When Corbyn promised renationalisation as part of his leadership campaign policy platform he opened up Pandora’s box of railway ownership. United Kingdom citizens often rightly complain about the very high cost and the poor quality of railway services. Recent polls show cross-party public consensus on the issue too, with 78 per cent of Labour voters, 60 per cent of LibDems, 70 per cent of Ukip and 42 per cent of Conservatives in favour in principle. My previous article, ‘Renationalisation: beyond Ed Miliband’s policy?’ explained the procedure to make it possible. But renationalising is not only politically difficult, it also comes at a high financial cost.
We need to distinguish between the railway infrastructure and the rolling stock. The physical railways are most costly but they are already public owned – only the rolling stock could be renationalised.
The biggest chunk of public money goes to Network Rail, amounting to £3.7bn in 2013-14. This body is in charge of the railway infrastructure, which it owns and maintains. In 2014, it was reclassified as a public body due to a statistical decision. The cost of Network Rail and its predecessors has changed through the years. Historically, Labour has invested more heavily whereas Conservative governments have opted to decrease contributions, leading to poorly managed lines and higher probability of signalling problems, line closures or other failures.
The second biggest public contribution to the rail industry is far lower. This is a net £0.1bn, which goes to the train operating companies. For them the government remains the financial croupier of the system: the public sector would chip in for running non-profitable lines and would claim a premium for those that are non-profitable. Currently, Northern Rail is the greatest receiver, amounting to nearly £485m, which represents nearly a quarter of the rail public budget. South West trains paid the biggest premium, of around £130m. This is the only part of the system that could be renationalised. But what is the cost?
Calculating how costly it would be depends on whether we pay now or we wait. The first constraint is what to do with the current franchises for operating the trains. Corbyn could wait and reclaim the franchises when they expire at no cost. However, the alternative is to speed up the process by cancelling franchises and reclaiming them to the public sector before expiry. As early as 2004, Gordon Brown and Alistair Darling quantified the cost of immediate reclaim around £22bn. This could be higher, taking into account inflation and land value increases over the years. For Corbyn, the price of speeding up the process would come at a very high cost.
Moreover, renationalising could threaten the availability of private sector expertise and investment. Consequently, all potential investment, losses and costs will fall on the shoulders of the taxpayer.
The renationalisation debate should consider the bigger picture of potential costs instead of illusionary press releases. Corbyn’s proposal, the cost which would ultimately fall on the taxpayer, comes at a high toll.
Laura Panades is a Spanish PhD candidate at the University of Cambridge undertaking research in public procurement in the EU rail industry
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