CPS Research Fellow Tony Lodge wrote for The Daily Telegraph on why taxpayers and passengers would lose out if Jeremy Corbyn's or Andy Burnham's plans for renationalising the railways were allowed to go ahead, Wednesday 12 August 2015.
It is nearly 40 years since British Rail unveiled the InterCity 125, making train travel fashionable again and instantly finding its way into thousands of schoolboy train sets. The fanfare which followed its introduction temporarily disguised the malaise of decline that had gripped the state-run BR since the Sixties.
Are we about to see a return to the bad old days? I have never previously looked into the practical or financial costs of renationalising the railways because it hasn’t been considered a realistic political or economic concept.
But Jeremy Corbyn’s call (and Andy Burnham’s more nuanced cry) for rail renationalisation should be taken seriously. Either man could win the Labour leadership race and successfully whip up wider support for these draconian ideals. The implications must, therefore, be exposed and opposed in the interests of fare-paying passengers.
Interestingly, while Corbyn is a fan of full renationalisation, Burnham doesn’t go quite as far: he supports a publicly owned company being able to bid to run future rail franchises.
Nevertheless, Burnham’s plans similarly raise huge financial, legal and regulatory hurdles. The cost of a full-blown renationalisation as proposed by Corbyn would run into the tens of billions of pounds. One reason for this is that the value of the railways’ “estate” has risen considerably since privatisation in 1994.
Support for Jeremy Corbyn has soared since he entered the leadership contest late Photo: WENN
Network Rail, which is in charge of rail infrastructure, is in government hands. But private rail companies own and operate the rolling stock. There is also considerable third-party capital invested in rail freight facilities on Network Rail land. This would all need to be paid for. The compensation and cost of returning rail passenger and freight operations to a publicly owned company would require a new Act of Parliament to replace the Railways Act 1993, presumably after a Labour election victory in 2020.
The easiest option would be to let rail franchise agreements expire and then take them under public control. However, many new franchises will be renewed in the latter part of this decade, thus necessitating post-2020 legislation to renationalise them and meet manifesto pledges. This would require significant compensation pay-outs to franchise holders as contracts are prematurely axed.
A staggered renationalisation process, whereby some franchises are taken back but some left in private hands until their term ends, would not be much better. It would mean an expensive and costly fracturing of the networkthat would leave some intercity routes in public hands and some not. This would remove the incentive for any private operators, surrounded by a hostile Department for Transport and with their term winding down, to do the best for passengers. They certainly wouldn’t have any reason to deliver the necessary infrastructure and service investments. Passengers and taxpayers would lose out.
Whitehall would, in effect, need to buy back all passenger rolling stock; the same would apply to freight rolling stock and locomotives. Companies would again need to be compensated for rolling stock construction and leasing orders they have placed and subsequently lost.
Burnham’s plans to pay civil servants to bid for the right to run rail services would be hugely expensive and arguably illegal. How can it work? A government-owned rail company bidding for a government rail contract, with rail access approved by a government-appointed regulator and operating on infrastructure managed by the government? Would this survive a competition inquiry? I suspect not. Only last month the Competition and Markets Authority ruled that the railways must become more competitive and adopt new structures by the early 2020s.
Virgin Trains boss Sir Richard Branson has spoken out against nationalising the railways Photo: Guzelian Ltd
So what are the positive reasons for not taking the railways back into state ownership? Since privatisation a new zeal of innovation has occurred on the railways which has not been seen since the Twenties and Thirties when the “Big Four” would compete for passengers. This new innovation has helped deliver a doubling in the annual number of passenger journeys since the early Nineties.
Punctuality is at a record high and Britain can now boast the safest railways in Europe. BR’s safety record was lamentable and regional routes were often ignored and suffered chronic underinvestment. It is also worth remembering that fares rose at an alarming rate under BR; it was not unusual for them to rise by 5pc or 6pc a year. Under privatisation the Tories pegged fare rises at less than inflation.
It’s true that the kind of competition proposed in the 1992 White Paper has been slow to emerge. However, last week’s announcement by the Office of Road and Rail that it would allow new high- speed, long-distance tilting trains to compete with the established franchise on Britain’s most important line was a crucial breakthrough.
From 2018, new Great North Western Railway trains will compete for passengers from London Euston on the West Coast Main Line.
On the East Coast Main Line these competitive services, known as “open access” have been working successfully since the mid-2000s, connecting London with the North East. Centre for Policy Studies research shows that competition on this line has helped deliver lower fares, more routes, happier passengers, better trains and pose no threat to the viability of the railway.
Ironically, under BR many of the towns and cities now served by open access trains, including Sunderland, Hartlepool, Halifax, Huddersfield and Hull had their regular direct London trains removed. It is these Labour heartlands that have benefited most from privatisation and new privately operated rail services.
Labour is right to argue that there are questions to be raised over the future of rail franchising. But more public sector control is not the answer. It has to be a more competitive, innovative and modern railway which has quality, safety at its core. The recent report by the CMA and last week’s decision to allow new high-speed trains to compete between London and the North West is the way ahead. More Whitehall micro-management is not.
To view the original article, visit the Daily Telegraph website.