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Privatisation of British Rail

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The privatisation of British Rail was the result of the Railways Act 1993 introduced by John Major's Conservative government. The operations of the British Railways Board (BRB) were broken up and sold off. Some "non-core" parts of the BRB's operations had already been disposed of, by the administration of Margaret Thatcher, as early as the first years of the 1980s.

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Situation in 1979

Historically, the pre-nationalisation railway companies were almost entirely self-sufficient, including, for example, the production of the steel used in the manufacturing of rolling stock and rails. As a consequence of the nationalisation of the railways in 1948 some of these activities had been hived off to other nationalised industries and institutions, e.g. "Railway Air Services Limited" was one of the forerunners of British Airways; the railways' road transport services, which had carried freight, parcels and passengers' luggage to and from railheads, ultimately became part of the National Freight Corporation, but not until 1969.

The preferred organisational structure in the 1970s was for the BRB to form wholly-owned subsidiaries which were run at an arm's-length relationship, e.g. the railway engineering works became British Rail Engineering Limited (BREL) in 1970; the ferry operations to Ireland, France, Belgium and the Netherlands were run by Sealink (U.K.) Ltd, part of the Sealink consortium, which also used ferries owned by the French national railway SNCF, the Belgian Maritime Transport Authority Regie voor maritiem transport/Regie des transports maritimes (RMT/RTM), and the Dutch Zeeland Steamship Company. However, the BRB was still directly responsible for a multitude of other functions, such as the British Transport Police, the British Rail Property Board (which was responsible not just for operational track and property, but also for thousands of miles of abandoned tracks and stations arising from the Beeching Axe and other closure programmes), a staff savings bank, convalescent homes for rail staff, and the internal railway telephone and data comms networks (the largest in the country after British Telecom's), etc.

In 1979 the organisational structure of the BRB's railway operations still largely reflected that of the "Big Four" private railway companies, which had been merged to create British Railways over 30 years previously. There were five Regions (Scotland being a separate region), each region being formed of several Divisions, and each division of several Areas. There was some duplication of resources in this structure, and in the early 1980s the divisional layer of management was abolished with its work being redistributed either upwards to the regions or downwards to the areas.

1980s developments

The Thatcher administration developed a policy of selling off the nationalised industries into private ownership, or privatisation. As far as the railways were concerned, the government's policy had little effect during the whole period of the Thatcher administration except in relatively small areas, as it was considered that privatising core railway operations would be too difficult.

The chain of British Transport Hotels was sold off, mainly one hotel at a time, in 1982; Sealink (UK) Limited was sold in 1984 to Sea Containers Limited, who ultimately sold the routes to their current owner, Stena Line. In 1988 British Rail Engineering Limited was split between the major engineering works, which became BREL (1988) Ltd, and the (mostly smaller) works that were used for day-to-day maintenance of rolling stock, which became British Rail Maintenance Limited (BRML). BREL (1988) Ltd was soon sold to the Swiss-Swedish conglomerate ASEA Brown-Boveri, which renamed the company ABB Transportation. A merger between ABB Transportation and Daimler Benz created ADtranz on 1 January 1996; ADtranz was subsequently taken over by the Canadian-owned conglomerate, Bombardier.

For reasons of efficiency and to reduce the amount of subsidy required from government British Rail undertook a comprehensive organisational restructuring in the late 1980s. The new management structure was based on business sectors rather than geographical regions, and first manifested itself in 1985 with the creation of Railfreight, the BRB's freight operation, and the creation in 1986 of Network SouthEast, which covered local passenger services in south-east England, including the London commuter area. Sectorisation was completed in 1987 with the creation of the InterCity, Provincial (later renamed Regional Railways), Parcels (later named Rail Express Systems), Departmental (civil engineering), Freightliner and Central Services (e.g. research and IT) sectors. The regional management structure continued in parallel for a few years before it was abolished. Sectorisation was generally regarded within the industry as a great success, and it was to have a considerable effect on the way in which privatisation would be carried out.

In 1986 what may in retrospect be viewed as the harbinger of private rail operation occurred when the quarry company Foster Yeoman bought a small number of extremely powerful 3600 hp locomotives from General Motors' Electromotive Division (GM-EMD), designated British Rail Class 59, to operate mineral trains from their quarry in Wiltshire. Although owned and maintained by Foster Yeoman, the Class 59s were manned by British Rail staff. During acceptance trials, on 16 February 1986 locomotive 59001 hauled a train weighing 4639 tonnes – the heaviest load ever hauled by a single non-articulated traction unit. Foster Yeoman's class 59s proved extremely reliable, and it was not long before quarry company ARC and privatised power generator National Power also bought small numbers of Class 59s to haul their own trains.

Also in 1986, the possibility of breaking up British Rail was explored when discussions were held with Sea Containers Ltd, later the franchise operators of GNER, concerning the possible takeover of the railway on the Isle of Wight. However, the discussions proved abortive.

In Sweden in 1988 the State Railways, Statens Järnvägar, was split into two – Banverket to control the track network, and SJ to operate the trains. This was the first time a national railway had been split in this manner, and it allowed local county authorities to tender for local passenger services to be provided by the number of new train operators that appeared. The Swedish system appeared to be very successful initially, although some train operators have subsequently gone bankrupt, and the Swedish experiment was watched with great interest in other countries. Some observers — including the boss of the Swiss Federal Railways, widely regarded as one of the best railways in the world — still argue that the whole idea of separating track from train operations in this way is fundamentally misconceived, being based on the model of air transport, where the infrastructure, engineering and operational considerations are entirely different. On this view, the rail/wheel interface is an integral entity at the heart of what makes railways function, and hence the worst possible point at which to make a split, especially on an intensively-worked but multi-functional network such as Britain's.

The move to privatisation

In 1991, following the apparently successful Swedish example and wishing to create an environment where new rail operators could enter the market, the European Union issued EU Directive 91/440. This required of all EU member states to separate 'the management of railway operation and infrastructure from the provision of railway transport services, separation of accounts being compulsory and organisational or institutional separation being optional', the idea being that the track operator would charge the train operator a transparent fee to run its trains over the network, and anyone else could also run trains under the same conditions (open access). Directive 91/440 did not, of itself, require that the railways be privatised; it was principally an accounting means of ensuring a level playing-field for incumbent train operators and new companies entering the rail transport market. However, Directive 91/440 provided the British government with a pretext for carrying out a far more dramatic reorganisation of the railway industry, while at the same time passing on some of the opprobrium to "Europe". As of 2004, Ireland and Greece have yet to comply with Directive 91/440 and its successor.

In Britain, Margaret Thatcher was replaced by John Major as leader of the Conservative Party at the end of 1990. The Thatcher administration had already sold off nearly all the former state-owned industries, apart from the railways. In its manifesto for the 1992 General Election the Conservatives included a commitment to privatise the railways, but were not specific about how this objective was to be achieved. They unexpectedly won the election on 9 April 1992, and consequently had to develop a plan to carry out the privatisation before the Railways Bill was published the next year. The management of British Rail strongly advocated privatisation as one entity, a British Rail plc in effect; Prime Minister John Major favoured the resurrection of something like the old "Big Four" geographical railway companies that had existed before 1948; however, the Treasury, under the influence of the Adam Smith Institute think tank advocated the creation of seven, later 25, passenger railway franchises as a way of maximising revenue. As is usual in British politics, the Treasury view prevailed.

The Railways Act 1993

The Railways Bill, published in 1993, established an extremely complex structure for the rail industry. British Rail was to be broken up into over 100 separate companies, with all relationships between the successor companies controlled by legal contracts and supervised by the Office of the Rail Regulator and, in the case of the passenger railway, the Office of Passenger Rail Franchising (OPRAF).

The passage of the Railways Bill was controversial. The public was unconvinced of the virtues of rail privatisation and there was much lobbying against the bill. The Labour Party was implacably opposed to it and promised to renationalise the railways when they got back into office. The Conservative chairman of the House of Commons Transport Committee, Robert Adley famously described the Bill as "a poll tax on wheels"; however Adley was viewed as a rail enthusiast and his advice was therefore discounted. Adley died suddenly before the Bill completed its passage through Parliament.

The Railways Bill became the Railways Act on 5 November 1993, and the organisational structure dictated by it came into effect on 1 April 1994. Initially, British Rail was broken up into various units frequently based on its own organisational sectors (Train Operating Units, Infrastructure Maintenance Units, etc. - for more details see below) still controlled by the British Railways Board, but which were sold off over the next few years.

Privatisation under Labour

The Labour government (elected in 1997 once the majority of the privatisation process had been completed) reneged on its earlier commitment to keep the railways in the public sector. Instead, it left the new structure in place, even completing the privatisation process with the last remaining sales. Its one innovation in the early years was the creation of the Strategic Rail Authority (SRA), initially in shadow form until the 2000 Transport Act received Royal Assent.

However, Labour was forced to intervene in the wake of the Hatfield rail crash in 2000 as Railtrack entered into financial meltdown and the industry was in deep crisis. Railtrack was put into Railway Administration in 2001 and a new organisation, Network Rail, which is supposedly private but in practice government owned, emerged to replace Railtrack in 2002. Further changes have followed, which has seen the government take back a greater degree of control, but the early demise of the SRA, which was its creation, suggests that the situation is still in flux and the right formula for the long-term health of the rail industry has not yet been found.

Organisational structure created by the Railways Act

The original privatisation structure, created over the three years from 1 April 1994, consisted of:

Changes to the structure since the Railways Act

Since 1997, considerable changes have taken place to the original structure of privatisation, of which very little is left unaltered. The principal changes are as follows:

Effects of privatisation

There is considerable debate around the effect of railway privatisation, especially since the structure now in place is considerably different from that originally envisaged at the time of the 1993 Railways Act. Some of the most common arguments for and against are:

External links

 

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