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British Rail's “Business-Led” Organization, 1977–1990: Government-Industry Relations in Britain's Public Sector

Published online by Cambridge University Press:  13 December 2011

Terence R. Gourvish
Terence R. Gourvish
Affiliation:
Terence R. Gourvish is director of the Business History Unit at the London School of Economics and Political Science.
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Extract

In attempting to meet government-mandated profitability and efficiency goals, the British Rail Board behaved not simply as the government directed, but rather according to internal needs and initiatives, as this careful examination of the implementation of sector management demonstrates. Even in the early days of movement toward privatization, the board tried to develop its own policies, and, though it soon became clear that full divestiture was to be the goal, events proceeded through various stages, rather than in a forced march along a government-designed path.

Type
Articles
Information
Business History Review , Volume 64 , Issue 1: Government and Business , Spring 1990 , pp. 109 - 149
Copyright
Copyright © The President and Fellows of Harvard College 1990

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References

1 British Railways Board and Institute for Transport Studies, University of Leeds, A Comparative Study of European Rail Performance (London, 1979), 111, 134, 139Google Scholar; British Railways Board [hereafter BRB], Annual Report and Accounts, 1984/85 (London, 1985), 9.Google Scholar

2 Note, for example, the survey material in Aharoni, Yair, The Evolution and Management of State Owned Enterprises (Cambridge, Mass., 1986)Google Scholar, and the comparative perspective offered in Zamagni, Vera, ed., “Origins and Development of Publicly Owned Enterprises,” 9th International Economic History Congress, Bern, 1986Google Scholar, with the papers subsequently published in Annali di Storia dell'Impresa 3 (Milan, 1987): 119–275Google Scholar. For the United Kingdom, there is Sir Chester, Norman, The Nationalisation of British Industry 1945–51 (London, 1975)Google Scholar, and a host of other works, including Pryke, Richard, Public Enterprise in Practice: The British Experience of Nationalization over Two Decades (London, 1971)Google Scholar and his The Nationalised Industries: Policies and Performance since 1968 (Oxford, 1981)Google Scholar, and Redwood, John, Public Enterprise in Crisis: The Future of the Nationalised Industries (Oxford, 1980).Google Scholar

3 Hannah, Leslie, Electricity before Nationalisation: A Study of the Development of the Electricity Supply Industry in Britain to 1948 (London, 1979)CrossRefGoogle Scholar and Engineers, Managers and Politicians: The First Fifteen Years of Nationalised Electricity Supply in Britain (London, 1982)Google Scholar; Supple, Barry, The History of the British Coal Industry, vol. 4:1913–1946Google Scholar: The Political Economy of Decline (Oxford, 1987)Google Scholar and Ashworth, William, vol. 5: 1946–1982: The Nationalised Industry (Oxford 1986)Google Scholar; Gourvish, T. R., British Railways 1948–73: A Business History (Cambridge, England, 1986)Google Scholar. In addition, there have been official studies of nuclear power and gas, and unofficial but informed works on railways and transport: Gowing, Margaret, Britain and Atomic Energy, 1939–1945 (London, 1964)Google Scholar and Independence and Deterrence: Britain and Atomic Energy, 1945–1952, 2 vols. (London, 1974)Google Scholar; Williams, Trevor I., A History of the British Gas Industry (Oxford, 1981)Google Scholar; Aldcroft, Derek H., British Railways in Transition (London, 1968)CrossRefGoogle Scholar; Bonavia, Michael R., The Nationalisation of British Transport: The Early History of the British Transport Commission, 1948–53 (London, 1987).CrossRefGoogle Scholar

4 Gourvish, British Railways, 322–43, 374–88, 566–82.

5 Reid, in ibid. xvi–xvii.

6 BRB, Annual Report and Accounts, 1975 (London, 1976), 57, 59.Google Scholar

7 Gourvish, British Railways, 374–79.

8 Sir Robert Reid, “Managing Change,” extracts from a speech made to the Association of Management Institutes of Teeside, 4 Nov. 1985, BRB Management Brief, 18 Nov. 1985.

9 For a short time regional general managers retained profit accountability for subsectors that fell wholly within their regions.

10 In addition, a new region, Anglia, was added in April 1988, reflecting economic and population growth in East Anglia. On sectorization see, for example, Heath, John, “Planning in Transport,” in Strategic Planning in Nationalised Industries, ed. Smith, John Grieve (London, 1984), 221–22.Google Scholar

11 The subsectors were: 1) InterCity: East Coast Main Line, Anglia InterCity, West Coast Main Line, Midland Mainline, Cross Country, Gatwick, Great Western Mainline, Charter Trains; 2) Freight: Aggregates, Automotive, Building Materials, Coal (Distribution), Coal (Electricity), Coal (Other), Distribution Services, Metals, Petroleum, Refuse, Freightliner; 3) Network SouthEast: East [now Anglia], South, North, Central, SouthEast, SouthWest, West [now Thames & Chilterns]; Provincial: Eastern, Midland, Scotrail, Western; and 5) Parcels: Premium Parcels, Newspapers, and Post Office.

12 Reid, R. B., “All Change for Railway Management—How British Rail is Facing the Challenge of Competition,” Address to the Institute of Administrative Management, 23 April 1985Google Scholar, BRB; BRB, Measuring Cost and Profitability in British Rail (London, 1978), 6ff.,Google Scholar and see also BRB, Report, 1976, 14–15.

13 Redwood, Public Enterprise in Crisis, 119–20; Prosser, Tony, Nationalised Industry and Public Control: Legal, Constitutional and Political Issues (Oxford, 1986), 120–21Google Scholar; Nash, Chris, “British Rail and the Administration of Subsidies,” in Reshaping the Nationalised Industries, ed. Whitehead, Christine (Hermitage, Berks., 1988), 92–93Google Scholar; and Redwood, John, Going for Broke: Gambling with Taxpayers' Money (Oxford, 1984), 113–14.Google Scholar

14 T. R. Gourvish, “Government, Nationalization and Business Performance: The Nationalized Transport Enterprises in the United Kingdom, 1830–1980,” Annali di Storia dell'Impresa, 173–76.

15 Chandler, Alfred D. Jr, The Visible Hand: The Managerial Revolution in American Business (Cambridge, Mass., 1977), 185–87.Google Scholar

16 Gourvish, T. R., “The Railways and the Development of Managerial Enterprise in Britain, 1850–1939,” in Development of Managerial Enterprise, ed. Kobaysashi, Kesaji and Morikawa, Hidemasa (Tokyo, 1986), 194–96Google Scholar; Channon, Geoffrey, “The Great Western Railway under the Railways Act of 1921,” Business History Review 55 (Summer 1981): 203ff.CrossRefGoogle Scholar

17 The Financial and Economic Obligations of the Nationalised Industries (April 1961), Cmnd. 1337; Nationalised Industries: A Review of Economic and Financial Objectives (Nov. 1967), Cmnd. 3437; The Nationalised Industries (March 1978), Cmnd. 7131.

18 See, for example, Gourvish, British Railways, 515–20; I. C. R. Byatt, “The Framework of Government Control,” in Grieve Smith, Strategic Planning, 67–86; Molyneux, Richard and Thompson, David, “Nationalised Industry Performance: Still Third-Rate?” Fiscal Studies 8 (Feb. 1987), 50–52CrossRefGoogle Scholar; and Anthony Harrison, “The Framework of Control,” in Whitehead, Reshaping, 22–28.

19 In addition a subsidy of £66.3 million was provided to support freight services, and £3.3 million as an adjustment for previous years. The overall support, with pension and loan arrangements, totaled £506.8 million in 1975. See Secretary of State for Transport, Direction, 19 Dec. 1974, in BRB, Report, 1976, 4, and Report, 1975, 3, 8, 60.

20 BRB, Reports, 1976–79. The EFL was fixed at £730 million for 1979–80, later adjusted to £715 million, Report, 1979, 12.

21 BRB, Report, 1981, 5. Sealink was asked to earn a real return before interest and tax of 5 percent on the replacement cost of net assets: Report, 1982, 5.

22 BRB, Reports, 1979–83. Passenger income was £799.7 million in 1979, £1,022.8 million in 1981, and £924.1 million in 1982. The loss in 1982 appears as £136.8 million in later accounts.

23 The PSO objective was to accelerate from its planned £700 million in 1986 and £635 million in 1988 (1983 prices) to £635 million by 1986. Since the actual PSO in 1983 was £856 million, this represented a target reduction of 25.8 percent in three years. Nicholas Ridley (Secretary of State for Transport) to R. Reid (Chairman, BRB), 24 Oct. 1983, published in BRB, Report, 1983, 4. It should also be noted that the Serpell review, which was in some ways a response to BRB plans for substantial electrification (see BRB, Rail Policy [March 1981]), had initially been invited by Parker. See BRB, press releases, 8 Dec. 1981, 5 May 1982, and HMSO, Railway Finances: Report of a Committee Chaired by Sir David Serpell KCB CMG OBE, 2 vols. (London, 1983).Google Scholar

24 BRB, Report, 1980, 25, 1981, 10.

25 Nash, “British Rail and the Administration of Subsidies,” 90–92, 96–105. The present directive, dated 30 March 1988, provides for the maintenance of public services at 1988 levels. BRB, Report, 1988/89, 30.

26 BRB, Reports, 1976–77, 4; Molyneux and Thompson, “Nationalised Industry Performance,” 60.

27 BRB, Reports, 1976–82. A promise to deliver actual as opposed to estimated results was not kept, nor were non-passenger sectors included. The 1983 accounts showed operating results (but no details of direct and indirect costs) for the five sectors: Report, 1983, 34.

28 Parker had been appointed as a part-time member of the board in April 1976. He was chairman of the Rockware Group, 1971–76, to which he returned in 1983. See Parker, Peter, Far Starters: The Business of Life (London, 1989).Google Scholar

29 Ian Campbell became chief executive in June 1978.

30 Strategy Steering Group Minutes, 10 July 1978, and Strategy Unit, “Strategic Study of Railway Infrastructure,” memo to SSG, Nov. 1978, BRB.

31 Cf. Gourvish, British Railways, passim.

32 Note the turnover in regional general managers reported in BRB, Reports, 1980–84/85, and see also Reid, “All Change,” 1985. The “task-oriented” approach is contrasted with the “relationship-oriented” approach (Peter Parker?) in Fred Fiedler's work on leadership effectiveness: Fiedler, Fred E., A Theory of Leadership Effectiveness (New York, 1967), 13–14.Google Scholar

33 Sellers was director of finance, BRB, 1980–84, Bradshaw was director, Policy Unit, 1980–83.

34 Lindblom, Charles E., The Policy-Making Process (Englewood Cliffs, N. J., 1968), 26–27.Google Scholar

35 BRB, Reports, 1982, 9, 1986/87, 8, 1987/88, 6; Railway Finaces, 1983,98–99; “A Guide to BRB's New Management Structure,” BRB Management Brief, 4 March 1983, “The Evolving Railway Organisation,” BRB Management Brief, Dec. 1985, and Sir Robert Reid, speech to Railway Study Association, extracts in “Sectors and Regions: Where They Stand,” BRB Management Brief, 8 Oct. 1987, BRB.

36 Rose's illness (he died in July 1983) forced a modification. Myers took charge of Operations/Engineering, and Jim O'Brien, former regional general manager, London Midland Region, became responsible for Sectors/Marketing. The change of title was made when O'Brien joined the board in April 1984.

37 David Kirby, sector director, London & South East, became a managing director in Myers's place in Dec. 1985. On Myers's retirement in Nov. 1987, Kirby became vicechairman, and David Rayner took Kirby's place.

38 Chandler, Alfred D. Jr, Strategy and Structure: Chapters in the History of Industrial Enterprise (Cambridge, Mass., 1962), 383ff.Google Scholar

39 Reid, “All Change,” 1985. The units were transferred for maintenance purposes to the Eastern Region, though deployed on the London Midland. Gough, John, British Rail at Work: InterCity (London, 1988), 24.Google Scholar

40 Cf. Heath, “Planning in Transport,” 220–21, and Prosser, Public Control, 120–24.

41 BRB, Report, 1984/85, 8–9, 1986/87, 3, 6, 1988/89, 34, 40. The PSO in 1988–89 was also subject to a reduction of £64.5 million as an exceptional repayment for previous years.

42 Public support for Railways as a percentage of GDP was: BRB, 1979, 0.4 percent, 1988/89, 0.22 percent, cf. eight European railways (Austria, Belgium, France, Britain, Italy, Holland, Switzerland, W. Germany), 1979, 0.84 percent, 1988/89, 0.67 percent. BRB, Report, 1980, 20, 1988/89, 57.

43 Note Prosser, Public Control, 123–24.

44 Some profitable services were transferred to InterCity—for example, Victoria—Gatwick Airport (ex-London & South East)—while some long-distance express services remained in the Provincial Sector. On the changing methods of allocating costs, and specifically “avoidable costs,” 1975, “prime user,” 1982, and “sole user,” 1984, see Gourvish, British Railways, 395.

45 BRB, Report, 1987/88, 3, 16, 26–27, 1988/89, 9,18, 20. In 1987/88 the government's directive for the non-supported business was a 2.7 percent return on net assets before interest but after depreciation by 1989/90, estimated to be £54 million in 1987/88 prices. Attributed by BRB as freight £39 million, parcels £5 million, freightliner £1 million, InterCity £14 million (contingencies -£5 million), actual 1987/88 results were freight -£6 million, parcels -£16 million, freightliner -£12 million, and InterCity -£98 million. In 1988–89 the objective was set at £57 million (freight £42 million, parcels £7 million, InterCity £24 million [contingencies -£16 million]), and the results were freight £23 million, parcels -£17 million, InterCity -£26 million. Freightliners was merged with freight in Oct. 1988.

46 GDP (expenditure basis) at factor cost increased from £290,010 million in 1983 to £343,669 million in 1988 in constant 1985 prices. CSO, Economic Trends, Annual Supplement, 1990, and CSO, GDP Press Notice, 16 March 1990.

47 See Cohen, M. D., March, J. G., and Olsen, J. P., “A Garbage Can Model of Organizational Choice,” Administrative Science Quarterly 17 (March 1972): 1–25CrossRefGoogle Scholar. The model sees organizations as garbage cans, into which problems, solutions, participants, and opportunities are pitched. Decisions are the result of a somewhat irrational admixture of these streams. A possible example involved the Newcastle Resignalling Scheme. None of the sector directors was initially prepared to bear the costs of maintaining a small section of track that would have helped to maximize operating efficiency at Newcastle station. However, it should be noted that mechanisms are available to resolve intersectoral conflicts. A Business Review Group meets monthly to review financial progress, sector conflicts, etc., and it is the responsibility of the joint managing directors (railways) to resolve conflicts under the leadership of the vice-chairman (railways).

48 Cf. Paul Bate, “Organisation Development in British Rail,” March 1987, part of a study of British Rail Culture, BRB.

49 BRB press release, 25 Nov. 1980; Transport Act, 1981, c.56, Part 1, S.1-3. Section 1 allowed British Railways Board to sell shares in or dispose of part of its undertaking subject to the secretary of state's consent, while Section 3 gave the secretary of state power to give directions to the board, and specifically to require the board to exercise its powers under Section 1 in a specified manner and in relation to a specified subsidiary.

50 British Transport Hotels held one-third of Gleneagles shares and the board held half of Hoverspeed. BRB, Railnews, July 1981, 2–3, BRB, Report, 1981, 31, 33.

51 The laundries, at Willesden (London), Slateford (Edinburgh), and Heworth (York), were sold to St. George's Group Plc of Cardiff for £1.1 million. The purchasers then contracted to supply laundry services to British Rail. The wine business was bought by Laytons Wine Merchants, who had operated it on an agency basis since June 1982. See British Transport Hotels, Directors' Reports, 1983–84.

52 BRB press releases, 19 Nov. 1982, 7 and 23 March 1983; Catering Times, 11 March 1983; Modern Railways, Sept. 1984, 454. On the growing popularity of management buyouts in the United Kingdom from the late 1970s, see Clutterbuck, David and Devine, Marion, Management Buyouts: Success and Failure Away From the Corporate Apron Strings (London, 1987), 1–9.Google Scholar

53 BRB, Report, 1983, 6; 1987/88, 6.

54 Roger Ford, “Moving Mountains by Rail,” Modern Railways, Jan. 1988, 37–44.

55 BRB, Report, 1987/88, 7; 1988/89, 5.

56 BRB, Report, 1988/89, 4; Modern Railways, May 1987, 233, Dec. 1987, 614; BRB press releases, 24 Nov. 1987, 16 Aug. 1988, 13 Jan. 1989. The BREL consortium included Trafalgar House Plc and Asea Brown Boveri of Switzerland.

57 British Transport Advertising was bought by Ironlook, Ltd.: BRB press release, 23 July 1987. On Travellers-Fare see ibid., 3 June, 12 Sept., and 20 Dec. 1988. An earlier MBO had been the purchase by Dunn Miller Associates of British Transport Hotels' “Super-break” holiday business in Feb. 1983: ibid., 9 Feb. 1983.

58 The line was bought by Brecon Mountain Railway, Ltd.; ibid., 6 June and 10 Oct. 1988.

59 See Vickers, John and Yarrow, George, Privatization: An Economic Analysis (Cambridge, Mass., 1988), 155–56, 160–69.Google Scholar

60 Parl. Deb. (Commons), 5th ser. (Session 1979–80), vol. 967, 15 May 1979, c.48, 79Google Scholar. Cf. also Morgan, Kenneth O., “Nationalisation and Privatisation: History Since 1937,” Contemporary Record 2 (Winter 1988): 34.CrossRefGoogle Scholar

61 BRB, Report, 1977, 8.

62 BRB press releases, 21 April and 17 July 1978, BRB, Report, 1978, 34.

63 BRB press release, 14 July 1980.

64 Merchant banking advice was also important here in pointing out the difficulty of attracting private capital if British Rail retained control.

65 Discussions with the De Vere Group involved the sale of BTH hotels for a shareholding and their leaseback. This was rejected by the Treasury on the grounds that it involved a government guarantee of hotel rents. The idea of borrowing on the security of hotel assets was rejected for the same reason.

66 The discount was held to be 19.5 percent on open market valuation, which, given the provision for deferred cash payments, amounted to 23.4 percent in real terms. It should also be observed that the equity holding was reduced from 40 percent to 33 percent after government disquiet.

67 The Gleneagles company was purchased by the whiskey firm Arthur Bell for £20.4 million.

68 The proposed sale of fifteen hotels was in addition to decisions already taken to sell three others—at Derby, Sheffield, and St. Andrews.

69 Bosworth was a board member from 1968 to 1983. He was chairman of BTH, 1978–83, and also chairman of Shipping/Sealink UK, 1976–83, and of B.R. Hovercraft, 1976–81 (and a director of Hoverspeed, 1981–83). BRB press release, 20 June 1983.

70 Cf. BRB press release, 11 May 1983.

71 Parl. Deb. (Commons), 6th ser. (1982–1983), vol. 32Google Scholar, Written Answer, 23 Nov. 1982, c. 467. The MBO offer for eighteen hotels implied a discount of £4.5 million or 13 percent on valuation. A revised MBO offer of £20.5 million for twelve hotels in Oct. 1982 suggested a discount of £3.47 million, but this also failed. At the time of abandonment the argument appeared to be over a difference of only £1.47 million, since the government was willing, it seems, to accept a £2 million discount. Peter Land has subsequently claimed that the valuation placed on the hotels was £3 million too high, in that the valuers had assumed that the vendors, not the purchasers, would meet the costs of segregating the properties from BRB and of paying for staff travel facilities. The reduced valuation was not disclosed to the MBO team.

72 Vickers and Yarrow, Privatization, 160–62, 174. For example, Amersham shares were offered for 142p; their price on 25 Feb. 1982 (the first trading day) was 188p, and on 25 Feb. 1989 537p.

73 Of the twenty-one hotels offered, ten were sold to four bidders in Feb. 1983, and a further nine were disposed of by private treaty in March. The last two were sold in 1984. The remaining two properties, affected by development proposals, were the subject of short leases taken out by two of Land's executive colleagues, Derek Plant and John Tee (Compass Hotels Plc). See Bagwell, Philip S., End of the Line? The Fate of British Railways under Thatcher (London, 1984), 48–49.Google Scholar

74 Carnival Cruise valued the company at £60 million, but offered only £30 million for 51 percent on deferred payments. Negotiations ceased in May 1982.

75 Transport Act 1981, S.2.

76 Cf. John Moore (Financial Secretary, Treasury), “Why Privatise?” speech, 1 Nov. 1983, reproduced in Privatisation and Regulation: The UK Experience, ed. Kay, John, Mayer, Colin, and Thompson, David (Oxford, 1986), 78–93.Google Scholar

77 Six companies expressed serious interest, though only one, Sea Containers, Ltd., via its subsidiary, British Ferries, Ltd., submitted a formal offer. The price of £65.7 million was lower than the tentative value placed on option 3—£80 million—but close to that placed on options 1 and 2.

78 BRB, Reports, 1979–88/89.

79 Sir Howe, Geoffrey, Parl. Deb. (Commons), 5th ser. (Session 1979–80), vol. 968, 12 June 1979, c. 246.Google Scholar On the importance of environment in shaping organizational structures see Lawrence, Paul R. and Lorsch, Jay W., Organization and Environment (Cambridge, Mass., 1967)Google Scholar, and Emery, F. E. and Trist, E. L., “The Causal Texture of Organizational Environments,” in Systems Thinking, ed. Emery, F. E. (Harmondsworth, England, 1981), 1: 253–62.Google Scholar

80 BRB and ITS (Leeds), Comparative Study.

81 Train-kilometers per staff member, 1979: BRB, 2,503, Europe, 2,191; 1988/89: BRB, 3,127, Europe, 2,233. BRB, Reports, 1980, 20, 1988/89, 57.

82 Bagwell, End of the Line?.