The Southern Rail mess isn’t a privatisation failure – it’s a return to the 1970s

A helpful and informative sign at East Dulwich this morning. Image: Getty.

London’s Southern Railway has been dominating the headlines all summer, due to its sheer awfulness. But the underlying dispute isn’t a failure of privatisation: it’s a fight between unions and managers, directed by Conservative politicians, about how to reform a nationalised industry. This may sound familiar to older readers.

On your journeys to work this summer, particularly if being cooked at 32C on the Central Line, you can at least take solace that some commuters have it worse than you. It’s impossible to open a newspaper without reading of the woes of Southern Railway, which operates trains out of London Bridge and Victoria to outer London, Sussex and Surrey.

Politicians including Jeremy Corbyn, Sadiq Khan, and Conservative backbenchers on the route, have called for the service to be renationalised, stripped of its franchise, or given to Transport for London to manage. CityMetric even called for the latter here.

There’s one small problem: none of these will help.

The most important thing to know about Southern Railway is that it doesn’t actually exist. It used to, from 2001 up until July 2015. Then, it was a fairly standard UK rail franchise. (We’ve talked about those, too.) In summary: the company paid the Department for Transport money for the right to operate trains, collect fares, and take the profits.

But this changed in 2015. Instead of taking new bids when this contract ran out, the DfT merged a whole bunch of services into a single new tender. The new Thameslink, Southern & Great Northern franchise was the largest in the UK in terms of passengers, trains and employees.

And, importantly, it is not a franchise like Southern was.

Instead of auctioning off the right to run trains and collect fares, the new tender was for a service delivery contract. The operator must meet specifications laid down by the DfT, hand over fares to the DfT, and collect a service fee from the DfT in exchange.

There’s nothing wrong with this model. It works well for London Overground and London Buses. And there was a good reason to bring it in: the Thameslink Programme will be finished during the franchise’s term, and many routes that used to terminate at London Bridge or Kings Cross will shift to the cross-London Thameslink route. This is easier to manage if you don’t have to worry about multiple companies allocating profits, costs and delays between themselves.

Several companies bid for the new contract, with Govia Thameslink Railway the winner. GTR doesn’t use its own brand, instead running trains under their old names – including Southern.

It’s these major changes in how the franchise is structured which have created the commuter woes. Some of them can be put down to the massive upheaval you’d expect from a major construction project – one that that both directly gets in the way of services, and involves changing long-established routes, terminuses and timetables.

But there’s a bigger upheaval going on, and to understand that, you need to go back in time.


GTR’s routes have mostly been operating for over a century, and their workers were pioneers in the UK’s union movement. Railwaymen fought the many companies that owned the railways for decent working conditions and pay.

But these were never standardised nationally. Even under British Rail, the great effort of negotiating national standards and practices was a lower priority than simple survival. Instead, changes to create a workforce that suited a modern railway were negotiated piecemeal as upgrades took place, depending on managers’ preferences; and money was made available to sweeten the pill of reduced staffing or more variable hours.

When BR built the original Thameslink route in the 1980s, it shifted its trains to driver-only-operation, because train guards’ role in opening doors and dealing with breakdowns was now redundant. As weekend services grew across British Rail's network, driver contracts on some routes were shifted to a seven-day roster, so that they no longer relied on voluntary overtime. But on most of the network, including what is now Southern, this didn’t happen – and privatisation further reduced the incentive for difficult changes.  

This becomes a big problem when routes with different practices and contracts get merged into one. Thameslink drivers operate the doors; Southern mainline drivers don’t operate the doors. Southern mainline trains always carry guards, while Thameslink trains don’t. Given that these will soon be the same rolling stock, operating the same services, this situation is ridiculous and needs to be resolved.

Now, there’s a long-established model for successfully bringing about changes in working practices, which involves managers and unions working together to come up with efficient solutions that share out the benefits of change. It’s called Germany. There’s also a long-established model for guaranteeing that working practice changes are a disaster, which involves hostile press briefings, strike threats, and refusal to compromise on money on the one side or efficiencies on the other. It’s called 1970s Britain.

We know that the Germany model works and that the 1970s model doesn’t. But we also know that there’s a huge attachment to union-bashing and refusing to settle among Conservative politicians. Who control the DfT. Which – I said this would be important – gets to tell GTR what to do. So Conservative politicians who hate unions ultimately control negotiations with Southern’s staff.

The direct strike action this has provoked would be bad enough if Southern ran a seven-day roster, but it doesn’t: it’s entirely dependent on driver goodwill for its Sunday service, and is understaffed enough that it’s partially dependent on volunteer overtime and swaps for the rest of the week.

There’s only one thing that can fix Southern in the short term, and it’s a complete change in attitude from the people in charge of the government. Who, if you’ve not been paying attention, have just changed.

So, come on Theresa May – are you going to meet the unions and end the painful stalemate your predecessor created? Or are you going to drag this out into a pyrrhic victory where everyone loses, like the miner’s strike your predecessor-minus-a-few created?

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High streets and shopping malls face a ‘domino effect’ from major store closures

Another one bites the dust: House of Fraser plans to close the majority of its stores. Image: Getty.

Traditional retail is in the centre of a storm – and British department store chain House of Fraser is the latest to succumb to the tempest. The company plans to close 31 of its 59 shops – including its flagship store in Oxford Street, London – by the beginning of 2019. The closures come as part of a company voluntary arrangement, which is an insolvency deal designed to keep the chain running while it renegotiates terms with landlords. The deal will be voted on by creditors within the month.

Meanwhile in the US, the world’s largest retail market, Sears has just announced that it will be closing more than 70 of its stores in the near future.

This trend of major retailers closing multiple outlets exists in several Western countries – and its magnitude seems to be unrelated to the fundamentals of the economy. The US, for example, has recently experienced a clear decoupling of store closures from overall economic growth. While the US economy grew a healthy 2.3 per cent in 2017, the year ended with a record number of store closings, nearly 9,000 while 50 major chains filed for bankruptcy.

Most analysts and industry experts agree that this is largely due to the growth of e-commerce – and this is not expected to diminish anytime soon. A further 12,000 stores are expected to close in the US before the end of 2018. Similar trends are being seen in markets such as the UK and Canada.

Pushing down profits

Perhaps the most obvious impact of store closures is on the revenues and profitability of established brick-and-mortar retailers, with bankruptcies in the US up by nearly a third in 2017. The cost to investors in the retail sector has been severe – stocks of firms such as Sears have lost upwards of 90 per cent of their market value in the last ten years. By contrast, Amazon’s stock price is up over 2,000 per cent in the same period – more than 49,000 per cent when considering the last 20 years. This is a trend that the market does not expect to change, as the ratio of price to earnings for Amazon stands at ten times that of the best brick-and-mortar retailers.

Although unemployment levels reached a 17-year low in 2017, the retail sector in the US shed a net 66,500 jobs. Landlords are losing longstanding tenants. The expectation is that roughly 25 per cent of shopping malls in the US are at high risk of closing one of their anchor tenants such as a Macy’s, which could set off a series of store closures and challenge the very viability of the mall. One out of every five malls is expected to close by 2022 – a prospect which has put downward pressure on retail real estate prices and on the finances of the firms that own and manage these venues.

In the UK, high streets are struggling through similar issues. And given that high streets have historically been the heart of any UK town or city, there appears to be a fundamental need for businesses and local councils to adapt to the radical changes affecting the retail sector to preserve their high streets’ vitality and financial viability.


The costs to society

While attention is focused on the direct impacts on company finances, employment and landlord rents, store closures can set off a “domino effect” on local governments and businesses, which come at a significant cost to society. For instance, closures can have a knock-on effect for nearby businesses – when large stores close, the foot traffic to neighbouring establishments is also reduced, which endangers the viability of other local businesses. For instance, Starbucks has recently announced plans to close all its 379 Teavana stores. Primarily located inside shopping malls, they have harshly suffered from declining mall traffic in recent years.

Store closures can also spell trouble for local authorities. When retailers and neighbouring businesses close, they reduce the taxable revenue base that many municipalities depend on in order to fund local services. Add to this the reduction in property taxes stemming from bankrupt landlords and the effect on municipal funding can be substantial. Unfortunately, until e-commerce tax laws are adapted, municipalities will continue to face financial challenges as more and more stores close.

It’s not just local councils, but local development which suffers when stores close. For decades, many cities in the US and the UK, for exmaple Detroit and Liverpool, have heavily invested in efforts to rejuvenate their urban cores after years of decay in the 1970s and 1980s. Bringing shops, bars and other businesses back to once derelict areas has been key to this redevelopment. But today, with businesses closing, cities could once again face the prospect of seeing their efforts unravel as their key urban areas become less attractive and populations move elsewhere.

Commercial ecosystems featuring everything from large chain stores to small independent businesses are fragile and sensitive to change. When a store closes it doesn’t just affect employees or shareholders – it can have widespread and lasting impacts on the local community, and beyond. Controlling this “domino effect” is going to be a major challenge for local governments and businesses for years to come.

Omar Toulan, Professor in Strategy and International Management, IMD Business School and Niccolò Pisani, Assistant Professor of International Management, University of Amsterdam.

This article was originally published on The Conversation. Read the original article.