5 November 2018

Twenty-five years after privatisation, Britain would be mad to renationalise the railways


Today marks 25 years since the privatisation of the railways. To mark this auspicious anniversary, various Labour politicians have been doing the rounds, calling for the railways to be renationalised.

It’s a popular policy, with over 60 per cent of the British public in favour of it, while only 20 per cent oppose it. Who can blame them? Delayed and cancelled trains, cramped and unpleasant journeys, and fares which could hardly be described as “fair” given the level of service received. This is especially true for those who have enjoyed much cheaper rail travel during trips around the continent.

However, despite being a popular policy, it is incredibly misguided. It ignores a number if key issues.

On the first point, many of those who are calling for renationalisation don’t remember just how bad things were, or they were not alive at the time (I was only four). However, the situation was dire. When the government nationalised the railways in 1948, it inherited a system which had been overstretched by supporting the war effort, and had suffered extensive damage thanks to the efforts of the Luftwaffe.

The government pumped in the equivalent of £30 billion in today’s money, in the hope that it would revitalise the railways, increase safety, and generally improve the level of service. It did not work. The funding and reforms were emblematic of nationalisation in general: the government spending vast sums of taxpayers’ money on the wrong things in the wrong places and at the wrong time. By the end of the 1950s the railways were generating heavy losses, and so swingeing cuts to services and standards had to be implemented in a failed attempt to make them profitable.

This level of underinvestment meant that train journeys were unsafe, frequently delayed, and of a very poor quality. As a result, passenger numbers dropped significantly, exacerbating the problems faced by the railways.

This brings us to the modern day. Although not a perfect service by any stretch of the imagination, the railways are in a much better state than during the dark days of nationalisation. Investment has increased dramatically, leading to improvements in efficiency and safety, with the UK having one of the safest railway systems in Europe.

This improvement in quality has led to passenger numbers increasing. In 1950, there were approximately a billion train journeys being made in the UK each year. This had dropped to 600 million by the 1980s. However, since privatisation, this trend has reversed, with over 1.6 billion journeys now being made every year. It’s not just passenger numbers that are up. Satisfaction levels with the standard of service have also increased.

However, there are still huge problems with the current system. Fares in the UK are much higher than in many other countries. What is more, services are frequently delayed or do not run at all. As such, calls from Comrade Corbyn to renationalise the railways might seem reasonable. Surely we need the government to step in to solve such an obvious market failure?

Such a conclusion would be to ignore the reality of the current system, and also the folly of renationalising the railways.

Although it is certainly true that the UK has some of the highest train fares in Europe, this is not a justification for nationalising the railways. We need to look at why train fares are so expensive in the UK when compared to the rest of Europe. One reason is that many European countries heavily subsidise their railways. This means that it is taxpayers in these countries who are ensuring that costs are kept low for rail passengers.

This still happens in the UK to a lesser extent, and there is, of course, scope to extend this. However, this would be a regressive step and so those who claim to be on the side of the most disadvantaged in society, such as Jeremy Corbyn’s Labour Party, would be wrong to do so. Trains are far more likely to be used by people on higher incomes, whereas those on lower incomes are far more likely to travel by car or by bus.

Why should those on lower incomes who seldom if at all catch the train, give up more of their money so that wealthier people can enjoy a cheaper train journey. It cannot be right that a cleaner from Huddersfield should have to subsidise the daily commute of a stockbroker from Sevenoaks to the CIty.

What is more, subsidies are exacerbating the problem. They lower the price for consumers, meaning that there is now more of an incentive for people to travel by train when they might not ordinarily choose to do so. This, coupled with heavily regulated fares, increases demand in a way which supply has been unable to keep up with. As with anything in life, when demand outstrips supply, upward pressure is placed on prices.

Subsidies and price caps have simply exacerbated the problem, as they have led to an increase in the underlying market price of travelling by train.

It is precisely because we have government intervention and a situation where the market is not given the opportunity to work, that we have such a problem. Renationalising would do nothing to fix this.

It is striking that the railway companies with the highest satisfaction levels are Grand Central and Hull Trains, on 96 per cent and 95 per cent satisfaction rates respectively. These are the ones which face competition from other providers, and so have the incentive to provide a higher quality service at a lower cost than their competitors.

Renationalising the railways would remove these incentives. As a result, not only would it be incredibly costly to do so, but it would also mean higher fares and a far worse service.

Rather than greater state control, the government should allow Open Access on the railways. Operators should be released from the shackles of the Department for Transport’s regulations, allowing greater innovation. The result will be higher quality services and cheaper fares.

There are other things which the government could do to help alleviate the misery faced by train passengers. Scrapping HS2, which only today has once again been shown to not be financially viable. The vast sums of money being spent on HS2 should instead be used to invest in the railways, improving signalling and electrifying the network in the North of England.

A quarter of a century since the railways were privatised we may not have a perfect system, but we would be wrong to go back to the days of nationalisation. Such a move would fail on its own terms. The answer to Britain’s railway frustrations is more competition, not further government intervention. It is the only way that we will enjoy high quality rail services at an affordable price.

Ben Ramanauskas is a Researcher at The Taxpayers' Alliance.