Franchising's fatal flaw

A couple of Decembers ago I travelled from London to Newcastle on the first day of the new east coast main line rail (ECML) franchisee, National Express. I blogged about it at the time. I was amazed that all reference to the previous franchisee, GNER, had been obliterated with paint overnight. And I was bemused by the fact that in the buffet car, one of the waitresses was turning all the cups the right way up, in line with a new corporate policy; GNER had always placed them upside down on the saucers.

As of a couple of weeks ago, National Express is no longer the ECML franchisee. It was stripped of its right to run the line because it failed to make the required payments to the government. The line is now operated, at least for the next two years, by a special-purpose public company. Its first action has been to paint out the National Express name from the trains and the stations. No word yet on the coffee cups.

So National Express, which operated no fewer than seven of the UK's 20 or so rail franchises a couple of years ago, is now down to two, and it has been told it will lose both of those by 2011. One rail industry expert, interviewed on Radio 4, opined that the franchising system may be on its last legs: who, he asked, is likely to bid for any of National Express's franchises when they are retendered, given the problems that this evidently experienced operator has run into?

I wonder. The flaw in the franchising system is so perfectly simple that, if it didn't occur to the politicians and the public servants when they concocted the whole awful mess back in the 1990s, it's unlikely to occur to them now. Ready? Virtually all of the people in the UK who were competent in any way to run a railway were working for British Rail at the time of privatisation. So there was nobody out there who could do the job cheaper or better than those who were already doing it. This remains the case when franchises change hands today: the guy who clocked off as a National Express driver on the day the ECML franchise was lost, clocked on as an employee of the new company next day, and drove the same train on the same route in accordance (or not) with the same timetable.

This simple and unavoidable fact explains much about the way that privatisation has worked in practice. Examples?

* It explains why cosmetic changes (the signage and the coffee cups again) seem to take precedence over meaningful change. It's easy to hire marketing types and graphic artists, but there are not a lot of railway engineers sitting around twiddling their thumbs waiting for your call.

* It explains why wages for drivers and others have soared since privatisation. For better or worse, the old BR was both a monopolist in supplying rail services and a monopsonist in employing railway staff and buying equipment. In the past, if you were a train driver, you worked for BR, and were paid whatever your union could negotiate for you. Now you and your union can play one franchisee against another in pursuit of higher wages.

* This applies to management too; the new CEO of the government-run east coast line is a woman who previously headed up my local commuter franchise, Thameslink, which was not exactly a byword for customer service and satisfaction. Now she's running one of the two most important long-distance lines in the UK.

* Most basically of all, it explains why so many franchises have run into trouble. There's not much they can do to differentiate themselves, stuck as they are with the same stations, people and rolling stock. So they make extravagant financial pledges in order to win the franchises, only to get into trouble as soon as things deviate from plan.

There are other problems with the way that rail privatisation was carried out in the UK -- the sweetheart deals given to the leasing companies, the pervasive regulatory power retained by the government. These were avoidable and reversible policy mistakes, though admittedly there is not much sign that anyone is in any hurry to reverse them. But the failure to recognise that there was simply not much in the way of real expertise that private sector operators could bring to the running of the railways, apart from a snappy line in colour schemes, was a fundamental error.

It would be nice to think that the franchise system, which has proved massively more expensive than BR ever was, is on its last legs. As with the 6:17 to London, though, I'll believe it when I see it.