I am not sure that is really quite right. The railway was in a position of being a Common Carrier and having its rates fixed and published. If any given traffic was profitable or not was not really taken into account, apart from an averaging exercise. This would have meant that road hauliers, who had no such regulation, could undercut those traffics which were profitable to the railways and to them, and leave the unprofitable traffic. If the common carrier obligation was there , but no price control, then the railway would have priced the traffic away or at a rate they were happy to convey the traffic for.
The fact that both the obligation and rate control was there would have meant that there was unprofitable traffic that the railway was forced to carry. Management would also have been painfully aware that the railway was losing profitable business to road. In the absence of being able to change the framework, the only possibility was to spend money in reducing costs and improving efficiency. Which is what the freight part of the modernisation plan was aimed at. Yes, there had been closures of little used freight facilities, but it took an outside consultant to map the way forward and get the framework changed.
Of course, the same could be said about secondary passenger traffic - mass conversion to DMUs were the extent of reducing costs, and improving efficiency. Management could see that local and secondary train passengers had deserted them for buses (initially) and then private cars - most people dreamed of having private transport, themselves included. Indeed, in the USA they could already see mass passenger train cancellations. Yes, there had been closures of little used passenger facilities (on spite of all sorts of obstruction tactics), but it took an outside consultant to map the way forward holistically and get the framework changed.
As neither passenger or freight management had a crystal ball, it is hard to see why the secondary passenger business would have had any priority over the freight business for modernisation funds. I believe that investment in local freight or passenger services would have been to no avail and the lines closed anyway.
Would this be the same Eastern Region that ordered a fleet of DMUs for the M&GN line, and then closed it before they entered service? (No, because the York-Market Weighton-Beverley line was North Eastern Region then). The regions were not to be trusted, as understandably the management are concerned for their jobs and parochial interests, and just hoped money would be found somewhere.
Just because the railway industry wanted to retain something doesn't mean it was the financially right thing to do. The railway industry wanted to spend loads of money on the Central Wales line too. It is very difficult to re-orientate and slim down a business from within. British Railways had shown they were incapable (not entirely their fault, but still incapable) Hence the correct decision to parachute in an outside consultant to sort things out, cutting through the parochial interests. That is the way of the world.