RMT submission to the SRA consultation on rolling-stock strategy

The National Union of Rail Maritime and Transport Workers (RMT) welcomes the opportunity to submit to the Strategic Rail Authority consultation on Rolling Stock Strategy. The RMT represents 66,000 workers in all sectors of the transport industry and with over 40,000 members employed on the railway is the largest of the rail unions.

Fragmentation and the privatised money-go-round

Since the passing of the Railways Act in 1993 by the John Major government the RMT has consistently opposed the increasingly fragmented nature of the network.  Privatisation has meant that rail currently consists of 25 train-operating companies, six freight companies, 3 rolling stock companies, 3 infrastructure controllers and 7 major infrastructure maintenance companies.

The three rolling stock companies (ROSCOs), Angel Trains Ltd, Porterbrook Leasing Company Ltd and HSBC Rail (UK) Ltd, have found a particularly lucrative niche in the money-go-round that is now a key feature of the rail industry in the post-privatisation era. 

The ROSCOs were initially sold in November 1995 for a combined sum of around  £1.7billion. Eversholt Leasing and Porterbrook were both acquired by management buy outs for £500million and £527million in turn. Angel Trains was sold to GRS Holding Company Ltd, a consortium of Prideaux and Associates, Babcock & Brown and Nomura International for £672milion.

 The money-go-round did not end there; Porterbrook was sold to Stagecoach in August 1996 for £825million; Eversholt Leasing was sold to Forward Trust Holdings a subsidiary of HSBC in February 1997 for £726million; The Royal Bank of Scotland in December 1997 snapped up Angel Trains for £395 million. This £1.9billion figure billion represented a £200milion profit on the original sale price.

April 2000 saw Porterbrook sold again, this time to Abbey National for £773million plus £669 million to cover external debt.

In addition to the money generated by the sale and resale of the ROSCOs information provided by the Trades Union Congress sourced from the FAME database reveals that since 1996 the rolling stock companies have generated a combined pre-tax profit of £1.8billion. Profit margins for 2000 reveal the extent to which the ROSCOs have benefited from privatisation - Angel Trains 29%, Porterbrook 35% and HSBC (Rail) UK 38%. (See tables attached as Appendix 1).

Corporate Welfare

The RMT remains extremely concerned that public subsidy continues to fuel private sector profit margins. The recent award of the South Central franchise to Govia illustrates the point.

In 2002/3 Govia received £4.7 million in gross SRA subsidy. This sum will rise to £79.4 million in 2003/4 and further increase to  £105million in 2004/5. All told £672 million in taxpayers money will be paid to Govia to run the South Central franchise, compared to the over £330 million of public subsidy given to Connex and Govia for the South Central franchise between 1996/7 and 2002/3.

Over 80% of the extra money will be handed over to a ROSCO, in this case Porterbrook, for new rolling stock. The RMT fully endorses the remarks made by Christian Wolmar in the May 28-June 10 2003 issue of Rail magazine;  "The payments to the ROSCOs expose the fundamental fact about private sector investment in the railways which is often forgotten - that it has to be funded from the public purse".

The same point applies to the three-year extension granted to Stagecoach for their South West Trains franchise. Subsidy will rise from £36 million in 2002/3 to between £165-170 million per year across the extension period. A significant proportion of this new money will be spent on the Desiro electric multiple-unit fleet. The RMT is appalled that public subsidy is being paid to the train operators for them to enter into business arrangements with the private sector thereby enabling the ROSCOs to make ever larger profits.

Personal Security

The RMT agrees with Para 3.11 of the consultation document that many potential passengers rule out using public transport because of personal security fears. We welcome the efforts to address these issues by improving the design of new rolling stock and through the introduction of enhanced crime management techniques.

The evidence that more passenger journeys will be made, particularly by women and the elderly, if a guard or conductor is present on a train is overwhelming. Extra passenger journeys provide a direct benefit to the train operator through the resultant increase in revenue generated by greater ticket sales. The RMT is therefore bewildered that the introduction of new rolling stock has all too often been combined with self-defeating decision to remove guards and introduce Driver Only Operation.

Vehicle Order Numbers

The consultation document seems particularly proud that over 4,000 new vehicles have been ordered post-privatisation. This figure is taken to be a key indicator in the rolling stock supply and leasing market success story.

Under unified BR management between 1984/5 and 1993/4, a period in which rail investment was being wound down to prepare for privatisation, 4,100 new vehicles were placed on order. If 4,000 orders are taken to be the benchmark of success it begs the question why was the highly successful rolling stock regime under BR was privatised in the first instance?

Market solutions

The order, manufacture, delivery, refurbishment and repair of rolling stock should be developed as part of a national and unified strategy. Purely market driven solutions simply do not sit comfortably alongside serious notions of integrated and strategic thinking.

The consultation document itself acknowledges the strength of a systemic non-market driven approach in relation to the cascading of older vehicles in Para 3.15. "under BR this (cascading) was managed relatively easily".  The document goes on to explain that the post-privatised structure of rail, caused in our view by the very market mechanisms that the SRA seeks to encourage, can create barriers to effective cascades on a network-wide basis.

Employment

Manufacturing is an essential part of the UK economy. 14% of the UK's entire work force is directly employed in manufacturing which contributes 20% of the UK's GDP and over £150 billion in exports.

Today Britain's manufacturing industry is currently experiencing a crisis. 155,000 UK manufacturing jobs were lost last year alone, averaging almost 13,000 every month. Workers in the railway engineering sector have had to endure many years of protracted job losses and insecurity. The 1980s saw thousands of jobs lost at the BREL workshops including those at Crewe, Derby, York, Doncaster, Horwich and Swindon. BREL was eventually sold-off in 1989 for £14 million; this according to one respected industry commentator was less than one fifth of its value.

After the 1993-privatisation private franchise holders, through the use of widespread voluntary redundancy schemes further reduced fleet engineering jobs.

According to the supporters of privatisation private capital investment, encouraged by the opportunities created by the new structures, would enable the railway to make a sharp break away from the short term, 'stop-go', nature of Treasury financial planning that had characterised much of the industry's history post 1948.

This has sadly not proved to be the case. The mid- 1990s saw the closure of ABB York. In 2001, 200 jobs were lost at the Wolverton plant and there were 100 redundancies at Alstom Eastleigh.

Alstom

Train manufacturer Alstom announced earlier this year "Whereas previously it was thought that an increased number of trains would be needed to meet growing passenger demand, it is becoming clear that because of overall funding problems, the demand for new rolling stock is likely to be much lower". 

This has left RMT members employed at Alstom plants including those at Eastleigh and Chester facing an uncertain future.The company's subsequent decision to close the Washwood Heath plant, with the loss of over 1,400 jobs, upon the completion of the new Pendolino fleet for the Virgin West Coast franchise represents a serious blow to the train manufacture industry in the UK. Self evidently for these workers the much-vaunted privatised rolling stock regime is not proving to be such an unqualified success story.

The SRA 2002/3 Annual Report revels that as at June this year 2,527 new vehicles that have been ordered since May 1997 have yet to be delivered. Approximately 40% of these vehicles will be wholly manufactured abroad. In fact the RMT alongside sister trade unions in the train manufacturing sector supports a change in government policy to match that in France, Germany and Spain where 60% of any rolling stock order must be built within national boundaries.

The RMT therefore remains fundamentally opposed to provisions contained in the European Interoperability Directives that seek to introduce external competition into the British rolling stock market through further liberalisation measures.

Conclusion

The RMT does not share the view that rolling stock strategy has been a post-privatisation success story.  We believe that the issues we have raised illustrate wider problems with current rail strategy: lack of coordination; fragmentation, a structure inappropriate for long-term strategic planning, public subsidy being used to fuel private sector profit and job insecurity for the rail workforce.

The RMT's view remains that the government should bring forward legislation to create a publicly owned and accountable railway. If they do not the problems that we have identified will become institutionalised making improvements to rail increasingly hard to deliver.

The York wagon works closed in the 1990s and the future of the 5,000 UK based Alstom workforce is uncertain. If these valuable, highly skilled workers are made redundant and the workshops disappear there remains no possibility that they will return. The result will be that the UK train manufacture and maintenance sector will simply cease to exist.