The DfT Is Still On Another Planet

Judging from the announcement of the East Coast railway franchise being awarded today to National Express plc, it seems that the DfT civil servants did not understood what happened earlier last year for this franchise. Indeed if the current operator GNER was forced to stand down, that was because they were unable to pay a premium of £1.3 billion over the course of their ten years franchise. The new agreement includes this time, a premium of £1.4 billion in the course of eight years.

Apparently, it is clear that the DfT does not understand how a business should be run. In fact with yearly revenues of £600 millions; this premium would amount to an operational margin of more than 15% since some of the profits must be kept by the company. It is worth noting that this kind of performance, is not even achieved by the majority of businesses, except perhaps for very specialized companies. On the top of that, the agreement includes plenty of ‘targets’ whom Labour loves so much and as usual the taxpayer is set to foot the bill through higher than inflation fares.

Surely the time to end such lunacy on the part of the DfT must come to an end. Normal businesses do not need any targets, if they fail then they go bankrupt and everybody looses, if they succeed then everybody wins, customer feedback, shareholders pressure and external pressures are enough and are much more efficient than any profit target set by civil servants. The same thing should applies for the railways, thence scrapping the existing system of franchises, complicated arrangements based on contracts, to replace them with a few or even a single integrated plc independent of any governmental interference is the way forward.

What Ruth Kelly and the DfT only deserve is another franchise failure. As learning is by repetition, they will perhaps understand after a few more high profile failures, (the next one could very well be First Great Western) that they have to change something in their ways. But, I have some doubts as whether this will be enough for them. Moreover, if this ‘something’ means even more regulation, then the costs for cleaning up the mess are going to be pretty high and, guess who will have to pay the bill then? The taxpayer as usual.