The case for re-nationalising Britain's rail network

We'll have all this lot back for a start. Image: Bruno Vincent/Getty.

Labour leadership hopefuls Jeremy Corbyn and Andy Burnham have both spoken of re-nationalising the UK’s railways, and the case for national ownership of such a crucial piece of a country’s infrastructure is the source of much debate. But the evidence suggests that integrating the UK’s expensive and fragmented rail network under public ownership could save hundreds of millions and also provide a better service.

At a smaller level, Transport for London shows the success of an integrated network run by the public sector. If a similar model was applied to national rail, all profits made in the sector would be reinvested, fares could be cut and government subsidies reduced. This compared to how costly and inefficient privatising the national rail network has been.

The latest two YouGov Surveys indicate majority support for taking rail back into public ownership. Opposition to the idea has fallen from March to August.

The overwhelming reason for this is a belief that rail fares would go down as a result. For example a YouGov Survey of 2014 found the top three reasons for re-nationalising the railways were that:

  • Railways would be accountable to the taxpayer rather than shareholders;
  • Rail fares would go down;
  • It would be more cost effective overall.

Only a third think ticket prices would go up under public ownership. Half think the fares would fall. Image: Survation, May 2014.

The belief is justified. In 2013, journey prices were 23 per cent higher in real terms than in 1995, the year rail was fully privatised. Research by Transport for Quality of Life indicates creating a unified publicly owned railway could save enough to fund a 10 per cent cut on regulated fares, which constitute half of all tickets sold, including season and day return tickets.

This month trade union campaigners Action for Rail suggested regulated fares rose 25 per cent between 2010 and 2015 alone. Prices have risen fastest on long distances, which are often unregulated.


A costly experiment

Today’s part public, part private system is a reflection of the Great British rail privatisation experiment. The 1993 Railways Act split responsibility for physical rail infrastructure and the train services. Railtrack, a for-profit company, took on infrastructure; meanwhile, the passenger rail network was split into 25 companies, each to be run by the private sector.

Infrastructure has since been returned to public ownership. After four fatal rail accidents around the millennium exposed Railtrack’s dangerous under-investment and spiralling project costs, Network Rail, a not-for-dividend company, was created to replace it. Its high dependence on subsidy and government-guaranteed borrowing then required its reclassificaion from a non-profit company to a central government body.

The result of all is this total rail subsidies have increased from around £2.75bn in the late 1980s to around £4bn today. An integrated network could reduce excessive costs of fragmentation through cooperative working, coordinated planning and knowledge sharing.

Total subsidy to the rail network in each financial year. Subsidy include Network Rail and Train Operating Subsidy, 1995-2012. Prices shown are 2012 prices. Source: House of Commons Transport Committee (2013) Rail 2020 - Seventh Report of Session 2012-13.

There has also been significant growth in Network Rail debt – from £9.6bn in 2003, to £34bn in 2014. The debt has grown in an effort to upgrade the under-invested infrastructure inherited from Railtrack, but also due to the cost of servicing existing debt. With Network Rail now a central government body, rather than borrowing from the City, it can do so through the Treasury, which is slightly cheaper.

Passenger rises

In terms of the rail network, privatisation was meant to bring “higher quality of service and better value for money”. But the hope that private sector management efficiency would mean that the system could run without subsidy has not been fulfilled.

As the graph below shows, at no point in recent history has the British railway network managed to cover its costs. On average, passenger fares have made up 60 per cent of total rail income in the past 25 years – peaking at 85 per cent in the year the network was privatised.

Indeed, the 1992 White Paper on rail privatisation, drafted to inform the 1993 Railways Act, recommended that rail infrastructure remain publicly owned as there was no record of profitability.

Passenger fare revenue as a percentage of total GB rail system revenue. Source: A Bowman (2015) An illusion of success: The consequences of British rail privatisation.

 

Supporters of privatisation point to the growth in passenger numbers as evidence for its success. Average annual passenger numbers rose 4 per cent between 1997 and 2012 compared to 1.73 per cent between 1982 and 1996, and the annual journeys per head rose from 14.9 in 1997-98 to 22.4 in 2010-11.

But passenger revenue has not been able to cover costs, despite this significant growth, which has outstripped European peers. And the rise in passenger numbers is arguably symptomatic of wider trends such as urbanisation, centralisation of employment and non-car lifestyle choices, particularly of millenials, rather than credit to the privatisation of the rail industry.

These lifestyle changes are reflected by growth in the frequency of journeys over individual journey distances, as shown below.

Overall gowth in rail passenger travel per person 1995-2010. Image: Le Vine and Jones (2012) On the Move.

The route to nationalisation

Britain’s railways could be taken back into the public sector one piece at a time, at no cost. As franchises expire, contractual break points are reached, or franchises under-perform, routes could be taken back into public ownership. By 2020, eleven current franchises will expire.

 

Source: Department for Transport - Rail Executive (2015) Rail franchise Schedule, July 2015.

If franchises were taken back under public control as they expire, an integrated rail network could grow as shown in the map below:

 

Image: Nicole Badstuber. Original map: Barry Does (2015) 2015 Great Britain National Rail Passenger Operations - 31st edition. Franchise expiry dates: Department for Transport (2015) Rail Franchise Schedule July 2015.

Savings to be made

Nationalising the railways has the potential to bring a number of obvious savings to the UK government.

1. Shareholder dividend payments

The latest dividend payments by the train operating companies amounted to approximately £200m a year. Instead of being paid to shareholders, this amount could be reinvested into the railway and reduce the taxpayer’s contribution.

2. Subcontrators

Transport for Quality of Life estimates that £76m a year could be saved on private subcontractors by re-creating the staff positions in house.

3. Bidding costs

Under the current system, the various train operating companies bid to run each rail franchise. The problem is, central government ultimately pays for the costs involved in these bids: the train operators are not directly reimbursed for the incurred cost of bidding, they will recoup it by factoring it into the franchise price.


Scrapping the bidding process would cut this cost, which was conservatively estimated to be £15-20m per franchise competition in 2010 (though the competition for Great Western’s services in 2012 cost a total of £40m). So, if three franchises are up for renewal a year from now until the end of 2019, between £45m and £120m could be saved by scrapping these competitions and managing the rail routes under one umbrella.

4. Administration costs

If the franchising system was abolished, more than £2m a year could be saved on in-house Department for Transport administration costs. Cutting the external consultants and contractors involved in franchise specification and procurement would save the department an additional £4m a year.

Additional savings could be reaped from an integrated structure such as getting rid of duplicate senior management and marketing.

In other words, the case for re-nationalising all of Britain’s railways is a strong one. Privatisation has proven extremely costly – and an integrated national network would be better value for both consumer and government.The Conversation

Nicole Badstuber is a PhD researcher and research assistant in transport policy and governance at University College London, University College London.

This article was originally published on The Conversation. Read the original article.

 
 
 
 

The Tory manifesto promises to both increase AND decrease the rate of housebuilding

Housing secretary Robert Jenrick. Image: Getty.

In his 2014 Mansion House speech, the then-chancellor George Osborne expressed with uncharacteristic honesty the motives at the heart of how the Conservatives see British housing politics: “The British people want our homes to go up in value, but also remain affordable; and we want more homes built, just not next to us.”

Five years later these contradictions remain unreconciled and present in their manifesto, which contains two different and contradictory – but clearly extensively targeted and focus-grouped – sets of policies.

The Conservatives have two housing targets. The first is to make significant progress to hitting “our target of 300,000 houses built a year by the mid-2020s”. The second is their aim to build “at least a million new homes” during the next parliament, which implies a target of 200,000 homes a year. This is not only 100,000 lower than their initial target but also lower than the current rate of housebuilding: 213,660 new homes a year. They have therefore implied at separate points in the same manifesto that they intend to simultaneously increase and decrease the rate of housebuilding.  

There are similar conflicts in their approach to planning. They intend to make the “planning system simpler” while simultaneously aiming to introduce community-led design standards for development and planning obligations to provide infrastructure for the local community.

None of this is unsurprising, The Tories don’t seem to know if they want to build more houses or not – so of course they don’t know whether they wish to make it easier or harder to do so.  

Politicians like obfuscation on housing policy to placate NIMBY voters. Take for example prospective Conservative MP and ‘environmentalist’ Zac Goldsmith’s crusade to save treasured local car parks. The manifesto can equally be accused of pandering to NIMBY instincts, protecting their shire voters from all housing, including ones they might actually need or want, by promising to protect the greenbelt.  

Instead, Conservatives intend to foist development on Labour-leaning inner-city communities and prioritising brownfield development and “urban regeneration”. This requires massive, infeasible increases in proposed density on brownfield sites – and research by Shelter has shown there are simply not enough brownfield sites in cities like London. Consequently, it is not clear how such a policy can co-exist with giving these inner-city communities rights on local design. Perhaps they intend to square that circle through wholesale adoption of YIMBY proposals to let residents on each street opt to pick a design code and the right to turn their two-storey semi-detached suburban houses into a more walkable, prettier street of five-storey terraces or mansion blocks. If so, they have not spelt that out. 

Many complain of NIMBYism at a local level and its toxic effects on housing affordability. But NIMBYism at the national level – central government desire to restrict housebuilding to make house prices rise – is the unspoken elephant in the room. After all, 63 per cent of UK voters are homeowners and price rises caused by a housing shortage are hardly unpopular with them. 


There is anecdotal evidence that protecting or inflating the value of homeowners’ assets is central to Conservative strategy. When George Osborne was criticised for the inflation his help to buy policy caused within the housing market, he allegedly told the Cabinet: “Hopefully we will get a little housing boom, and everyone will be happy as property values go up”. More recently Luke Barratt of Inside Housing noted that most Conservatives he spoke to at the 2018 party conference were scared “they’d be punished by their traditional voters if the values of their homes were to fall”. He was told by a Conservative activist at the conference that, “If you build too many houses, you get a Labour government”.

But the senior figures in the Conservative Party are painfully aware that the continuing housing shortage presents major long-term problems for the Party. As the manifesto itself acknowledges: “For the UK to unleash its potential, young people need the security of knowing that homeownership is within their reach.” Perpetual increases in house prices are incompatible with this goal. The problem has greatly contributed to the Conservatives’ severe unpopularity with a younger generation priced out of decent accommodation. 

Equally, there is increasing evidence that ‘gains’ from rising house prices are disproportionately concentrated in the south of England.  The differences in housing costs between regions greatly reduce labour mobility, suppressing wage growth in the north and midlands, which in turn leads to greater regional inequality. The policy of coddling southern homeowners at the expense of the economic well-being of other regions is a major long-term stumbling block to Conservative desires to make inroads into the ‘red wall’ of Leave-voting labour seats outside the south.

Before dealing with the issue of where housing should go, you must decide whether you want to build enough housing to reduce the housing crisis. On this issue, the Conservative response is, “Perhaps”. In contrast, even though they may not know where to put the necessary housing, the Labour Party at least has a desire in the abstract to deal with the crisis, even if the will to fix it, in reality, remains to be seen. 

Ultimately the Conservative Party seems to want to pay lip service to the housing crisis without stopping the ever-upward march of prices, underpinned by a needless shortage. Osborne’s dilemma – that the will of much of his party’s voter base clashes with the need to provide adequate housing – remains at the heart of Conservative housing policy. The Conservatives continue to hesitate, which is of little comfort to those who suffer because of a needless and immoral housing shortage.

Sam Watling is the director of Brighton Yimby, a group which aims to solve Brighton’s housing crisis while maintaining the character of the Sussex countryside.