Overground, Understated: How London’s commuter network is changing minds on rail privatization
The UK Government has campaigned for privatized passenger rail since the 90s. The Tories are now delivering a long overdue concession speech.
If you were to visit London, it is almost certain that you will take the Underground at some point during your trip. London’s legendary transit system links commuters from Heathrow Airport to virtually every major tourist attraction. Although the Underground’s logo and “mind the gap” slogan have become as synonymous for London as the Queen and Buckingham Palace, the metro system is only one piece of Transport for London’s (TFL) massive rail network.
In the South London borough of Croydon, a small network of trams connect areas underserved by the tube. To the east, TFL operates the Docklands Light Railway (DLR), a network of fully automated trains that connect Central London to iconic neighborhoods such as Greenwich. While both these networks offer strong regional coverage to areas otherwise unserved by the tube, they both pale in comparison to the coverage offered by the London Overground — TFL’s main suburban rail network.
The Overground, overviewed
The London Overground was established by TFL in 2007 to connect the sprawling areas outside of Central London. The network originally consisted of old tracks used by the Underground and a defunct private company, but additional lines were added over the years. In 2012, the Overground expanded to form the Outer Circle, a loop of track surrounding the central core of the British capital. These changes have been complemented by a branding overhaul to give the Overground an orange-coloured theme that mimics the red, white, and blue roundels of the Underground.
These upgrades and expansions were undertaken to address London’s growing commuter rail demands. As a result of this rapid growth, the Overground network covers a significant amount of the London metropolitan area. TFL is also planning a massive expansion of the service in South London.
Policymakers have taken an interest in the Overground not just because of its expansive coverage, but because of how TFL approached the contentious issue of private sector involvement.
The London Overground uses a concession-based ownership model that designates TFL as the network owner but outsources day-to-day operations to the private sector for eight-year periods. Arriva Rail London currently has the London Overground concession until 2024, but the company will nonetheless need to compete for future concessions in the coming years. Concession-based ownership structure is growing in popularity throughout the UK., with similar schemes emerging for the DLR and for urban transit systems in Northern England.
Concessions offer benefits to transit authorities, private operators, and (most importantly) passengers alike. Service fees are tied to punctuality, meaning that private operators are incentivized to run trains on time and avoid fines — or worse, lose their standing in future concession bids. Operators such as Arriva face less commercial risk in their operations by relying on infrastructure owned by TFL. These factors have contributed to the Overground’s comparatively high levels of passenger satisfaction and punctuality.
The London Overground’s advantages have captured the attention of policymakers at the national level. The UK Government is now exploring ways to replace its highly controversial franchise-based model of rail privatization, a system that granted short-term ownership rights of certain routes in exchange for a royalties. The concession model may serve as the most viable alternative.
Rail privatization: A “Major” decision
The UK Government sold off British Rail (the country’s state operator and infrastructure owner) in the early 90s under the direction of Conservative Prime Minister John Major. In the years leading to this decision, British Rail faced a number of setbacks that made the service deeply unpopular with passengers. Citing these concerns in their 1992 election manifesto, the Tories argued that “the best way to produce profound and lasting improvements on the railways is to end BR’s state monopoly.” The regional appeal of rail privatization was instrumental in helping the Conservatives secure their first post-Thatcher majority government.
Major’s approach to privatization sought to remove the state completely from rail ownership. His administration accomplished this objective by consolidating track ownership and infrastructure management into a single private entity (Railtrack). Service operation was divided among franchisees who competed for bids to serve specific routes.
While private rail service proved to be politically popular for much the 90s, the strategy did not address the problems attributed to nationalization. In some cases, privatization worsened these issues.
First, the cost overruns observed in the 80s and 90s have increased since British Rail’s privatization. Between 2000 and 2018, rail subsidies more than tripled, suggesting that private operators have not offered a viable alternative to nationalization. Second, Railtrack proved to be an ineffective manager of passenger rail infrastructure. As the company responsible for infrastructure management and safety, Railtrack was unable to prevent several train crashes (including three with fatalities). The company declared bankruptcy in 2001 and was renationalized by the Government a year later. The Government established Network Rail, a state-owned enterprise, as its new track manager. Third, the market for private operators has become increasingly concentrated since privatization, shrinking from 25 franchisees in 1996 to 17 in 2019. This consolidation, paired with limited consideration of ticket costs during bidding processes, resulted in the UK having comparatively expensive fares.
Time to concede
Additional problems have forced policymakers to become even more involved in passenger rail. In the past two years, the UK Government has had to step in as an ‘operator of last resort’ for franchisees that have been unable to provide service along their assigned routes. The re-nationalization of some passenger service operations has led The Economist to predict “the return of the fat controller” that once regulated British Rail.
COVID-19 has accelerated this prediction. In March, the UK Government temporarily suspended all franchise agreements due to the sharp decline in passenger demand. On September 21, Transport Secretary Grant Shapps announced the formal end of franchising altogether. Shapps stated that “the model of privatization adopted 25 years ago has seen significant rises in passenger numbers, but this pandemic has proven that it is no longer working.”
The question has shifted from whether Britain should end franchising to how. The concession-based model of ownership offers a suitable alternative to franchises for several reasons. First, the approach has allowed for a greater level of satisfaction and reliability in the jurisdictions where it has been implemented. Second, the model ensures a continued role for private operators, thus aligning itself ideologically with the governing Conservative Party. Third, the model will appeal directly to PM Boris Johnson who served as London Mayor during the Overground’s formative years. Johnson, who has taken credit for the project’s rapid development, will likely reflect on the successful attributes of the Overground (including concessions) when Cabinet considers replacements to franchise-based approach.
By balancing state ownership with private delivery, the concession model can improve passenger service without needing a full re-nationalization. If the UK is looking for an alternative to franchising, it won’t have to look far beyond London’s suburbs.