership partnership in 2000, formed for the contraction of the train and track maintenance duties on the underground was also controversial. The Mayor of London at the time expressed it as a scheme that every independent transport expert opposed. Metro-net, one of the franchises filed for bankruptcy in 2007with Tube Lines bought out by the mayor of London in 2010, which pushed the London underground back into public hands (Smith, 2006: p21). One reason why it failed was because of vertical separation that courted controversy from the beginning (Crompton & Jupe, 2003: p620). Before nationalization of the railway system in 1947, four major companies ran the system; each has control over its own infrastructure. However, on re-privatization, this system was not re-introduced with Rail-track being the sole owner of the carriages and locomotives and distributing them among private train operators and three rolling stock operators (Crompton & Jupe, 2003: p621). This has hurt the railway system significantly since the locomotives and infrastructure are tightly connected, unlike a highway and the vehicles. For this reason, vertical reintegration has been a hot topic of discussion with the only way to remedy this being formation of alliances between franchises and network rail for the coordination of upgrades and infrastructure repairs. The system of railway franchising has been subjected to criticism in the past from companies, politicians, unions, and passengers. Its complexity has been cited, as well as the number of companies that have been contracted to run it (Crompton & Jupe, 2003: p300). Because of this, confusion has reigned regarding responsibilities and the high costs it incurs to passengers and companies. It was because of this that network rail took over responsibilities for maintenance of locomotives and infrastructure compared to sub-contractors hired previously by the franchises. Another example of problems that beset the system was the bankruptcy of GNER after making losses because of various payments (Crompton & Jupe, 2003: p300). Conclusion and Discussion It can be argued that the entire idea of separation between train operations and track operations was a fundamental misconception. Unlike road or air transport infrastructure, operational considerations, and engineering are intertwined for the rail system. The burden of administration in the rules of franchising, as well as other regulatory overheads, makes it problematic for train routes that are lightly used but with high value in a social context. Because of this, the state has introduced the community railways concept that seeks to loosen regulation on lines such as the department of Transport, which seeks to improve the utilization of the lines while reducing costs. This concept also acts to provide a mechanism that directly involves communities that rely on it, as well as working, in tandem, to improve the effectiveness. References Crompton, Gerald. & Jupe, Robert., 2003. A Lot Of Friction At The Interfaces’: The Regulation Of Britain’s Privatised Railway Privatised Railway. Financial Accountability& Management, 0267-4424. Crompton, Gerald. & Jupe, Robert., 2003. “Such A Silly Scheme”: The Privatisation Of Britain’s Railways 1992–2002. Critical Perspectives on Accounting, 617–645. Haywood, Russ., 2007. Britain’s national railway network: fit for purpose in the 21st century? Journal of Transport Geography, 198–216. Jupe, Robert. & Crompton, Gerald., 2006. A deficient performance”: The regulation of the train operating companies in Britain’s privatised railway system. Critical Perspectives on Accounting, 1035–1065. Smith, Andrew., 2006. Are Britain’s Railways Costing Too Much? Journal of Transport Economics and Policy, 1–44. Read More