ECML franchise to be broucht back under Public Ownership

[Hobby]

Of course VIrgin (and others) were cherry-picking, the whole farcical system of railway franchising encourages it.

 

Of course, by your logic the operators that went for the commuter runs are also cherry picking... Just that they feel the commuter "cherry" is better than the inter city cherry!

 

And as far as ECML is concerned they have been proved right!

 

Nothing wrong with that if it gets the most appropriate operator for the franchise...

Edited May 24, 2018 by Hobby

[Clearwater]

The point about cherry picking is that within a franchise, an operator is required to provide a minimum service. ie they can’t choose to reduce service below a level dft deem of social utility and merely run the profitable services in that franchise. Of course bidders can pick which tenders they decide to bid for.

[rockershovel]

Which is what we’ve got, post nationalisation of Railtrack. Physical infrastructure owned by the state and customer focused services (passenger and freight) run by third parties.

That was more-or-less the position as I understood it. The missing pieces seem to be (1) a state-owned bidder, to provide a solid core of actual experience and to make bidders aware that the State has the option to allow franchises to revert to them (which seems to have been a relevant factor in the various machinations surrounding both ECML and WCML) (2) an overall strategic vision to which franchise concepts are subordinate and (3) a cost-plus, management Contract format by which routes or franchises with a history of serial problems (and ECML may be the main offender, but it is by no means the only one) can be run in an orderly fashion.

[rockershovel]

So, today is the Great Day. Will we see angry mobs of newly-unemployed VTEC staff burning Mr Branson in effigy at Kings X? Chris Grayling in the pillory on Tower Green? Flying squads of refinishing contractors with great rolls of apple-green vinyl ambushing stationary trains, and a Kings X train running a main bearing near Stamford? Entertaining as that all might be, I rather doubt it.

 

I’m due to travel to Southampton again next week. I’ve told the office to get me an Anytime Return and I await events with considerable interest.

Edited May 24, 2018 by rockershovel

[Hobby]

They'll transfer over under TUPE regulations so why this insistence that there will be unemployed staff, you sound like an RMT rep, RS... 

[Clearwater]

That was more-or-less the position as I understood it. The missing pieces seem to be (1) a state-owned bidder, to provide a solid core of actual experience and to make bidders aware that the State has the option to allow franchises to revert to them (which seems to have been a relevant factor in the various machinations surrounding both ECML and WCML) (2) an overall strategic vision to which franchise concepts are subordinate and (3) a cost-plus, management Contract format by which routes or franchises with a history of serial problems (and ECML may be the main offender, but it is by no means the only one) can be run in an orderly fashion.

I don’t have a problem with 1 but be wary of such a state entity creating false incentvirs. Presumably dft would need to hire staff, Chinese walled from the franchise award team, to bid against private sector operators. What is their bid stately, if they overbid and fail, who bears the loss? With no shareholders to stand behind financial obligations bid, dft could find itself worse off. Needs a lot of thinking to make a glib statement actually work. Besides, wouldn’t dft having a standing team to bid create additional inefficiency?

 

2 - that’s a dft issue in any formulation of the structure of uk rail.

 

3. Sure - why not. However, how does dft manage the consequence of the revenue risk in its budget?

[rockershovel]

They'll transfer over under TUPE regulations so why this insistence that there will be unemployed staff, you sound like an RMT rep, RS...

 

RMT, moi? No such luck... I have no experience of TUPE and don’t understand what is involved. I did ask the question earlier but didn’t get an answer.

[rockershovel]

I don’t have a problem with 1 but be wary of such a state entity creating false incentvirs. Presumably dft would need to hire staff, Chinese walled from the franchise award team, to bid against private sector operators. What is their bid stately, if they overbid and fail, who bears the loss? With no shareholders to stand behind financial obligations bid, dft could find itself worse off. Needs a lot of thinking to make a glib statement actually work. Besides, wouldn’t dft having a standing team to bid create additional inefficiency?

2 - that’s a dft issue in any formulation of the structure of uk rail.

3. Sure - why not. However, how does dft manage the consequence of the revenue risk in its budget?

Well, yes.

 

Once you have a state bidder, you inevitably arrive at the position that they get most of the work. Most European countries deal with this under item (2), that this is the preferred outcome anyway; the curious British idea that free market policies operate best without the underpinning of the State to provide a basis of law of contract, and restrain abuses isn’t believed in Europe (because they know otherwise, from experience). (3) is one of those questions which look better than they are, because if there was any generally understood way of defining and assessing the risk, the franchise in question wouldn’t be subject to serial failures.

[Hobby]

I have no experience of TUPE and don’t understand what is involved. I did ask the question earlier but didn’t get an answer.

 

You could always look it up!   I've done it for you, though, here's TSSA's take:

 

https://www.tssa.org.uk/en/Your-union/your-workplace/employment-rights/tupe--a-guide-to-the-regulations.cfm

[Clearwater]

You have to create a level playing field for all bidders else you won’t get any. If the state has an unfair advantage, you’ll create litigation and you may find you damage other sectors. The case for private sector involvement is that they will be more innovative and creative than a state entity. You may or may not believe that but I suspect the balance of evidence suggests the profit motive creates a greater incentive to deliver services for less. To create an bias for the state to win will lead to a loss in confidence and it’s a disingenuous policy to pretend you want competition to get a desired state run outcome. If you want the latter, just say so and do it.

 

On 3, I’m not talking about the franchisee ability to manage the risk but that of DfT. if there is a £50-100m shortfall in the amount of fares collected, how does dft balance it’s budget as a whole. See the issue TfL is facing.

[Ely_South]

So, today is the Great Day. Will we see angry mobs of newly-unemployed VTEC staff burning Mr Branson in effigy at Kings X? Chris Grayling in the pillory on Tower Green? Flying squads of refinishing contractors with great rolls of apple-green vinyl ambushing stationary trains, and a Kings X train running a main bearing near Stamford? Entertaining as that all might be, I rather doubt it.

 

I’m due to travel to Southampton again next week. I’ve told the office to get me an Anytime Return and I await events with considerable interest.

 

I think you missed a month.... 24th June surely?

[phil-b259]

RMT, moi? No such luck... I have no experience of TUPE and don’t understand what is involved. I did ask the question earlier but didn’t get an answer.

The official description is here https://www.gov.uk/transfers-takeovers

 

However the gist of it is that when a company gets taken over it is ILLEGAL for the new owners to:-

 

(1) Alter in any way the workers pay, T&Cs, etc

(2) Make staff redundant and get them to reapply for their jobs

(3) Rip up any previous agreed processes such as, disciplinary procedures, expense claims, etc

(4) Refuse to abide fully with any previous agreements made between the previous company and the trade unions.

 

 

Obviously once the takeover has occurred then the new business owners can start negotiations over changing things - but the key point is that this must be identical to the process followed if no takeover had happened.

[Clearwater]

Given we’re debating the difference in private sector bids and public sector operations, I’ve put together this simple bit of analysis to show how a private sector bidder, which is able to grow its revenue line at a faster rate than the public sector can is able to both pay more back to DfT and pay a “dividend” to its shareholders growing at an even higher rate. The difference in the value of the payments is what covers dft’s bid costs. I’ve put a table to show how much, for different discount rates, the private sector revenue needs to be growing to produce a net surplus/loss to dft. Table shows that for above 0.5% incremental growth, dft starts being better off. Note that there is a cross over in the net payment lines at about year 5. Obviously this is very crude and simplistic analysis but is designed to illustrate the point.

 

For those who don’t deal with NPV, think about whether you’d prefer £100 now or £102 in the future and what future figure you’d want to take the risk of the money not showing up in one year’s time. NPV is the same concept but used to make apple for apple comparisons of money over time.

 

David

[rodent279]

Well, yes.

 

Once you have a state bidder, you inevitably arrive at the position that they get most of the work. Most European countries deal with this under item (2), that this is the preferred outcome anyway; the curious British idea that free market policies operate best without the underpinning of the State to provide a basis of law of contract, and restrain abuses isn’t believed in Europe (because they know otherwise, from experience). (3) is one of those questions which look better than they are, because if there was any generally understood way of defining and assessing the risk, the franchise in question wouldn’t be subject to serial failures.

From what I can see, largely other European countries have stuck with state or regional owned operators for the bulk of services, but allowed open access operators in as well, presumably where they can show added benefit. Certainly that seems the way in the freight sector.

['CHARD]

Similarly there is nothing to stop Govia, Kolis, MTR, Stagecoach etc bidding for the next 'InterCity' franchise if they so wish. The fact that their respective boards have so far decided to concentrate on commuter franchises has nothing to do with any 'cherry picking' in the franchise system.

 

(my emphasis)

 

This isn't correct though, Stagecoach East Coast has just failed (so maybe they should have avoided it), and they've been running East Midlands Trains since what feels like 1988.

[Mike Storey]

Given we’re debating the difference in private sector bids and public sector operations, I’ve put together this simple bit of analysis to show how a private sector bidder, which is able to grow its revenue line at a faster rate than the public sector can is able to both pay more back to DfT and pay a “dividend” to its shareholders growing at an even higher rate. The difference in the value of the payments is what covers dft’s bid costs. I’ve put a table to show how much, for different discount rates, the private sector revenue needs to be growing to produce a net surplus/loss to dft. Table shows that for above 0.5% incremental growth, dft starts being better off. Note that there is a cross over in the net payment lines at about year 5. Obviously this is very crude and simplistic analysis but is designed to illustrate the point.

 

For those who don’t deal with NPV, think about whether you’d prefer £100 now or £102 in the future and what future figure you’d want to take the risk of the money not showing up in one year’s time. NPV is the same concept but used to make apple for apple comparisons of money over time.

 

David

 

That's useful in that it illustrates a point, thank you.

 

I guess the big question is why would a private operator grow revenue faster than a public one (which is the basis of your assumption, and that of the DfT one can assume)? Theory says that is probable, because of shareholder pressure, but in practice, there is no general consensus surprisingly.

 

For example, RBS has reduced its underlying losses/grown its underlying profits (gross before the huge regulatory fines and other one-off costs it has experienced, with one more big fine expected from the US) at an impressive rate lately, under largely state ownership. Just like the railways, but in reverse, it was mostly the same people in the company. On the railway, revenue grew fastest on the WCML, which had not yet been sold, in 1996 - the correlation between railway passenger growth and the private sector is by no means proven as anything other than coincidental, but one would have to accept a certain influence. It was the private sector that definitely massively improved the fortunes of rail freight, until the coal disappeared anyway.

 

I am not necessarily in favour of nationalisation, because I firmly believe it is the very tight contractual matrix between private and public (which so many despise as "over-complicated") which has forced govts of all hues to keep piling money into investment, and subsidy. They certainly felt no such obligation when it was all state owned. I was afraid the same would happen once NR moved into having their debt on the state's books. But fortunately, the ORR and DfT appear to have agreed to raise the CP6 settlement by a further £10 billion, a massive increase. I have no doubt that their ideological resistance to nationalisation, combined with the imperatives of the contractual matrix, have made HMG agree to that, to somehow prove that privatisation does work!

 

So what needs to be much better understood is what combination of public/private is best (if we do not think the current model is it)?

[Mike Storey]

From what I can see, largely other European countries have stuck with state or regional owned operators for the bulk of services, but allowed open access operators in as well, presumably where they can show added benefit. Certainly that seems the way in the freight sector.

 

Increasingly untrue now - please see my post #417. In France now, virtually no regional operators are state owned, bar the Parisian network. Elsewhere, competitive tendering for regional services has been long established or is being enhanced, to meet the EU deadline. Long distance services will be open to competition soon, but methods will vary by country.

[rodent279]

Increasingly untrue now - please see my post #417. In France now, virtually no regional operators are state owned, bar the Parisian network. Elsewhere, competitive tendering for regional services has been long established or is being enhanced, to meet the EU deadline. Long distance services will be open to competition soon, but methods will vary by country.

Are the regional operators local government owned?

[Mike Storey]

Are the regional operators local government owned?

 

Absolutely not, in France anyway. Mostly the same suspects as involved in UK franchising. DBAG still wins the odd concession in Germany, as do FS in Italy. There are some small local operators in Italy which have links to, or partnership with, local government, but it is primarily a few of these in which the corruption scandals have been uncovered!

Edited May 24, 2018 by Mike Storey

[Mallard60022]

Any railway worker that isn't in some Union or another is really on thin ice if 'problems' arise. I don't care if some people thin 'Unions' are a waste of time and the Officials only in it for themselves, the actual Union set up is probably the worker's only security when things get tough. 

Phil R (GMB Life Member).

[rockershovel]

The official description is here https://www.gov.uk/transfers-takeovers

However the gist of it is that when a company gets taken over it is ILLEGAL for the new owners to:-

(1) Alter in any way the workers pay, T&Cs, etc

(2) Make staff redundant and get them to reapply for their jobs

(3) Rip up any previous agreed processes such as, disciplinary procedures, expense claims, etc

(4) Refuse to abide fully with any previous agreements made between the previous company and the trade unions.

Obviously once the takeover has occurred then the new business owners can start negotiations over changing things - but the key point is that this must be identical to the process followed if no takeover had happened.

So how does that relate to the Royal Mail sale/takeover, where a detailed plan to replace as many workers as possible with ZHC casuals, appeared almost immediately?

[Clearwater]

So how does that relate to the Royal Mail sale/takeover, where a detailed plan to replace as many workers as possible with ZHC casuals, appeared almost immediately?

My understanding is that tupe applies when employees are transferred from one entity to another. That is different to a change in control of an entity where the employees remain employed by that entity.

[Clearwater]

@mike storey

 

Thanks - I largely agree with your analysis. There’s a mix of evidence to suggest who can actually achieve growth. Of course, it’s also one thing to be able to have growth from a low base to coming into a well managed situation.

 

I think my simple spreadsheet also highlights a couple of other issues that have been under discussion:

1) how a small change in growth rate produces a very different outcome - if you assume 1% extra growth but “only” get 0.5% but have fixed your outgoings to dft, you can see how quickly you have “failed.”

 

2) the portion of equity as a percentage of revenue shows how far you can be wrong on revenue before you can’t make any dividend payment. The value of the dividends in comparatively small both in absolute terms and to the payments to dft.

 

I’ve also been thinking what 1% growth means. Assuming fares of £750m, 1% growth equates to £7.5m per year. Dividing by 365 that gives £20k per day. I’ll look up later what the average fare per pax and pax/day but if you assume £50 per ticket, £20k equates to 400 new journeys per day. If the franchisee runs 4 trains per hour for 16 hours in a day, that equates to an extra 6-7 pax/train. Doesn’t strike me as an implausible assumption to make. (Another interesting sum would be how much per pax do you need to increase by through better yield management, what that means in terms of load factors on trains etc etc). Appreciate this may be too simple but suspect it’s directionally correct.

[phil-b259]

So how does that relate to the Royal Mail sale/takeover, where a detailed plan to replace as many workers as possible with ZHC casuals, appeared almost immediately?

Royal Mail was not 'taken over' - it was privitised. No different to a Limited Company choosing to become a PLC via issuing of shares on the London stock exchange. In both situations the original company / organisation continues in existence.

[rockershovel]

I must say, this is all proving to be a most instructive tour of the murky world of privatisation! The law locks up the man or woman....