A Pandora’s box of railway ownership

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.

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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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Photo: Ryan Woolies

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Comments: 4...

  1. On February 22, 2016 at 3:20 pm Christabel Edwards responded with... #

    The whole set-up is a nightmare right now: Network Rail own and manage track, stations and other infrastructure, whilst the Train Operating Companies (TOCs) operate trains by employing crews, negotiating route paths etc. I don’t think any of the TOCs actually own their own rolling stock (the trains themselves) – these are owned and procured by rolling-stock leasing companies (ROSCOs) which then lease them back to TOCs. Then there’s the freight operating companies – five major ones and a couple of smaller outfits – which operate freight trains. Some of these own their own rolling stock, others lease it; likewise open-access (non-franchise) passenger operators. Then there are the engineering companies contracted to maintain the infrastructure by Network Rail… Each of these companies has its own profit margins so money goes out to shareholders at every level.

    The whole system is a complete mess that leaks money all over so it’s little wonder that our fares are so high. One of the best solutions may be to merge the whole lot together and eliminate the fragmentation – this has been done before in 1923 – with the government possibly buying up the shareholdings of foreign state-owned operators (of which there are several). Any pretence at competition has long-since disappeared in most areas.

  2. On February 22, 2016 at 6:25 pm Lesley Spillard responded with... #

    East Coast Rail was taken back into public ownership when franchisors couldnt make a profit and was run profitably until Osborne decided to sell it off again. If we should wait for franchises to expire or spend £22bn to buy back can be decided against the financial position at the time, the priority is to support a policy which is approved of by voters across all parties and is the right thing to do.

  3. On February 23, 2016 at 1:05 pm BKendler responded with... #

    What is the problem with our railways that we are trying to sort out by nationalisation. I hear three issues. One prices or fares; second is poor or unreliable train services and 3 is lack of investment. Fares – Despite privatisation it is Government and in London the Mayor that sets the fares. Outside of London it’s the rate of payment to the Treasury by each franchise although Government does have overall control through the Office of Rail & Road (ORR). So what extra power would a Labour SoS have by nationalisation? Poor or unreliable train services. Over the last 20 years there has been an unprecedented rise in railway usage, the highest levels since the 1920’s. This growth has been borne by a system that suffered decades of little or no investment by successive Conservative or Labour Governments. What will change by nationalisation? A Labour Government foisted on GWR and East Coast the very expensive IEP project because of the jobs that come with it. These jobs are and will be paid for by fare-payers and taxpayers. So what difference if their is nationalisation.
    Infrastructure investment – There has been unprecedented investment by Network Rail, now a nationalised company, in stations, signals and new or re-opening railway lines. The weather over the last 5 years has exposed how poorly built our largely Victorian railway lines were. Millions being spent on rebuilding bridges, sea walls and cuttings. All this investment agreed and set by the Treasury.

    The whole debate is an out-dated debate on who owns the railways rather than what we expect from the railways in terms of economic impact, tackling climate change and how it should be paid for. I can understand the left obsession with nationalisation as they live in the past and see the monolith BR, as created by Clement Attlee, through rose coloured spectacles. Time to move the dbate on.

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