What would Brexit mean for railways?
8 June 2016 • Author(s): Ian Hall
Ian Hall explores the issues at stake for the rail sector in the UK referendum on EU membership.
The UK holds its referendum on European Union (EU) membership on 23 June: a vote for potential ‘Brexit’ (British exit from the EU) being closely watched across the world.
Prime Minister David Cameron is battling for ‘Remain’, but other high-profile Conservative politicians, such as Boris Johnson, are leading the charge for ‘Leave’. Global leaders such as US president Barack Obama and institutions such as the International Monetary Fund have piled in to advise against rocking the boat.
The UK referendum strikes at the heart of fundamental issues such as sovereignty, identity and economy. So, naturally, organisations in the rail sector have been considering their position on EU membership.
Balance of Competencies report
As momentum towards the referendum brewed, the UK Government actually took stock of the EU’s impact on UK transport via its grandly titled ‘Review of the Balance of Competencies between the UK and the EU’. This sprawling examination ran between 2012 and 2014, generating 32 reports, with one devoted to transport. Sixteen organisations were cited as ‘Rail’ sector respondents to the transport chapter (see boxout). The Department for Transport (DfT) received 111 pieces of evidence, and held workshops (including one focused on rail).
There is direct and indirect EU legislation affecting rail, ranging from the well-known Fourth Railway Package – which seeks to open domestic passenger markets to international competition and boost technical harmonisation – through to ‘social’ measures.
The UK is seen as a leading advocate for a single European market in transport. But, as is inevitably the case within a 28-member alliance, different states have moved at different speeds towards rail liberalisation. As the Balance of Competencies report notes: ‘There was concern at the failure of some Member States to reciprocate in opening their domestic rail markets.’
Nuggets within the Balance of Competencies report reveal more specific rail-related nuggets. For example, this: ‘Stakeholders suggested opportunities for British firms in the emerging single rail market and considered the expertise the UK had developed in, for example, rolling stock leasing, train maintenance and alternative energy supply, could be invaluable in exploiting gaps in other Member States’ industries. National Express reported to the UK embassy in Berlin that there was a real gap in the market for rolling stock companies (ROSCOs).’
Other rail specifics the report flags included: ‘Participants in the London rail workshop noted that ‘freight and rolling stock are predominantly a domestic issue for the UK’; and ‘TfL [Transport for London], commenting on rail, was of the view that ‘greater localisation of standards, away from major strategic routes, would be desirable. Such an approach could prove a useful way to reduce the cost of compliance with regulations and standards that are inappropriate to particular routes. Unfortunately the Fourth Rail Package appears to move in the opposite direction’.
In recent months advisory firms have been busy scrutinising what Brexit could mean. Among them are DeHavilland EU, which has published a briefing note pinpointing the future of international franchising and access to tenders as the biggest question within the rail sector.
The political monitoring firm said: ‘The situation, including UK rail companies’ freedom to participate in tender processes for franchises in the EU, depends on what deal will be brokered in the event of Brexit and whether the UK would continue to participate in the liberalisation and integration of the EU’s rail system’.
‘Under the current Conservative government, the latter seems likely, and it is equally likely that EU companies would be allowed to bid for UK rail franchises. The situation for UK companies in the EU is likely to mirror EU companies’ treatment in the UK.’
The above assessment is mirrored in a briefing produced in March by Norton Rose Fulbright entitled ‘Impact of Brexit on the Transport Sector’. The law firm’s note says: ‘Given the ‘value for money’ considerations for the UK public sector, it is likely that the UK Government would be intent on tendering any rail franchises to as large a pool of bidders as possible.’
UK Transport in Europe’s view
Mark Watts was a Labour MEP for a decade until 2004 and now runs the public affairs consultancy Luther Pendragon Brussels. He is also co-ordinator of UK Transport in Europe (UKTiE), a body that represents UK transport interests in Brussels.
“I can see three main implications of a Brexit for the UK rail industry: all are harmful and all could have impact sooner than some people think” – Mark Watts, Luther Pendragon Brussels
Mark, speaking to European Railway Review in a personal capacity, says: “I can see three main implications of a Brexit for the UK rail industry: all are harmful and all could have impact sooner than some people think.
“First, I think investment in the rail sector would fall. Political and economic uncertainty is the enemy of investment. The UK is reliant on foreign firms investing and I can see an investment drought. Even most pro-Brexiters don’t envisage the UK leaving the EU causing an upsurge in foreign investment.
“Second, I think fares could rise as there’s a strong possibility of a run on the pound – and, given the ongoing uncertainty, this has already happened in recent weeks, to an extent – causing rising energy costs. Someone will have to pay for a low pound: the UK government, taxpayers or fare-paying passengers. Rail firms’ margins are so tight that they could even be handing back keys on franchises. The government would certainly have to review fare-rise caps.”
His third point picks up on the issue related to tendering: “A Brexit would hit the whole rail supply-chain. Rules for European railways will be being set and the UK won’t have any say, like Norway, which is outside the EU but their railway sector seeks to comply with EU standards. If you’re [as a country] not at the top-table it will surely be harder for your country’s firms to be shortlisted for contacts overseas, let alone win tenders. It’s not just about regulatory compliance: it would be about retaliation. As we have already heard from European leaders no-one is going to make our life easy outside the EU and that’s especially true for a highly competitive market like rail.”
European Railway Review contacted numerous other organisations for their views.
One obvious place to start, given its main artery under the Channel, was Eurostar. The firm’s press office told European Railway Review that it was unable to comment, but referred to public pronouncements made by Nicolas Petrovic. Earlier this year – and unsurprisingly – the firm’s Paris-born CEO said: ‘Purely as a business we’d rather the UK stayed in the EU.’
A spokesman for the Rail Delivery Group, representing train operators and Network Rail, told European Railway Review: “Britain has one of Europe’s safest, fastest-growing and most liberalised railways. We are investing more in our railway than anyone else in Europe. As rail becomes increasingly important in Britain, our focus is on building the bigger, better railway that the economy and nation need. We are neutral as to whether Britain should stay in or leave the European Union.”
A further keenly interested organisation is the Freight Transport Association (FTA). It says: ‘Following discussions at Freight Councils – during which a wide range of views were expressed – members decided that as an association, FTA should remain strictly neutral on this issue. That said, the outcome of the vote will have significant implications for the freight and logistics industry.’
The Chartered Institute of Logistics & Transport (CILT) has recently surveyed its 18,000 individual members on Brexit. Of 676 responses, 65 per cent believe the logistics, supply-chain and transport industries will have a stronger future if the UK remains in the EU.
CILT’s Chief Executive, Kevin Richardson, said: “The message from our members reveals that, both as individuals and from a business perspective, a majority are in favour of remaining in the EU. The Institute does not align itself with any campaign and respects that our members have split views on the issue.”
Trade union viewpoints
Some trade unions, which rarely fall into the shrinking-violet category, have been vocal.
In respect of the railways and Brexit, a couple of months ago the RMT outlined six reasons for leaving the EU. The transport union’s General Secretary, Mick Cash, said: “RMT has set out the six core reasons for our members to vote to leave and we will be campaigning hard on this platform.”
Among the RMT’s reasons to be pro-Brexit include an assertion that EU rail policies ‘are set to further entrench rail privatisation and fragmentation’. In the word of the RMT leader: “It would be frankly ludicrous for a union like ours to support staying in a bosses club that seeks to ban the public ownership of our railways.”
The EU has long held a reputation for protecting workers’ rights, but the RMT dismisses this as a myth. The union says: ‘In fact the EU is developing a new policy framework to attack trade union rights, collective bargaining, job protections and wages. This is already being enforced in countries which have received EU “bailouts”.’
Singing from a similar hymn-sheet is train-drivers’ union Aslef, whose pro-Brexit stance owes to what its General Secretary, Mick Whelan, described in March as ‘a couple of proposals emerging from Brussels that we think will be bad for Britain in general, and bad for the railway in particular – the Fourth Railway Package and the TTIP trade deal between the EU and the US.’
The Fourth Railway Package, says Whelan, would ‘foist the British model of rail privatisation on the rest of Europe. [And] privatisation doesn’t work’.
In contrast, the TUC wants the UK to stay within the 28-member bloc while Manuel Cortes, leader of the TSSA rail union, cited the danger he sees to employees’ rights in the event of Brexit as a reason to back ‘Remain’.
Jerry Alderson, Director of Finance and Corporate Governance at campaign group Railfuture, says the organisation is “entirely agnostic” as regards the EU referendum.
“Clearly any longer-lasting macro-economic impact caused by Brexit would affect the railway. However, the global recession in 2008 hardly affected Britain’s railway” – Jerry Alderson, Railfuture
Speaking in a personal capacity, he tells European Railway Review that he believes the likely impact of Brexit would be negligible. He says: “The days immediately after the referendum will see market volatility [after a Brexit]. Clearly any longer-lasting macro-economic impact caused by Brexit would affect the railway. However, the global recession in 2008 hardly affected Britain’s railway (just two quarters of passenger reduction, unlike all previous recessions) and today’s railway does appear to be largely recession-proof.
Onto technical specifics, he says: “EU legislation has affected Britain’s railway but Brexit is unlikely to lead to any reversal. For example, it is unlikely that the harmonised December annual timetable change will be moved or split into half-yearly changes. The EU limits franchise-length to 15 years but the DfT has no desire for longer franchises. The PRM-TSI [Persons with Reduced Mobility/ Technical Specification for Interoperability] accessibility deadline of 1 January 2020 would still see much of Britain’s rolling-stock replaced or modernised even if Britain were no longer bound by it.
“Britain will continue to conform to European technical standards, such as the ERTMS [European Rail Traffic Management System] and ETCS [European Train Control System], when it renews signalling as part of its ‘Digital Railway’ revolution. It makes no sense to have diverging standards.”
On a similarly more involved level, DeHavilland’s briefing note (referred to earlier) says: ‘In terms of regulatory developments, the UK [after a potential Brexit] is likely to remain a member of the Intergovernmental Organisation for International Carriage by Rail (OTIF) and the Channel Tunnel Intergovernmental Commission (IGC), both of which form parts of working parties set up by the European Railway Agency (ERA). Due to this the UK would likely continue to have a role in the development of common technical specifications in the event of Brexit.’
ORR modifications likely?
Norton Rose Fulbright’s ‘Impact of Brexit on the Transport Sector’ report (also referenced earlier), also examines regulatory aspects.
It says: ‘The Office of Rail and Road (ORR) is responsible for both economic and safety regulation in Great Britain. Much of this regulation derives from the EU and is therefore designed to be a ‘one-size-fits-all’ for all European rail networks. In the absence of this system, ORR could in theory seek to modify the regulatory framework in a way that it considered better suited the rail network in Great Britain.
‘One potential area that ORR might seek to change concerns the regulatory framework for access charging. The EU access charging rules contain strict provisions on how infrastructure managers should set access charges for operators. A consequence of these rules is that it limits Network Rail’s ability to discriminate in the way it sets charges for different operators, even if there is an objective justification for such discrimination. If these rules no longer applied, there could be scope to increase open access in rail by setting the access charging framework in a way that promoted open access operators and increased on-rail competition. This might be attractive to ORR given its policy to promote more on-rail competition.’
Beyond the macroeconomics and other uncertainties, the impact on transport depends largely on what deal the British government negotiates (and to what extent it will try to sign up to existing regulations).
But even the procedures and timetable for a UK divorce from the EU are disputed.
So, is Brexit on the cards? At the time of writing, polls suggest that a vote for ‘Remain’ is more likely. But the polls were wrong at last year’s General Election, the atmosphere in Westminster is febrile and many voters remain undecided. The stakes are high.
UK Government’s ‘Balance of Competencies’ review
The 16 organisations listed below were cited as ‘Rail’ sector respondents to the UK Government’s ‘Review of the Balance of Competencies between the UK and the EU’ Transport chapter (publication date: February 2014)