All Change: A History of British Rail Privatisation by Roger Freeman Hard Cover
All Change: A History of British Rail Privatisation by Roger Freeman Hard Cover
All Change: A History of British Rail Privatisation by Roger Freeman Hard Cover
All Change: A History of British Rail Privatisation by Roger Freeman Hard Cover
All Change: A History of British Rail Privatisation by Roger Freeman Hard Cover
All Change: A History of British Rail Privatisation by Roger Freeman Hard Cover

All Change: A History of British Rail Privatisation by Roger Freeman Hard Cover

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All Change: A History of British Rail Privatisation by Roger Freeman Hard Cover
ALL CHANGE - BRITISH RAILWAY PRIVATISATION  BY Roger Freeman and John Shaw - 250 pages.  Hard COver
Railway privatization was the last, but far from the least important or interesting, of the major privatizations in Britain. The essays in this volume reflect on its many aspects and are written from many standpoints across the industry. Like every other privatization of a complicated industry, it was impossible to plan or predict in advance exactly how it would develop, just as no one could have forecast in advance how slowly mainstream competition would develop in telecommunications or that it would develop as fast as it did in gas. Or that property would provide such a handsome dowry to the National Freight Company or the use of its grid for telecommunications purposes to the National Grid. Or that except in water, costs and therefore prices would fall as fast as they did. Similarly, since trends in rail traffic had declined from the mid-1950s, no one foresaw, or could have been expected to foresee, the degree of increase in rail traffic since privatization which nevertheless has led to overcrowded trains, posed problems for reliability and has necessitated a huge increase in planned investment as well as being an extra challenge for the railway regulators.
My own role in this was as an adviser to John MacGregor from when he became Secretary of State for Transport in 1992 until 1994. As it seemed to ministers, the need for change was as great on the railways as it had been for the other nationalized industries. Like them, it suffered from poor standards of service, consumer relations and image, being widely regarded as dear, often dirty, overcrowded and unreliable. Like British Telecommunications, the British Airports Authority, electricity and water it required massive investment, in this case to replace old rolling stock and restore an ancient, decayed infrastructure which had been under maintained for decades; but the Treasury was not prepared to find the billions of public funds needed by these industries, given their adverse effect on the economy through the public-sector borrowing requirement.

A fundamental transformation of the railways was needed if they were to realise their potential as well as to help relieve congestion and pollution on the roads. Hence there was another fundamental reason for privatization, even if public funds had been abundant. It had proved impossible for many years to motivate public monopolies to improve their efficiency.' Again like BT and the other large public monopolies, British Rail had no incentive to know the costs of its different services or the cost of expanding and contracting them as a commercial business would have been forced by competition to know such incremental costs. For example, the 1968 Transport Act was based on the belief that rail passenger and freight traffic should be encouraged where relief of road congestion and other social benefits justified maintaining or even improving rail services. But within a few weeks of the passing of that act, British Rail told the Ministry of Transport that it was an accounting impossibility to produce such information. The Ministry could do nothing to counter that refusal. Given the power which those public monopolies had then and their lack of motivation to understand their costs in detail, only privatization, introducing the pressures of competition and economic regulation, could change their intransigence. Already since privatization, cost analysis is developing to the point where what was once held impossible is on its way to becoming normal business practice within the railways, though there is still further to go. This outcome makes it easier to justify rail development as an important instrument of an integrated transport policy.
While the details of privatization were being finalized in 1992, there were already three reasons for believing costs would be identified and fall. Every other privatization had shown the incentive it gives to reduce costs and pass them on in Sling prices - of course, rail efficiencies are currently passed on to HM Treasury through subsidy levels falling rather than wholly to consumers, an important difference from unsubsidized, but regulated, industries - though there was another forerunner, water, which suggested another possibility: that the additional cost of investment will be great enough to keep costs and prices up for a time for more social and environmental enhancement. Secondly, even as long ago as 1993 many ideas were already coming forward on how railway working practices could be improved. Again like the other industries, the railways had inherited old established working practices, which raise costs and needed to be got rid of so employees could enable the railways to fulfill its true potential. Thirdly, the structure of the industry which was adopted was designed to reduce costs and improve quality through incentivizing the various parties to do so. Moreover, in a wide range of applications, from the scheduling of maintenance, registering the condition of assets and investigating the causes of unreliability, to timetabling and the scheduling of staff, computers can and are being used to transform working arrangements and yield greater efficiency.
While the case for rail privatization had from the beginning been as strong as for the others, there were understandable reasons why the then government delayed it until after the rest. With all its shortcomings there had always been strong public support and affection for the railways. Attempts to rationalize them, as by Dr. leeching, had proved the graveyard of reputations. Ministers knew they cut services at their peril. Mostly because of this, the railways were heavily subsidized as the other nationalized industries were not. Privatizing an industry which would continue to need large subsidies itself raised major problems. Given the long-lasting resistance to any railway closures, ministers felt it right to maintain the existing railway system not merely in terms of the routes to be kept open but more exactly in terms of the timetables of the services to be run on them. The criteria for timetable changes needed to be stringent ones: they must leave users better off than before. Moreover, the early privatizations had shown the supreme importance of introducing as much competition as possible while privatizing. As Jon Shaw points out in Chapter 1 of this book, before 1992 there had been several Secretaries of State in succession and lengthy debate over the options for rail privatization which were, however, more at the level of ideas than of practical proposals before John MacGregor, ideas which had not been fully thought through and had only been agreed by being kept at the level of generality. Because the structure of the industry was very complicated, the need was for a new structure which would strike a balance between maximizing competition and practicality.

Before a bill could be drafted MacGregor had several fundamental decisions to make. One was to confirm there would be vertical separation between the train-operating companies and the track. This issue was often discussed as if operators could only feel secure if they control the track and that to do so it must belong to them. But that was too simple a conclusion. Most businesses do not try to own their own suppliers' intermediate processes or retail outlets. Modem methods of communication and management mean ever more firms &merge or outsource as many activities as they can. By contrast, the old command and control relationships on the railways had been long established, largely unanalyzed, bureaucratic, inefficient and often relied on masses of paper which were seldom read. Instead it was decided the time had come for train-operating companies to contract for the use of track of a stated reliability and capacity at stated times with, as far as possible, well defined responsibilities for achieving that reliability, for dealing with emergencies and with predetermined access charges, as well as, most important of all, improving rail safety. The second fundamental decision was that while there should be a number of train companies, there should only be one infrastructure provider, Railtrack. The argument for this would not have been as strong in countries whose railway systems are in clearly separated geographical regions, hut in Britain, with its high-density network of often overlapping routes, however one drew regional boundaries there would be many cases where passenger and freight trains crossed boundaries, causing operational problems if the infrastructure were under separate regional control but without increasing competition since such regions would remain local monopolies and would still have to be regulated.

The third strategic decision John MacGregor had to make was on the extent of competition. There were many ways in which it seemed straightforward to secure the benefits of competition by setting up a number of rolling-stock companies, train-operating companies and maintenance companies; but as Shaw shows there had been strong support for so-called open-access competition by which different train companies were to be allowed to compete with each other throughout the network. For the reasons which Shaw discusses, John MacGregor agreed early on this solution would not work because of the density of the network and the fullness and complexity of the timetable, though there were political reasons why this could not be announced for some time. Instead it was decided to rely here on competitive franchising to achieve a measure of competition.
Another important decision MacGregor had to make was how to distinguish between the roles of OPRAF and ORR. The principle was clear. OPRAF was the guardian of public money put into the rail system through subsidies. As such it awarded and monitored franchises. To ensure value for public money it had to specify at least a minimum level, quantity and quality of service to be provided, the contribution the fare-box would make to the financing of these services and any investment in or for them to be made by the franchisees and Railtrack. ()RR was to regulate Railtrack's natural monopoly in the interests of those who used it and supplied it as well as to ensure that the operations of the whole system were as competitive as possible, which included ensuring the structure of fares was not discriminatory or predatory. But, as Chapters 6 and 9 indicate, the detail of making this distinction was full of problems.

Thereafter the need was to hammer out workable proposals and then agreements for every aspect of these changes, which required heroic efforts from all concerned throughout the railways, in the Department of Transport, and among the various advisers. To get difficult issues resolved within the timetable inevitably meant there were compromises and a few misjudgments, but the structure chosen is standing the test of time and allowing the development of the railways as a safe and more reliable form of transport in the face of unexpected growth in demand for it. Already there have been improvements in reliability though they leveled off for a time after the initial improvements. Fares have fallen in real terms. While the growth of traffic on some routes has led to more overcrowded trains, there are more trains on the timetable. Freight traffic has also grown, though it leveled off during 1999, while passenger traffic went on growing. More new trains are being ordered though not enough to replace all the old stock. Investment in infrastructure has more than doubled. The backlog of investment which had not been made in the past has been found to be far greater even than was previously supposed. The unexpected growth of traffic already referred to both created capacity problems on many routes and taxed the railway system with the problem of joint investment planning to overcome bottlenecks.

Both the last and this government have attached a high priority to increasing the capacity of the rail system to siphon traffic off the roads. Aside from improving reliability, raising service quality and increasing the frequency of trains where there is capacity, the main policy issue for the immediate future is to decide how most effectively capacity bottlenecks on the system can be relieved and where this can be done at a price which the nation is prepared to pay. It would not have been possible to achieve these objectives without the incentive for change, the clearer focus, the greater efficiency, and the ability to commit adequate resources for investment which the privatization program has made possible. The European Union's drive to achieve interconnection between European railways is forcing them to think about the contractual and performance arrangements needed.  Lessons are being drawn from UK experience. Already other overseas railways have analyzed our experience and learned from it while, of course, allowing for the fact that every railway's circumstances are different.
This book is a timely and very welcome contribution to our understanding of the development and initial outcomes of British railway privatization policy.
Sir Christopher Foster

Notes on Contributors List of Abbreviations
1 Designing a Method of Rail Privatization Jon Shaw
2 The Structure of the New Railway Clive Charlton
3 Creating Railtrack
John Edmonds
4 Railtrack's Recent Performance Arthur Leathley
5 Trains: The Rolling-stock Companies John Prideaux
6 Creating the Passenger Rail Franchises Christian Wolmar
7 Selling the Passenger Railway Christian Wolmar and Roger Ford
8 Selling the Freight Railway Julia Clarke
9 The Role of the Rail Regulator John Swift
10 New Directions for Britain's Railways Bill Bradshaw
Bibliography Index

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