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Strike action shouldn’t be an ideological battle

Strike action shouldn’t be an ideological battle

Rail Partners - Strike action shouldn’t be an ideological battle
26 July 2022
Hannah Moxon, director of external affairs

The railway is at a fork in the tracks and we know change is never easy. There is a pressing need for long run change to the way the railway is organised and a short run need to stabilise the industry’s finances as we emerge from the pandemic.

Last week, Rail Partners published “Working Together for a Better Railway” setting out how our members’ expertise can best be harnessed to support change and reform in the coming years. But, tomorrow, strike action will once again severely hamper the railway’s ability to get people where they need to be and goods to markets. This risks the fragile recovery of rail travel, and ultimately makes it harder to achieve the changes we need to put our railway back on a sustainable footing.

The rising cost of living is affecting all sectors, not just rail. Our members want to give their people a pay rise. But it has to be affordable. After the pandemic, public resource is scarce and rail cannot take more than its fair share from the taxpayer after billions have been used already to support the railway. And we can’t simply raise fares when rail passengers are feeling the pinch too and we need to attract them back to our services.

The right way forward is reforms to boost efficiency. Increasing productivity by doing things differently is the key to unlocking the savings which, in turn, can be used to fund pay increases. Many of these reforms are changes that should be made anyway – introducing greater flexibility to create a more reliable railway with a better customer experience. And, also in many cases, the reforms are simply completing the transition to changes that have already happened in other areas of the network.

One alternative argument put forward by the unions has been that ‘excessive profits’ made by rail companies could be used to fund pay rises by removing private companies from the system. This argument is deeply flawed in several ways.

First, the wild claims made by the unions regarding the level of profit operators have made in recent years are misleading. They suggest operators are making hundreds of millions of pounds of profits, but the unions have deliberately conflated the finances of different parts of the industry – aggregating the profits of firms involved in the rail supply chain such as infrastructure construction companies – to suggest that train operators are making far more than they actually do.

In fact, in the run up to the pandemic, operators only made about 2p in every pound of ticket money as profit. We’ve published some detailed analysis on our website here that shows the small profit margins in the private part of the rail industry, and how those profits have been permanently reduced by the pandemic.

Secondly, the private sector has made a significant contribution to the success of the railway in the last twenty years and will do so again going forward. Franchising as a system was no longer fit for purpose even before the pandemic, but we should be proud of what it achieved and look to replicate its successes, even while implementing reforms to address its failings.

In all market economies, and all public-private partnerships, profit is part of a healthy system and is what drives resources to their most efficient allocation. It is what incentivises business to win new customers, to invest in the industry, to reduce costs to the lowest possible base, and to drive sustainable growth.

Operators delivered strong revenue growth since the 1990s, above what can be explained by just wider economic growth. In seeking a profit through growing revenues, they turned a £2bn operating deficit into an operating surplus – freeing up public money for investment in rail infrastructure. They used their operational expertise to innovate in areas like timetabling, customer service and fares – making more revenue to pay back to government or reduce subsidy.

So, through the opportunity to make relatively modest profits, train operators actually generated a dividend for the Treasury through higher revenue growth and firm cost control. While removing private sector involvement could generate a one-off recycling of a small profit margin, the loss of focus on revenue and cost control that the private sector brings would cost far more over time.

Lastly, this isn’t a zero-sum dispute where private sector operators should be being pitched against their employees. Rather, this is about change, about collectively adapting to new realities, about delivering better customer outcomes, and ensuring there is a vibrant future for our rail industry – one which encourages modal shift, supports net zero ambitions and drives wider economic recovery. Reducing the debate to an ideological struggle about ownership reduces the chance of getting the right outcomes.

In 30 years’ time we should be talking about a passenger and freight renaissance in the aftermath of the pandemic. We believe that to do that, we need a reinvigorated public private partnership, which harnesses the expertise that exist within the private sector and incentivises operators to chase revenue. To make that a reality now, we need to move on from an ideological distrust of change and pool the collective expertise we have to meet the challenges we face together, employers and employees who all want the same thing. A vibrant railway, which delivers for customers and rewards those who deliver success.

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