If you only understand one thing about the current debate on Labour’s plan to ‘renationalise’ the railways, the thing to understand is that the whole debate is basically fake. We never privatised the railways.
This risks coming across a bit “real communism has never been tried”, but it’s true. Whilst the Major Government did liberalise control of the railways somewhat in the 1990s, ‘privatisation’ essentially amounted to selling private companies the right to put their logos on the side of the trains.
Operators do have some flexibility with regards to how they go about things – hence the “revenue turnout mechanism”, which Labour has just announced it will cancel, that allowed the train-operating companies (TOCs) to make more profit if they managed to increase passenger numbers.
But genuine privatisation would have involved the Department for Transport giving up control, and that vital step was never taken.
A TOC needs to make a detailed application to the DfT even to make a small change to its schedule. As for developing new lines, forget it: George Bathurst previously wrote in detail for this site (more than once) about how officialdom seems to actively conspire against such projects, even when private financing is available. Sam Hughes recently reported how the Government took three years to approve an application for reviving the Portishead branch line, upon which it immediately pulled the funding.
The division of responsibility and ownership goes further, too. The TOC don’t own their rolling stock, which needs to be handed off to the next successful bidder. Nor do they own the stations, tracks, and other physical assets, most of which remain in the hands of Network Rail (if not even more arcane bodies, such as the ones under which Mayfield, a former station right next to Manchester’s main terminus at Piccadilly, has been derelict for almost 40 years).
As a result of this, combined with the short span of most franchises, means the TOCs have neither the time in-post to raise capital for investment, nor an asset base against which to secure such loans. The lack of vertical integration also means there is no cross-subsidy from freight revenue to passenger services.
Basically, and continuing the theme from yesterday’s ToryDiary, railway privatisation is another example of a Conservative revolution running out of steam. It has the outward appearance of the totemic reform programmes of the 1980s, but very little of the substance.
You can tell how close to zero active interest in privatisation had got by the fact that the best-performing franchise, Chiltern, has a unique structure – a very long franchise, but with renewal contingent upon hitting investment targets – and it was never replicated.
So when Labour (and the press) talk about ‘nationalising the railways’, they’re flattering the Government’s efforts to sound much more radical than it actually is. All that’s really happening is that ministers are allowing the existing franchises to lapse, and assuming direct responsibility for administering passenger services (as indeed the State already does on some lines).
That doesn’t mean it’s cost-free. As the Centre for Policy Studies has reported in detail, even our flawed and quarter-hearted privatisation model has delivered big increases in passenger numbers and productivity since 1993.
It has also brought in considerable private investment, and that poses the most obvious challenge for the Government.
Unless it has analysis showing that the existing model creates costs that outweigh that investment (and it hasn’t produced any), then after ‘nationalisation’ the Exchequer is going to have to stump up the money previously sourced from TOCs just for the railways to stand still in cash terms.
Given that Rachel Reeves is currently eyeing up capital cuts and demanding that every department help to find billions in savings, that seems improbable. More likely is that, just as before, the network is gradually starved of capital as the Government attempts, with mounting desperation, to avoid an overdue reckoning with this country’s unsustainable entitlements.
The upside of this, however, is that because Labour aren’t actually doing anything too dramatic, they also aren’t doing anything that would be too difficult for a future Conservative government to reverse (if it had the interest and the will). Better yet (and again as with Right to Buy), by wiping the slate clean it will give future ministers a chance to do privatisation properly.
