How could the principles in this post be put into effect? Here’s an opportunity. Legendary trade reporter Roger Ford discusses the situation at GNER, where the company’s franchise to operate the East Coast Main Line has been withdrawn because the parent company, Sea Containers, is in financial difficulty.
The details of the difficulty can be sketched briefly – unlike all the other rail franchises, GNER is profitable and rather than receiving a subsidy from the state, it actually pays the Department of Transport for the right to operate the service. There’s the rub – when the contract with the DfT was last renewed, these payments were considerably increased, Sea Containers believing that it would be possible to operate more trains. However, under open-access requirements, they later had to hand over the train paths required to other operators. Without the extra net income, the payments to the Treasury couldn’t be met, causing a cash crisis at the parent company.
The interesting thing is, though, that the DfT rather likes GNER. Wouldn’t you? Even if it didn’t make as much money as planned, it was after all one part of the rail network that wasn’t either haemorraghing cash or becoming a national synonym for incompetence. They want to keep the existing management in place until the franchise is re-awarded, and perhaps even under new owners.
Which begs the question – what on earth would the new franchisees be for? Using GNER occasionally, and at times quite a lot since 1999, I strongly agree with the DfT Railways Directorate that they ought to keep the job. And, even in the event that the franchise changes hands, most of the staff will change hands with it, as will assets like the traction depot in Hornsey Green.
So – if all that a franchise change implies is a swap of top executives, it’s arguable that the most likely change in the business this will produce is negative. Why not, then, just give the franchise to the people who work there? It could be structured in several ways, the simplest being the creation of a company owned by the 5,000 staff to take over the management of GNER.
Arguably, if GNER’s position as the operator of the ECML doesn’t give it any special claim to control access on the route, the very notion of a franchise from the government is absurd. They are just a large buyer of train paths and electricity from Network Rail’s London North Eastern Region. What is the state, as opposed from the quasistate entity Network Rail, providing here? Nothing, is the short answer. Therefore it has no claim to any money, except for corporation tax and VAT. This is, of course, unlikely to go over well with DfT Rail or the Treasury. Note, by the way, that I’m highly sceptical of open access on the railway – it works for telecoms/internetworking because there is very loose coupling between services and networks, and the privatisation experience has told us that railways are a lot different. (Look at the pain and difficulty the SNCF and Deutsche Bahn had agreeing terms for their high speed trains to run through on each other’s metals.)
If the government must have a piece of the action, I suggest this: it should lend the putative GNER Co-op the cash required to buy out Sea Containers, to be repaid over the life of the franchise at a reasonable interest rate. The risk would be minimal, backed as the loan would be by a stable cash flow and the right to re-award the job if GNER(C) went bust. Obviously, GNER(C) could choose to finance itself privately if it could get better terms, but this version is nice because it satisfies the objection that the Treasury wants its pie. (If it insisted, there could be a state profits participation defined as a percentage above some value, rather than a cash sum.)
At the moment, the new agreement provides that DfT Rail gets to grab all GNER’s revenue, and then pay back “incentive payments” if it achieves various targets. I think mine is rather more elegant. The current position also foresees the business’s net worth somehow migrating to the Government – mine would see the Government carrying an equivalent sum as an asset, and Sea Containers getting cash on the nail to go away.
To begin with, the scheme could have a fixed term of five years, with the option to continue or re-award – thus it would fulfil my criteria about test-driven development. It would be limited to one rail network, but could be generalised to others if it worked. It would get around the problem of “lemon socialism” – this is a real, successful operation.