Rail leaders frustrated as DfT tightens grip and cuts loom

Just over a year ago when Rail Business UK surveyed the UK rail sector’s senior management about the post-Covid outlook, there was a consensus that without action to drive forward reform, two decades of growing rail use could come to a jarring halt.

Today, 13 months on, the situation is much bleaker: industrial relations strife is paralysing much of the network, long-awaited plans to create a ‘guiding mind’ under Great British Railways are seemingly in abeyance, and train operators and Network Rail are wilting under unprecedented government micro-management.

As things stand, the outlook for the immediate future seems exceptionally challenging, with little imminent hope of rapid resolution to the various industrial disputes involving operators, NR and the two largest rail trade unions.

In addition, significant cuts to services are now in prospect: Rail Business UK can reveal that an operator has already offered to cease running trains on one route to save money; indications are that this is not a one-off proposal. Meanwhile, the Department for Transport has ordered Great Western Railway to withdraw its 16 refurbished ‘Castle Class’ IC125 trainsets over the next 12 months, without replacement, which is likely to lead to a sharp reduction in the number of trains running between Plymouth and Penzance, even if some services are covered by reallocated Class 802 trainsets.

Chiltern Railways and CrossCountry are under pressure to withdraw their loco-hauled and HST trains on cost grounds despite struggling to manage severe overcrowding against a backdrop of little to no fleet investment over the past decade and more.

This retrenchment comes in the context of DfT having static rail budget for 2023-24, which is in real terms a cut of around 10% because of inflation, and a reduction in available funding of around £1bn in the following financial year.

How we got here

The backdrop to the current crisis is arguably the breached birth of Great British Railways. This was itself a result of a widespread acknowledgement that the franchising model had run its course, even before Covid hit.

Article continues below ↓

But in practice, the preparations for the creation of GBR, as well as the emergency measures required to keep trains running during the pandemic, have led to unprecedented control over the rail sector resting with the Secretary of State themselves. Analysis by Rail Business UK of the redacted public version of the West Midlands Trains National Rail Contract shows no fewer than 2 450 references to ‘the Secretary of State’ in 529 pages. Even the most senior rail managers are now stating openly that there has never been so much government control over the railway.

’An operator has already offered to cease running trains on one route to save money’

The most direct consequence of this radical centralisation of power within government has been to hamstring the industry’s ability to deliver even modest changes to incentivise ridership or adapt their business model. Clearly, this has had a major influence on the evolution of the current rail strikes. Most operators in England are now signed up to National Rail Contracts with DfT, but many consider them even more onerous and restrictive than the emergency measures imposed during Covid.

In particular, there is no option for operators to negotiate on pay and other terms and conditions for staff without an express mandate from the Secretary of State. This is a stark contrast from the pre-2019 era, when franchise holders were often tacitly encouraged by DfT to settle industrial disputes ‘at all costs’ to avoid ‘embarrassing’ industrial action, according to sources.

Industry leaders have told Rail Business UK that in early 2022, there was some optimism among the operators that an offer of a 5% pay rise for traincrew could have been acceptable to the unions, after detailed negotiations. ‘The industry put proposals to DfT in April, and we could have got a 5% deal across the line. But we had still got no response or a mandate by September’, says one insider.

Meanwhile, former Transport Secretary Grant Shapps saw an opportunity to drive through a wider set of reforms to railway working practices, while the onset of war in Ukraine and a spike in the cost of living prompted a hardening of attitudes towards rail industry costs in government, and especially at the Treasury.

Diverging views in Whitehall

While during 2022 the government has taken on wholesale control of day-to-day rail policy, senior rail managers report a major divergence of emphasis between DfT and Treasury officials. DfT, they report, is relentlessly focused on stripping cost from the sector, while the Treasury is adamant that it wants more revenue.

With DfT focussed on reducing costs, radical proposals were put forward for reform of working practices. The terms of the operators’ NRCs obliged them to ‘co-operate with the Secretary of State as may be required in respect of the planning, development and/or implementation of industry reform’.

It was made clear to operators that any pay agreements would be dependent on these changes being pushed through. The Guardian newspaper reported in June that it had seen documents outlining plans to repurpose all ticket offices within 18 months, while new staff were to be hired on inferior terms and conditions, which would include Sundays in the working week as a default. Train operators were also asked by officials to assess the feasibility of converting all their fleets for Driver Only Operation, with guards replaced by non-safety critical onboard staff.

’We might be at the point of losing more than we’ve gained’

Negotiators representing the train operators at national-level talks with the unions told Rail Business UK that no movement on pay would be permitted until this reform process had been agreed. ‘We were in handcuffs, the rule was “reform before pay” whilst the unions were saying “no reform, just pay”.’

With such a clear line mandated by DfT and such an entrenched union position, it was no surprise that the ASLEF, RMT and TSSA unions all received significant mandates for industrial action with the first RMT strike taking place on June 23.

Some industry leaders have told Rail Business UK that they feel DfT assumed the strikes would be weakened rapidly because of the effect of lost pay on those taking part. But this has not been the case and since the summer, the various parties have steadily grown further apart.

Who blinks first?

With no end to the strikes in sight, several senior managers have suggested that the situation was drifting into a ‘who blinks first?’ scenario, not helped by the wider climate of poor industrial relations across the UK public sector.

An offer to RMT members by the Rail Delivery Group at the start of December of two pay rises of 4% over two years appeared to be a major concession, until it emerged that the deal was contingent on an immediate acceptance by RMT of further major changes to working practices.

Now enjoying almost cult status as a result of his media interviews, RMT General Secretary Mick Lynch immediately stated that the offer ‘doesn’t come close’ to enabling a resolution to his union’s dispute with the operators.

No 10 intervenes

Rail Business UK can report that the Prime Minister’s office insisted on a clause being inserted ‘over the heads of DfT’, according to one insider, mandating a transition to drivers controlling train doors on all services. This was interpreted by the trade unions as a formal move to Driver Only Operation, although it is understood that these words were not used by the government.

The Rail Delivery Group has suggested that while RMT has accused the government and industry of seeking to destaff trains, the proposals would more likely involve expanding the Driver Controlled Operation model already used by Southern since 2016 on routes between London and Sussex. This was itself introduced despite a protracted industrial dispute that saw guards redesignated to the new position of Onboard Supervisor.

Article continues below ↓

Nevertheless, rail managers have been quick to point out to DfT that much of the infrastructure and rolling stock across the country is incompatible with DCO let alone ‘pure’ DOO. This is largely because of the limitations of the carbody-mounted CCTV cameras used by drivers, and the inability to retrofit this equipment to many older fleets, Rail Business UK understands.

‘DfT thinks that DOO or DCO can be rolled out almost instantly, but revenue protection would collapse and support for people with mobility issues needs sorting first. We do need reform but at the right pace. We might be at the point of losing more than we’ve gained’, says one manager.

Managers under pressure

Whilst the pay disputes may have been taken out of DfT’s hands, its overall grip on the industry remains. ‘DfT is refusing to let go of the reins’, admit insiders.

Operators on National Rail Contracts report that they are being micro-managed to an even greater degree than was the case under the Emergency Recovery Measures Agreements imposed during Covid-19.

Reflecting widely felt exasperation, one manager fears that the ‘the whole industry is being stymied by mandarins’ with limited understanding of the rail business who have a propensity for ‘asking really stupid questions’. This in turn is taking up large amounts of management time which could otherwise be dedicated to managing service delivery.

Many managers have told Rail Business UK that they ‘are reaching breaking point’, fed up that they are no longer able to make decisions. One says that they are ‘not sure DfT knows the damage it is doing to the industry and we’re fed up with being told they know best and we’re a bunch of idiots.’

Suggestions from Whitehall that agency staff could be drafted in to deliver services during future strikes ‘show the level of ignorance’ within DfT. Noting the safety implications, the insider insisted ‘we will not be doing that’.

‘We need permission for special offers, and there’s no permission’

This attitude is now hampering the recovery of the industry; the NRCs give the Transport Secretary control over the way operators generate revenue. ‘We need permission for special offers, and there’s no permission’, claims one TOC representative. This contrasts starkly with the approach adopted under the franchising model over the 15 or so years prior to the pandemic, when one high-profile inter-city operator’s former Managing Director insisted that ‘if I could sell a seat for £10 rather than leaving it empty, I would’.

It is clear that the current level of government control is causing mounting concern within the private sector over its future involvement in the industry. ‘DfT seems to think that there will always be an outsourcing contractor who will come along and work on a wafer-thin margin’, reports another insider. ‘But you’ll lose a load of experience and when things go wrong there will be nobody who knows how to get out of it.’

‘Leanings towards Serpell’

The immediate challenge for the industry is to avoid a sense of drift. However, Rail Business UK understands that this would appeal to some in government who feel that if the railways cannot survive without state support, they should be left to a lengthy period of managed decline.

Article continues below ↓

Within the senior DfT management team, at least one member is described as having ‘leanings towards Serpell’. David Serpell was the civil servant who authored a January 1983 report which included an option to reduce the length of the network by 84% to achieve what was at the time termed ‘a purely commercial rail network’.

It is understood that DfT’s budget for the passenger railway for 2023-24 remains the same as for 2022-23, while for 2024-25 a further £1bn is removed from the funding available. However, given rising inflation and other costs, even a flat budget is likely to equate to a real-terms cut of at least 10% in available expenditure. As result, significant cuts to rail provision are being drawn up by several operators, with one TOC proposing replacing trains with buses on at least one branch line. Other areas being ‘forensically’ examined by DfT include onboard catering. Some TOC Managing Directors have already been warning stakeholders to ‘get used to’ permanently shorter train formations and overcrowded services on leisure flows.

‘Get used to permanently shorter train formations and overcrowded services’

‘The industry has proposed rolling stock cascades, made possible under the NRCs, that would create a more cost-effective railway now we’re “all in this together”’, insists one manager. ‘We can create a more affordable, modern railway. But DfT just tells us for months on end that they are still thinking about it, and these proposals go nowhere.’

There is an emerging view across the industry that Great British Railways may never make the transition from vision to reality, but this must not mean that overall reform stalls — assuming, of course, that the short-term imperative of resolving the various industrial disputes can be achieved.

‘There does have to be a commitment to long-term reform and restructure’, insists the industry leader. ‘Sensible decisions are needed, big changes are needed and big changes are planned. We just want to be allowed to get on with it.’