You only have to look at a fully deregulated transport system to seen how much more of a mess we would have been in if the model was to transfer the bulk of the risk away from the taxpayer. If it had been a competitive free-for-all, with publicly owned infrastructure, you would have a situation like the bus network, where there is little cross-subsidisation (using profits from one route to bolster a socially necessary unprofitable route), few interavailable tickets, and large monopolies making up the majority of services, with the exception of "interesting" corridors. At least our existing model still provides some semblance of a network.
On the other hand, if the infastructure was in private hands, I can actually see our system turning into something like the US system, where the only routes that don't gradually die off are those with large goods or intercity passenger flows. You can say goodbye to a large number of commuter routes into most cities that way - they generally don't make much profit. That might help the finances of the railways, but the big question that rarely gets considered is that of the wider social and economic value of investment and subsidy.
The big con really is a wider one, in my opinion, and that is that "something is only worth something if the value of it can be traded on the exchanges". I truly believe that the real point of privatisation was to allow The City to play FTSE with the system. The City doesn't care whether the overall cost:benefit of the system is better or worse. They care that the shareholders make a profit. The City has little concept of a social value, and only a vague concept of a wider economic value. In fact, social value can be counterproductive as far as the stock exchanges go - better NHS Hospitals = less money for BUPA, for example, even though the country's productivity and happiness as a whole may be improved by better NHS care.
Most other countries that are privatising are doing so through the use of, in essence, DBFO contracts. "Our trains on these routes are life expired, so we shall issue a tender for someone to run them for 15 years, and they shall be required to buy the new stock."
I believe that is a more sensible approach, as it makes it clear that the privatisation is merely a vehicle to mortgage the purchase of new stock.
As to Open Access operators - our Franchised operators pay premiums (on profitable routes) to the DfT for the privilege of running services. Those premiums weigh into the subsidy:revenue calculation, and they would be considerably diminished if cut-throat competition was available on a large number of flows. As far as the DfT is concerned, infighting between franchised operators for custom should still return a premium to them (I believe most of the franchise agreements put a portion of any extra profit into the premium payable). With open access operators, the risk is entirely borne by the TOC, and so is the profit. Now that's arguably fair, but is it fair when you consider that DfT (and therefore you and me) may have spent significant sums on building custom on a route (modernisation, indirect marketing), and now they want to mitigate the risks that the taxpayer has borne by insisting on a minimum guaranteed return through a franchised TOC. There are other ways of paying that back - differential track access charges related to better capability and greater demand - but that would inflate the risk against the open access operator, possibly to a level where the market would take few risks with service provision, and we're now back into the realms of social and wider economic value.
Our system doesn't work, because it was never designed to meet the country's needs. It was designed to allow shareholders to extract the maximum revenue, under the false assumption that more profits = less costs per unit profit = more efficiency.
