On The Right Track

Railway Renationalisation may not be the silver bullet for Britain’s railway woes

Nothing gets conversation going like the state of British Rail. It’s a popular place for arguments among commuters and politicians alike. One proposed way to fix the trains is to bring them back into public ownership, an idea with 60% of the public supporting it, and cross party support for the policy. 

Of course, this reason alone isn’t enough to renationalise railways. Just because it’s wanted, doesn’t necessarily make it the best policy to bring about the changes the public want (i.e. cheaper trains and train fares, faster and more frequent trains with an upgraded and modern infrastructure)

There is a case for renationalisation. London is a good example of how successful an integrated, public sector transport system can be. Academic studies, such as this paper, discusses the failures of UK rail privatisation. It claims that Network Rail subsidies in the form of lower track access charges have allowed a net return for the taxpayer. The paper also points out that Network Rail debt has risen over £24.4 billion since 2003 (in part because Network Rail was declared a public body in 2014, so its debt was added to the national debt, and also gained powers to borrow from the Treasury).

A TUC commissioned paper, funded by the Economic and Social Research Council (ESRC), aptly titled The Great Train Robbery, said much the same things as the previous paper. Lower track access charges artificially raised the profitability of train companies, with little in the way of private investment in infrastructure to show for it. Parliament also acknowledged the cost of the public rail subsidy; rising from £2.75 billion in 1980 to £4 billion today.

To quote directly from the ESRC:

The authors conclude that rail privatisation has created a situation whereby private companies are extracting great profits whilst passing the risks on to the state, who take on the operating risks, cover operating deficits and supply investment funds as well as acting as debt guarantors.

Other reports, such as a report by the Transport for the Quality of Life (here) say that £1.2 billion could be saved by bringing rail back into public control when franchises expire. Meanwhile it’s claimed that abandoning the franchise system could save the Government £4 million a year. Bidding processes which would be scrapped under a public rail system, which could save a minimum of £15 million per bid. Shareholder payments (which were £200 million in 2014) could also be saved in railway renationalisation.

As compelling as the research may be, the amount that could be saved by the taxpayer isn’t clear cut, in part due to how the subsidy system works. For starters, the 1968 Transport Act passed by the then-Transport Secretary Barbara Castle decided some lines could remain open – even though they would require permanent subsidy from the Treasury to operate.

Since then, all political parties have accepted the principle that the railways should be subsidised by the government. Even as privatisation was rolled out, it was accepted that the franchises would, in many cases, require government subsidy to operate. Conversely, more lucrative franchises (principally long-distance inter-city operators like Virgin and GNER/East Coast) were required to pay premiums back to the Treasury. This ensured that the principle of cross-subsidisation; lucrative services propped up loss-making ones.

Some of the increase in subsidy is also down to long-overdue maintenance; British Rail postponed a lot of maintenance (often even simple things like replacing worn-out track), and Network Rail is having to work overtime to clear the backlog. For all the talk of a crumbing system, investment and upgrades to rail networks have risen.

East Coast, a train system often dragged up as a reason for renationalisation, has worse performance (in terms of trains on time) and higher rates of cancellations when compared to other rail franchises. East Coast was run in public hands for a while and did return a profit to the government, however The Economist points out that while the subsidy was lower, at some 0.5p per passenger per mile, other train routes, which were privately run, returned higher amount of money to the Treasury. First Capital Connect, which operates between London and Cambridgeshire, Kent and Sussex, paid back nearly 4p per passenger mile. South West trains, which also runs popular commuter routes, paid back 1.7p. Further, a Forbes article, citing the Railway Delivery group, points out virtually all of the running costs of rail are paid for by commuters. The subsidy is for infrastructure, and under a nationalised system, cheaper fares would have to come at the cost of greater subsidy and general taxation.

There are larger issues at play. The Department of Transport decides where is redeveloped, which lines should be expanded, which lines are electrified, when trains will pull into stations and where qualifies for infrastructure improvements. Since network operation is done by the government, rail already works as a quasi nationalised system. Running the trains in a partially nationalised way lacks any compelling evidence to say it works. Labour’s flirting with back door renationalisation pre Corbyn, where state companies can bet on control for rail franchises, would have to pay £10 million just to bid. Why a government would put money to bid on a train service to potentially lose to the highest bidder is baffling to say the least.

Nationalisation doesn’t have to be the cure for fixing British trains. Japan has a privatised rail system, and one where the companies own infrastructure. They can also buy and rent land to people on their routes, and subsequently reinvest that money back into rail infrastructure. Part of the success of this model is the vertical integration. Same with ScotRail. But vertical integration isn’t a fix it all solution. Cross Country routes between Birmingham and Manchester, for instance, wouldn’t benefit from vertical integration due to the amount of operators which run in the area.

The state of rail in the UK may irk us, but renationalisation isn’t necessarily the cure. Until a detailed plan for how to renationalise the railways emerges, the question of whether or not we should renationalise rail is impossible to answer.

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