Public ownership of rail is not only necessary; it is the only realistic option

East Coast train arriving at final destination. Photo 87019Chris (Creative Commons)

A recent article in BBC News Magazine asks the question Would it be realistic to renationalise the railways? Using as a premise the recent passing of the East Coast main line from public to private hands, the article provides an interesting insight into some of the key issues of debate among supporters of public or private ownership.

The article notes that Directly Operated Railways (DOR), the state-run body that took over East Coast after private operators GNER and National Express failed to deliver, had “returned a billion pounds in premiums” to the Treasury. We might add that this didn’t stop GNER making £213.5m in profits while paying out £196.7m in shareholder dividends between 1997 and 2007. In this same period, GNER received a total of £342.6m in net subsidies from the government.

The article quotes a government spokesman as saying that franchising has led to the “most improved railways in the EU with record levels of investment, passenger numbers doubling and punctuality rates at record levels…The new East Coast franchise will…[be]…bringing new services, new investment…and it will return more to the taxpayer too”.

We felt it necessary in this blog to dispel these statements, as they are part and parcel of the often repeated ‘myths’ of privatisation.

Conceit of enterprise
The Conceit of Enterprise, a report by CRESC in 2013 (Centre for Research on Socio-Cultural Change), illustrates how “train operators defend themselves by restating what we call a “trade narrative” about how private operators deliver social benefits”. This narrative can be seen in the above statement by the government in regard to the benefits of franchising and private investment.

Let’s remind ourselves of the facts. Recent figures by the Office for Rail Regulation (ORR), the independent safety and economic regulator for Britain’s railways, confirmed once again that private operators are using public subsidies to fund pay-outs to shareholders. In 2013-14, taxpayers contributed £3.8bn, while private train companies paid out £183m in dividends to shareholders.

Publicly owned East Coast made a net contribution of £23m to the government in 2013-14, and as the BBC News article noted, has returned a billion pounds to the Treasury. According to the recent ORR figures, in 2013-14 East Coast was one of only two train operators that gave back more to the public coffers than they received in subsidies.

InterCity Railways Ltd – a joint venture of Stagecoach and Virgin, are the new operator now running services on the East Coast main line. In 2013-14, Virgin Trains received £322m in taxpayer support while paying out £10m in shareholder dividends. The recent ORR figures reveal that Virgin Trains returned just £97m to the government in the same period, which means that taxpayers have lost out for another year, this time to the tune of £225m.

So much for a return to the taxpayer.

On the issue of investment alluded to by the government spokesman, the very comprehensive analysis of the rail industry by Transport for Quality of Life, Rebuilding Rail, concludes that private investment represents just one per cent of all the money going into the railways. This is because most investment comes directly from taxpayers or via Network Rail borrowing (underwritten by the government), not from the operators themselves.

Rebuilding Rail found that “genuine at-risk” private investment in the railways in 2010-11 was in the region of £100m to £380m, with the figure “most probably lying at the lower end”, while other sources of income for the railway, public money and passenger fares, contributed £10.6bn. So much for benefits brought by private enterprise. As former Secretary of State for Transport Andrew Adonis made clear:

“In so far as there has been private sector investment by TOCs, that investment has been funded, let’s be clear, by the state and by passengers, either through revenue support or through fares.”

In a further use of the trade narrative, the government regularly restate that the East Coast line under new private owners Virgin and Stagecoach will bring in £140m in investment, state-of-the-art trains, faster journeys and more seats.

It is important to remember that taxpayer funded Network Rail will invest £38bn in rail over the next five years, and as the organisation’s Control Period 5 Delivery Plan makes clear, this includes electrification of sections and feeder routes on the East Coast main line, delivering faster journey times and with more seating on the electric trains. The government and Virgin-Stagecoach also mention a new signalling system on East Coast, to be introduced in 2025 (the franchise finishes in 2023). Once again, this investment comes via Network Rail.

The 65 new ‘Super Express’ trains due to come into service from 2018, also hyped by the government, will be provided by the Agility Trains Consortium through a ROSCO (Rolling Stock Operating Company) leasing scheme that any operator on the line would have been liable for.

No evidence has been presented by the government or Virgin-Stagecoach as to why publicly owned DOR could not have delivered more services and better connections. Beyond new ticket vending machines, enhanced Wi-Fi and additional parking spaces, it is very hard to see what added value privatisation will bring to East Coast.

What this repeated use of the trade narrative also represents is the worrying collusion between the government and the train operating companies (TOCs), as both adopt the same language and line up against the interests of taxpayers and passengers to repeat the same myths.

So much for new investment from private enterprise.

Franchising and fares
The issue of investment vs subsidies reveals what the BBC News article calls a “messy system”. It is a fairly unique and quite odd system that exists in the UK, where by far the majority of investment comes from taxpayers, who also take on the risks of investment. Private operators are able to reap the rewards in the form of high profits, while charging ever increasing fares.

As we have seen with East Coast, TOCs can even walk away from franchises if it doesn’t work out for them. The taxpayer is then left to pick up the pieces.

Since rail privatisation in 1995 up to 2013, the average ticket price has increased by 22 per cent in real terms, resulting in Britain having Europe’s highest commuter fares for both day returns and season tickets. Since 2010, the average season ticket has risen by 27 per cent; more than two and half times faster than average wage increases.

The report Rebuilding Rail reveals that this messy, fragmented and privatised rail network wastes about £1.2bn every year. This represents the costs of having separate franchises ‘interfacing’ with each other and Network Rail, as well as, needless to say, profit leakage to shareholders.

Analyisis by Action for Rail in January 2015 found that UK commuters spend more than twice as much of their salary on rail fares than passengers on publicly-owned railways in France, Germany, Spain and Italy. Three quarters of rail franchises in the UK are also now owned by foreign state-owned or backed rail companies. High fares in the UK are in effect subsidising rail investment and lower fares in other countries.

Punctuality rates
The government also claim that privatisation has led to record punctuality rates. Network Rail’s recent figures on punctuality revealed that a third of trains were late in 2014 – in the 12 months ending on 6 December 2014, just 64.6 per cent of trains reached their destination within 59 seconds of their scheduled arrival.

In the Great Train Robbery report, CRESC note that the improvement in punctuality rates over the past decade has been modest – from 88 per cent in 2000 to 91 per cent in 2011. CRESC observe that, “given the significant improvements in digital technology over this period and the massive state investment in infrastructure, it could be argued that similar improvements could have been expected under a state owned system”.

New analysis from Transport for Quality of Life reveals that under public ownership, due to the savings made in the network via better integration and the absence of profit leakage, we could fund a 10 per cent year-on-year fare reduction for regulated fares (e.g. season tickets and any-time day tickets) from 2017-18.

So much for the social benefits of franchises.

Passenger growth
One fact most commonly repeated by advocates of the current system of franchising is the growth in passenger numbers. The Rail Delivery Group (RDG), which represents train operating companies and Network Rail, claim that over the decade up to 2014 there has been a 50 per cent increase in passenger journeys. Yet there is no evidence that privatisation has created growth in passenger numbers.

Though pure dogma, the argument about passenger growth represents one of the key components of the trade narrative. While the TOCs were the first to argue that franchising has led to passenger growth, the government copied it wholesale into the Brown Review of rail franchising in 2012. As CRESC point out, “the acceptance of the claims frame and limit the options for reform”.

Let’s turn to the facts again. Passenger numbers were on the increase before rail privatisation. As the report by CRESC, the Great Train Robbery points out, growth in passenger numbers is driven by three factors that have nothing to do with TOCs:

  1. Long-term growth in GDP.
  2. Changing commuting patterns as employment has concentrated in major urban areas, particularly in London and the South East
  3. The increase in motoring costs over the period since rail privatisation

Most passenger growth on the railways since 1994 took place in London and the South East – passenger numbers increased on the publicly owned London Underground between 1994 and 2013.

So much for privatisation leading to passenger growth.

Public ownership is popular
Public ownership of the UK rail network is necessary to ensure a sustainable system that delivers a better deal for taxpayers, passengers and rail staff. Public ownership is also popular, with a YouGov survey in May 2014 revealing that 60 per cent of the public supported bringing the railways back into public ownership, while 20 per cent opposed it.

The main reason cited for supporting public ownership by respondents to YouGov’s survey was that the railways should be accountable to taxpayers, not shareholders. Closely following this reason was that public ownership would deliver a much more cost effective system.

A further poll by Survation on behalf of RMT in June 2014 showed that not only is public support for public ownership solidly supported across the political spectrum but that in key marginal ‘battleground’ seats it could prove decisive at the next general election.

The public are not fooled by the conceit of enterprise and rightly view the current inequitable system with huge suspicion, while viewing public ownership as a much more preferable option. It is therefore necessary and entirely realistic to challenge the narrow options presented to us and call for far more radical reform.

Public ownership provides a far better and realistic alternative to the failings of privatisation, and could be introduced at zero cost to the taxpayer, while leading to huge savings for passengers and taxpayers alike.