Rail ministers come clean about privatised rail

Yesterday’s announcement of more franchising and the privatisation of East Coast Main Line came as little surprise from a government with a strong track record in faith based economics, fundamentalist zeal for privatisation and disdain for anything approaching evidence-based policy making.

But what did come as more of a surprise were a couple of moments of rare candour from the two men in charge of the railways that undermined the free market cliches that they usually spout.

First up, came Secretary of State Patrick McLoughlin.

Trying to undermine Labour’s claims about the success of publicly operated East Coast, he stated that the comparisons with the former private operator National Express were only favourable because of the reduction in track access charges that the public operator faced.

I pay tribute to the work done by Directly Operated Railways, which has operated it, but when the hon. Lady talks about figures, she should look at the track access charges paid in control period 3 by National Express when it ran the east coast line. It paid £210 million in track access charges, whereas DOR now has to pay its track access charges of £92 million. [Interruption.] I can tell the shadow Leader of the House that that was paid in the year to which I referred.   (Hansard)

So the basic logic of this argument is that train operating companies only look good because we’ve systematically reduced the charges they pay. We couldn’t agree more. This is all part of the scam that we thought the Secretary of State would probably rather not talk about. Train company charges have been reduced so that they get to keep more of the revenue themselves, pretending to be profitable companies, while those charges are paid for by the taxpayer subsidy to Network Rail instead. An indirect subsidy from taxpayer to train operator that keeps the whole privatisation charade afloat. The Association of Train Operating Companies get all hot under the collar when you bring this up. I imagine a few of them whinced at that one.

Bear with us, that might seem quite techy. But we’ve got a report to drop soon that will expose this in a bit more detail and hopefully makes things nice and crystal clear. The gist is, without taxpayer funding to reduce track charges, train companies can’t survive.

Next up, came the Rail Minister, Simon Burns.

In an almost comically hapless appearance on the Daily Politics show, alongside Christian Wolmar and others, Burns quite clearly debunked another of the great myths of privatisation: private sector investment in the railways is pitiful.

The privatisation champions will tell you that, unlike the dark ages of British Rail, today’s railways are subject to massive investment because of those hardy, risk taking souls in the private sector who are committing hard capital to the industry and reaping the rewards.

Well, according to Simon Burns:

What we are seeing at the moment is continued investment through subsidies … (interviewer: from the taxpayer) … through pricing mechanisms.

In case that wasn’t clear enough for you, here he is again a bit later:

In the next control period, over £37 billion is being invested … by Network Rail and the government

Network Rail and the government?  Come again, Simon. That doesn’t sound very gung ho and free market to me.  Where’s the moolah from the train operators?

As Transport for Quality of Life report, genuine at risk private investment accounts for about 1% of all investment in our railways. The lion’s share comes either directly from the taxpayer or increasingly from Network Rail borrowing, which currently stands at over £28bn. Off the government books, of course, but underwritten by the taxpayer none the less.

So not only does the government have to fund Network Rail to plug the gap in track charges that train companies no longer pay. But their massive debt burden is used to provide the investment that train companies don’t put in. Incidentally, Network Rail’s debt is now so hight that it pays more in interest payments to service the debt than it does in track maintenance and renewal.

Remind us again, what are franchises for?

Anyway, thanks to Messrs McLoughlin and Burns for clearing that one up. The train companies must be thinking “with friends like these … ”