The Conservatives after 1979 - Transport Policy and Planning in Great Britain - page 97

was predominantly loss-making. The interaction of different parts of the operation were
such that it was not possible simply to hive off profitable services from unprofitable ones
as had been done with buses. The industry naturally enjoyed economies of scale and
benefits from integration as the progressive amalgamation of private companies prior
to nationalisation had shown. But selling the railways as a single company (as had been
done with gas and telecommunications) or as a series of regional subsidiaries (as with
water) raised problems of insufficient competition. If there was to be public commitment
to retaining large parts of the network for social and economic reasons (but from which
privatised companies were unable to extract commercial revenues) how could the
taxpayer be protected from inefficient operation and excessive subsidy claims?
As with bus deregulation the eventual solution preferred by the Government was
proposed and pursued with amazing single-mindedness - or, depending on one's point
of view, with remarkable unwillingness to engage with public debate and professional
advice. A White Paper was published in July 1992 and the Railways Act passed in
1993. The arrangements envisaged were hugely complicated and much of the detail
had to be worked out over subsequent years as the Act's provisions were brought into
being. There was no opportunity to examine the details in the round or to anticipate
what the outcomes might be. The general public was overwhelmingly hostile to the
idea and even Conservative MPs referred to the proposal as 'the poll tax on wheels'.
At the heart of the Government's scheme was the decision to split ownership and
maintenance of railways assets - i.e. the infrastructure (track, stations and signalling)
and trains - from the operation of services. This immediately eliminated the 'vertical
integration' which had previously characterised the industry. However it opened the
enticing possibility (to free-marketeers) of different operating companies competing to
run services over the same track.
The infrastructure owned by British Rail was initially transferred to a separate
company under a new accounting regime before being sold as a commercial
undertaking (to RailTrack). The regime of access charges which this infrastructure
company would be able to levy on train operators was set by an independent, but
government-appointed Rail Regulator.
British Rail's passenger locomotives and rolling stock were divided into three and
sold so as to create a market in leasing trains to operators. A similar subdivision and
sale was originally undertaken for freight trains, but quickly the whole general rail
freight operation was bought and run as a single company EWS (English, Welsh and
Scottish). This was deemed acceptable given that freight services were to be run on a
commercial basis, without public subsidy.
For passenger services the Government opted for a franchising model. British
Rail's services were divided into about two dozen geographical groups. A government-
appointed agency OPRAF (the Office of Passenger Rail Franchising) specified the
minimum level of service to be operated and invited operating companies to bid
competitively for the franchise to run on the routes concerned. The candidates
typically included one company formed from the incumbent BR management and
others from major bus companies such as Stagecoach and National Express.
Applications were judged on the basis of projected reductions in the subsidy
requirement (or on some inter-city routes the payment of a surplus 'premium') and
on companies' plans for improvements in trains or other facilities and for service
enhancements over the required minimum. Unlike the 'free-for-all' which prevailed
on local bus services many stipulations were included in the franchise specification
concerning fares, through ticketing and provision of timetable information.