The railway industry is at the forefront of national debate at the moment. The latest scandal emerged when Jeremy Corbyn filmed a short clip on the floor of a Virgin East Coast train bemoaning the lack of space before returning to his seat 45 minutes into the journey. On top of this, there are strikes planned for the coming weeks, such as the train guard strike on Southern Rail, whilst strikes on Virgin East Coast and Eurostar have been temporarily suspended. The one thing agreed upon across the political spectrum with regards to railways is that the current service is not working and giving the best value for money. Yet this is where the consensus ends.
It was John Major’s government which privatised British Rail, the state-owned railway operator, in 1993. This has led to a marked improvement in the operation of trains in the UK. Since privatisation we have witnessed a doubling in the number of passengers and train companies have become net contributors to the government, a far cry from British Rail’s billion-pound deficit. However, the process did not fully privatise the railway services. Instead, it created a hybrid system where the state-owned Network Rail still controls the railway tracks, while franchises were allowed to bid for fixed railway routes which created entrenched monopolies, such as Virgin. Only 25 franchises operate on Network Rail and the fragmented ownership of train companies and rail tracks leads to ‘transaction costs,’ such as the large numbers of staff needed to deal with the various layers of the industry. This hinders the rail companies’ ability to expand their production line. The subsequent rise in commuters resulted in overcrowding and price rises – Britain has the most expensive rail fares in Europe. A TransportFocus Rail Passenger Satisfaction Survey earlier this year found that just 23% of peak time commuters in London and the South East thought their ticket was value for money.
Despite this, nationalisation is definitely not the answer. Corbyn’s proposal would be inefficient and incredibly costly to the taxpayer, and it would establish an even larger monopoly over the rail industry. The state already provides subsidies to the tune of £5bn a year and Network Rail is already in £40bn debt, expected to rise to £50bn by 2020. The dividends paid to train companies last year reached £222m, a drop in the ocean in comparison to the £13.6bn annual running costs.Nationalisation would add more than £10 billion overnight to the budget deficit, increasing the deficit by 15%, and would undoubtedly give unions, such as the RMT, greater power to carry out further industrial action.
The way forward is to break up the franchise monopolies, which dominate the market share, and open up the rail tracks to more competition. CPS research fellow Tony Lodge published a highly influential report in 2013 on the freight industry, which is characterised by increased competition, and the East Coast Main Line (ECML), the route on which Grand Central and Hull Trains compete. He concluded that the freight trains and ECML performed markedly better. Rail freight has an open access policy and does not receive subsidies, yet it has reduced unit cost by 35% in the decade after privatisation and boosted freight traffic by 50% until 2013. ECML’s open access policy has seen passenger journeys increase by 42%, whilst rail fares are lower despite not receiving any government subsidy. In the TransportFocus poll, Grand Central and Hull Trains finished in first and second place respectively for overall passenger satisfaction.
In addition to a competitive railway policy, the government should also privatise the loss-making Network Rail so that the same company owns the track and runs the trains. This would save the government billions of pounds. The wider economic benefits are there for all to see. Cities which are located on open access routes, such as Sunderland, have seen a boost in private sector investment whereas Blackpool, which is not on an open access route, haemorrhaged 14,000 jobs between 2004 and 2015. Yet obstacles still lie ahead. The Office of Rail Regulation (ORR) has continually prevented the development of open access routes and the government sees monopolistic franchises as the best way to reduce its subsidy. However, the public subsidy has continued to increase year on year. A more competitive policy would go a long way to alleviate the problems our railways face.
