David Cameron and Nick Clegg have set out plans for a £9.4bn modernisation of the railways. The shadow transport secretary, Maria Eagle, says the entire rail network needs re-organising and re-structuring and refuses to rule out renationalisation. However, the transport secretary, Justine Greening, told the BBC this morning that renationalisation was the 'last thing' the network needed.
Below, Mick Whelan of the Aslef union debates Richard Wellings of the Institute of Economic Affairs (IEA).
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Since privatisation the cost to the public purse of running the railways has risen by a factor of between two and three times. From about £2.4 billion per year before privatisation to around £5.4 billion per year. Over the same period the amount of money that is 'invested' into the railways from passenger fares has also increased in real terms.
Many of these additional costs can be attributed to inherent flaws in the overly complex privatisation structure created by the Conservative government in 1994.
Key to the exponential increase in costs are higher interest payments in order to keep Network Rail's debts off the government's balance sheet, debt write-offs and costs arising from the fragmentation of the network into so many different organisations. Then there are the profit margins of layer upon layer of contractors and sub-contractors to be taken into account, along with dividend payments to shareholders. Added together these represent a cumulative, conservatively estimated cost to the taxpayer of more than £11b of public funds or around £ 1.2b a year. If these wholly unnecessary costs were eliminated and the resultant savings invested in reducing fares, it could deliver an across-the-board fare cut of roughly 18%.
Not only would passengers benefit from any reduction in fares under nationalisation-commuter fares are the highest in Europe- they would also benefit from a much-simplified and easy-to-understand ticketing system, and have a single accountable body to complain to if things go wrong.
We need a single railway which offers passengers a quality service at an affordable price. A rail service which is prepared to invest long-term in order to tackle over-crowding, stimulate regional economic regeneration and integrate with other local services to provide a seamless public transport network.
Privatisation has singularly failed to increase efficiency of the railways. This is largely due to the widespread duplication of functions inherent in such a fragmented franchise system, resulting in a 56% increase in the costs of 'backroom' staff since privatisation.
A step-by-step programme of renationalisation would enable the government to reacquire the railway assets 'we' sold at minimal cost, resulting in huge savings as the process progresses. As franchises expire, or when a Train Operating Company fails to meet the conditions of a franchise agreement, the franchise should be taken back into public ownership. Only then can we guarantee the kind of long-term investment needed. This would also provide a new model for standardising rolling stock procurement, which at the moment is subject to the very varied requirements of different routes, franchises and TOC's. It would also allow a single rail company to procure new trains directly, using either government grants or government backed debt.
Perhaps most significantly we need an over-arching strategy for the railway that would benefit all rail users as well as the public purse, and can only come from a re-nationalised single railway entity belonging to and accountable to the government, with responsibility for all passenger train operations, as well as the railway infrastructure; Maintenance and enhancement, signalling and station management.
The privatised railway has proved very profitable for some, including many banks and train operators, however companies which were happy to fleece the railway during boom years walked away from their franchises when things went bad, a clear case of profiteering at the public expense, and a system we should rid ourselves of at the earliest opportunity.
There is overwhelming public support for re-nationalising our railway. Support that can only increase once the true costs of privatisation are made clear.
Privatisation is often blamed for the shortcomings of Britain's railways. This is unfair. Genuine privatisation never happened. Nominal ownership may have been transferred to the private sector, but the government remains firmly in control.
Renationalisation would only exacerbate this problem. Politicians and bureaucrats would still make the key decisions on rail - such as today's announcement that £9.4 billion is to be invested in various loss-making projects. But there would be even less attention given to commercial considerations and even fewer opportunities for entrepreneurship and innovation in the industry.
A far better option would be to move towards proper privatisation. Taxpayer subsidies could be phased out; loss-making lines could be closed; and investment could be restricted to those projects that were profitable. And perhaps most importantly, full privatisation would allow the merger of track and train, ending the disastrous fragmentation of the railways.
Fragmentation is not a market outcome - politicians and officials imposed an artificial structure on the industry. Historically, railways have nearly always been vertically integrated. But the government, influenced by EU policies on open access, has largely ignored this lesson. Different firms now manage the infrastructure, run the trains and own the rolling stock. There is also a complex system of regulatory oversight. This complexity has contributed to an explosion of costs. Following privatisation, subsidies from taxpayers have tripled to about £5 billion a year.
A complex structure is not the only problem facing the sector. The government also makes it extremely difficult for private companies to deliver efficiency gains. It actually became harder to close loss-making lines after privatisation, while service levels are largely determined politically, through the franchising system, rather than on commercial grounds.
The government also maintains price controls, including on key London commuter routes. Private firms are therefore severely limited in their ability to tackle congestion through more flexible fare levels. But they still get blamed for the resulting overcrowding. Worse still, the congestion creates pressure for investment in new capacity - placing a still greater burden on taxpayers.
While private involvement has brought some improvements, for example to marketing, the scope for entrepreneurship remains extremely limited. Indeed, when firms have tried to develop new privately-funded rail infrastructure, they have faced obstacle after obstacle from transport bureaucracies unwilling to cede control.
Rail investment is currently determined in a process not too dissimilar to Soviet central planning, and directed largely to meet political objectives rather than economic ones. As we see today, huge sums are spent on loss-making projects that make no commercial sense, with costs loaded on to taxpayers.
Perhaps the fundamental problem is the strength of the rail lobby, bolstered in some areas by the disproportionate political influence of wealthy rail commuters. Concentrated special interests have been able to extract huge amounts from taxpayers by capturing policy. Renationalisation is unlikely to break the cosy relationship between the rail lobby and policymakers; it will simply lead to more of the same.
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