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 best way to make housing more affordable? Raise interest rates

Lol, no. Image: Getty.

Speaking to the Conservative Party conference in September 2017, the UK prime minister, Theresa May, gave a stark assessment of the UK housing market which made for depressing listening for many young people: “For many the chance of getting onto the housing ladder has become a distant dream”, she said.

Now a new report by the Institute of Fiscal Studies (IFS) provides further, clear evidence of this. The study finds that home ownership among 25 to 34-year-olds has declined sharply over the past 20 years. Home ownership rates have declined from 43 per cent at age 27 for someone born in the late 1970s, to just 25 per cent for someone aged 27 who was born in the late 1980s.

The most significant decline has been for middle-income young people, whose rate of home ownership has fallen from 65 per cent in 1995-6 to 27 per cent now – most significantly hitting aspirant buyers in London and the South-East.

Causes and consequences

The IFS study lays the blame for all this on the growing gap between house prices and incomes. Adjusting for inflation, house prices have risen 150 per cent in the 20 years to 2015-16, while real incomes for 25 to 34-year-olds have grown by 22 per cent (and almost all of that growth happened before the 2008 crash).

A bleak picture. Image: Institute for Fiscal Studies.

But, as the report acknowledges, the problem goes much deeper than this. Home ownership rates differ by region. Although there has been a decline in home ownership rates for young people across all areas of Great Britain, the decline is less significant in the North East and Cumbria as well as in Scotland and the South West. The biggest decline in ownership has been in the South-East, the North-West (excluding Cumbria) and London.

So a person aged 25 to 34 is more than twice as likely to own their own home in Cumbria, as their counterpart in London. Worse, young people from disadvantaged backgrounds are less likely to own their own homes – even after controlling for differences in education and earnings. Home ownership continues to reflect a deeper inequality of opportunity in our society.


More houses needed

Part of the problem is that both Labour and Conservative governments have seen housing as a single, stand-alone market and have focused their attention on what is happening to prices in London. But housing is a number of different markets, which have regional variations and different interactions between the owner-occupier, private rented and social rented sectors.

Regional variations in house prices for similar sized properties reflect the imbalances of the economy: it is heavily reliant on financial services, which are concentrated in London, while the public sector makes up a significant share of many local economies – particularly in the North. Migration from across the UK to overcrowded and expensive areas – such as London and the South-East – have put property prices in those areas even further out of reach for would-be buyers.

To make matters worse, both Labour and Conservative governments have routinely failed to build enough houses. While the current government’s aim to build 300,000 new properties a year by 2020 is welcome, it is simply not enough to meet the backlog in demand – let alone address the fundamental affordability problem.

Where homes are being built, they’re often the wrong types of homes, in the wrong places. Family homes are being built, despite there being some 4m under-occupied such properties across the country.

Not that long ago, government was reducing the housing stock in many parts of the North, through the disastrous Housing Market Renewal programme. Houses are currently being sold in smaller cities such as Liverpool and Stoke-on-Trent for just £1. And none of the government’s actions suggest that ministers understand these issues, or are prepared to address them.

House price inflation – and the awful affect it is having on home ownership rates for young people – is part of a wider problem of the global asset bubble. This bubble has seen huge increases in the price of assets – stocks, housing, bonds – in high income countries such as the UK. Successive governments have helped to fuel this through quantitative easing, ultra-cheap money and successive raids on pension funds.

The ConversationWhat’s needed to address this asset bubble is a substantive increase in interest rates. But while this may slow the growth in house prices, the sad truth is it will do nothing to make housing more affordable for most young people.

Chris O'Leary, Deputy Director, Policy Evaluation and Research Unit and Senior Lecturer, Manchester Metropolitan University.

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