A nationalised railway doesn’t have to be rubbish – but this one probably would be

The good old days. Image: Getty

As the general election nears, the major parties are starting to set out their vision for Great Britain’s railways. The Conservative manifesto will appear later this week. Think-tanks associated with the sillier end of the party have lobbied for Network Rail to be privatised, which would be a disaster, so it’s worth keeping a look out.

But Labour’s manifesto was published on Tuesday. Stephen Bush has a good summary, and you can read the whole thing here. One of its more eye-catching pledges is “public ownership” for the railways.

As we’ve covered before, this covers a lot of ground. Network Rail, which owns the tracks, operates maintenance and signalling, manages new-build projects, and allocates and manages train paths, has been in the public sector since 2002, and under the direct control of the Department for Transport (DfT) since 2014.

The manifesto clarifies Labour’s line with the phrase “as franchises expire”. This implies it’s talking about train operating companies (TOCs), like Chiltern or Northern Rail. These are contracted by the DfT to run passenger train services: every few years there is a bidding auction to see who’ll pay the biggest premium for the right to operate trains on a given route.

The winning bidder must meet a service specification agreed with the DfT, pay track charges to Network Rail, lease the trains that are needed to operate the service, and pay staff. In exchange, it gets to set and collect fares on the route, subject to price caps laid down by the DfT, and to keep whatever’s left once it’s paid everyone else.

So if Labour wins a majority in next month’s election, then when franchises start expiring, they will be delivered in-house. There is a model for this, which has been successful on a small scale: the DfT has a subsidiary called Directly Operated Railways, which takes over from a franchisee if they go bust. When National Express East Coast went bust in 2009, DOR took the franchise and provided a good service. Although it fell short of the premiums NXEC had originally pledged to pay, it returned £235m in profit to the DfT in its final year of operation.

There are, however, two problems seeking to apply this small-scale success to Labour’s plans. One is simple scalability. When East Coast was benchmarked against private operators, it was very clear to everyone involved what a good job consisted of. But if the entire business is nationalised, there’s no obvious way to determine whether the public operator is providing good value for money, and not much incentive for it to do so.

There are structures that maintain benchmarking and competition under government control. The most obvious is in London, where TfL sets all aspects of the service and takes all the profit/loss risk, but ensures value for money by contracting out some operations. The same could be done by devolved regional governments (which would also enhance local accountability), and directly by the DfT for long distance and regional services.


This isn’t what’s happening, though. Labour’s pledge that the new operator “will be built on the platform of Network Rail” sounds more like an attempt to recreate the monolithic structure of British Rail. This is, at best, untested in the modern era.

The second problem with Labour’s manifesto version of nationalisation is the side promises being made. Explicit pledges include “ending the expansion of driver only operation” and “freezing fares”.

The first of these is a bad idea. Driver-only operation is a proven safe way of reducing costs without inconveniencing passengers, already used on 30 per cent of the network. The pledge has been modified from an earlier leaked draft which suggested DOO should be abolished altogether, but refusing to expand it takes away an opportunity to cut costs, with no benefit to passengers.

The second helps passengers more, but it’ll be expensive. Regulated train fares rise in line with inflation at about 2 per cent a year (1.8 per cent or 2.3 per cent, depending on whose methodology you use). With farebox revenue of £9.4bn, that’s an extra £200m a year to find in year 1, and £400m in year 2. After five years, there’ll be a £1bn/year gap compared to currently planned rises. And regulated fares are mainly used on already-full commuter trains, so there won’t be much volume growth to make up it.

Will abolishing TOCs pay for this? Annual TOC profits distributed to shareholders are £200m per year. So if the scale issues can be solved and the new model works as well as East Coast, then the savings in the first year will pay for the fares freeze. Hooray!

But this is a one-off gain: in the second year, we’ll need to find another £200m to pay for that year’s fare freeze. By year five, there’ll be a £800m/year revenue gap. AAnd we won’t be able to save money on guards to make up for it.

Overall, Labour’s rail plans are less terrifying and damaging than some of the options the Conservatives are contemplating – and there’s certainly nothing wrong with moving away from the TOC model in itself.

But the devil is in the detail, and the details here suggest that Labour’s plans are more focused on quid-pro-quos for the unions and cash bungs for commuters, than on the actual reason you might want to move away from the TOC model: the core job of shifting more people and freight onto the railways as efficiently and safely as possible.

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The Adam Smith Institute thinks size doesn’t matter when housing young professionals. It’s wrong

A microhome, of sorts. Image: Wikimedia Commons.

The Adam Smith Institute has just published ‘Size Doesn’t Matter’, a report by Vera Kichanova, which argues that eliminating minimum space requirements for flats would help to solve the London housing crisis. The creation of so-called ‘micro-housing’ would allow those young professionals who value location over size to live inside the most economically-active areas of London, the report argues argues.

But the report’s premises are often mistaken – and its solutions sketchy and questionable.

To its credit, it does currently diagnose the roots of the housing crisis: London’s growing population isn’t matched by a growing housing stock. Kichanova is self-evidently right in stating that “those who manage to find accomodation [sic] in the UK capital have to compromise significantly on their living standards”, and that planning restrictions and the misnamed Green Belt are contributing to this growing crisis.

But the problems start on page 6, when Kichanova states that “the land in central, more densely populated areas, is also used in a highly inefficient way”, justifying this reasoning through an assertion that half of Londoners live in buildings up to two floors high. In doing so, she incorrectly equates high-rise with density: Kichanova, formerly a Libertarian Party councillor in Moscow, an extraordinarily spread-out city with more than its fair share of tall buildings, should know better.

Worse, the original source for this assertion refers to London as a whole: that means it includes the low-rise areas of outer London, rather than just the very centrally located Central Activities Zone (CAZ) – the City, West End, South Bank and so forth – with which the ASI report is concerned. A leisurely bike ride from Knightsbridge to Aldgate would reveal that single or two-storey buildings are almost completely absent from those parts of London that make up the CAZ.

Kichanova also argues that a young professional would find it difficult to rent a flat in the CAZ. This is correct, as the CAZ covers extremely upmarket areas like Mayfair, Westminster, and Kensington Gardens (!), as well as slightly more affordable parts of north London, such as King’s Cross.

Yet the report leaps from that quite uncontroversial assertion to stating that living outside the CAZ means a commute of an hour or more per day. This is a strawman: it’s perfectly possible to keep your commuting time down, even living far outside of the CAZ. I live in Archway and cycle to Bloomsbury in about twenty minutes; if you lived within walking distance of Seven Sisters and worked in Victoria, you would spend much less than an hour a day on the Tube.

Kichanova supports her case by apparently misstating research by some Swiss economists, according to whom a person with an hour commute to work has to earn 40 per cent more money to be as satisfied as someone who walks. An hour commute to work means two hours travelling per day – by any measure a different ballpark, which as a London commuter would mean living virtually out in the Home Counties.

Having misidentified the issue, the ASI’s solution is to allow the construction of so-called micro-homes, which in the UK refers to homes with less than the nationally-mandated minimum 37m2 of floor space. Anticipating criticism, the report disparages “emotionally charged epithets like ‘rabbit holes’ and ‘shoeboxes,” in the very same paragraph which describes commuting as “spending two hours a day in a packed train with barely enough air to breath”.


The report suggests browsing Dezeen’s examples of designer micro-flats in order to rid oneself of the preconception that tiny flats need mean horrible rabbit hutches. It uses weasel words – “it largely depends on design whether a flat looks like a decent place to live in” – to escape the obvious criticism that, nice-looking or not, tiny flats are few people’s ideal of decent living. An essay in the New York Times by a dweller of a micro-flat describes the tyranny of the humble laundry basket, which looms much larger than life because of its relative enormity in the author’s tiny flat; the smell of onion which lingers for weeks after cooking a single dish.

Labour London Assembly member Tom Copley has described being “appalled” after viewing a much-publicised scheme by development company U+I. In Hong Kong, already accustomed to some of the smallest micro-flats in the world, living spaces are shrinking further, leading Alice Wu to plead in an opinion column last year for the Hong Kong government to “regulate flat sizes for the sake of our mental health”.

Amusingly, the Dezeen page the ASI report urges a look at includes several examples directly contradicting its own argument. One micro-flat is 35 m2, barely under minimum space standards as they stand; another is named the Shoe Box, a title described by Dezeen as “apt”. So much for eliminating emotionally-charged epithets.

The ASI report readily admits that micro-housing is suitable only for a narrow segment of Londoners; it states that micro-housing will not become a mass phenomenon. But quite how the knock-on effects of a change in planning rules allowing for smaller flats will be managed, the report never makes clear. It is perfectly foreseeable that, rather than a niche phenomenon confined to Zone 1, these glorified student halls would become common for early-career professionals, as they have in Hong Kong, even well outside the CAZ.

There will always be a market for cheap flats, and many underpaid professionals would leap at the chance to save money on their rent, even if that doesn’t actually mean living more centrally. The reasoning implicit to the report is that young professionals would be willing to pay similar rents to normal-sized flats in Zones 2-4 in order to live in a smaller flat in Zone 1.

But the danger is that developers’ response is simply to build smaller flats outside Zone 1, with rent levels which are lower per flat but higher per square metre than under existing rules. As any private renter in London knows, it’s hardly uncommon for landlords to bend the rules in order to squeeze as much profit as possible out of their renters.

The ASI should be commended for correctly diagnosing the issues facing young professionals in London, even if the solution of living in a room not much bigger than a bed is no solution. A race to the bottom is not a desirable outcome. But to its credit, I did learn something from the report: I never knew the S in ASI stood for “Slum”.