Would EU rules really prevent Jeremy Corbyn’s Labour party renationalising the railways?

Long wait. Image: Callum Chapman on Unsplash.

Last week, the UK government has announced that it would take control of the failing East Coast train line. The franchise will now end in June 2018 – only three years into its eight-year contract. Twice before, in 2006 and 2009, the private company running the route from London to Edinburgh ended their contract early.

This has intensified calls for Britain’s railways to be renationalised – a manifesto pledge of the Labour opposition in the 2017 national election. It is a policy surveys suggest has strong public support.

Yet whether and how renationalising the railways might be achieved depends on the final Brexit deal the UK strikes with the European Union. Under current EU competition policy, Britain could not recreate a railway monopoly. It could, however, bring much of the rail sector into public ownership.

The British model

Britain’s railways are a three party affair: the infrastructure manager, the train service operators and the train leasing companies. Network Rail is the public body responsible for track maintenance and investment. Its predecessor was a for-profit company that was replaced following a series of fatal train crashes attributed to poor track maintenance.

Train service operators – all the rail company names you encounter on your commute – are a mix of subsidiaries of other European national rail companies and private companies. They run train services, earn money from tickets sales, pay a track usage fee to Network Rail, and hire the trains from a train leasing company.

Britain’s railways use a competition-for-the-market model. This means that instead of competitors running the same services alongside each other and vying for passengers, the competition is to win the contract to run part of Britain’s railway network, usually for five to ten years.

Broadly, railway routes fall into two categories: commercially profitable and public service. Train service operators make payments to government to run commercial routes, while receiving subsidies to run public service routes. Often the bidder most optimistic about passenger numbers – therefore, promising the best deal – wins the contract.

The House of Commons Public Accounts Committee concluded in April 2018 that overly optimistic passenger forecasts were to blame for the collapse of the East Coast mainline franchise.

The franchise’s repeated collapse highlights two key flaws with Britain’s rail model: it incentivises overestimating to win bids, and the government ultimately holds all the risk. Since transport plays too vital a role in keeping the economy going and all of us moving, the government cannot allow the railways to stop running.


EU rules

The key EU rule governing how member states run their railways is that the management of infrastructure and rail services must be separate. Another is that, where a rail route has spare capacity, available time slots to run new services should be open to any operator to purchase. Notable services using this mechanism are the Eurostar and Heathrow Express.

These two key requirements stand in the way of recreating a unified rail monopoly. But, as other EU member states show, the majority of Britain’s railways could be brought back into the public sector.

The EU Commission argued that greater competition on the railways will improve services and reduce fares for passengers. For the past three decades, it has applauded Britain’s railway privatisation and encouraged others to follow Britain’s example.

Key to enabling fair competition on the railways is non-discriminatory track access. For this reason successive EU railway reforms have pushed for independence of infrastructure management. When unveiled in 2013, the EU Commission’s latest railway reforms, the Fourth Railway Package, set out to impose strict institutional separation of infrastructure and rail services, adopting the franchise model on all routes.

But after several years of debate and notable push back from European governments and railway operators – in particular the German Deutsche Bahn and French SNCF – a watered-down version of the Fourth Railway Package passed in 2016. It now only requires infrastructure to be independently managed and allows some public service routes to be directly awarded, specifically where a direct award would lead to better quality or cost-efficiency. This is how many regional services are run by national operators. On all other routes the operator is to be determined by competitive bidding.

Different ways to renationalise

Other European nations demonstrate how Britain could take the railways back into the public sector while abiding by EU rail rules.

There are two main adopted models. The first is two separate state-owned companies (one for track, one for trains), which is used in Spain and the Netherlands.

The second uses separate companies within a state-owned group of companies (a parent company with a subsidiary company for infrastructure, and others for different train services). This is the model used in Germany and Italy.

Switzerland illustrates how Britain’s railways could be renationalised if the UK negotiated an exemption from opening up its railways to competition as part of its Brexit agreement. The Swiss Federal Railway is an example of a unified national railway company that brings together track and trains.

The Japanese model is another alternative that could be adopted if the UK were free from the requirement to separate track and trains. Japan’s railways are divided into regional units. Each unit has an integrated management of track and trains and is operated by one company (some privately, some government run). It is a model the current transport secretary of state, Chris Grayling is keen to see implemented on Britain’s railways.

Britain’s railways are already partial nationalised, as Network Rail is a public body. Although, reinstating a national rail monopoly under current EU rules would not be possible, there are ways that Britain could return many of its railway services to the public sector – Germany, Italy, Spain and the Netherlands all show how this can be effectively done.

Nicole Badstuber, Researcher in Urban Transport Governance at the Centre for Transport Studies, UCL.

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

 
 
 
 

What's actually in the UK government’s bailout package for Transport for London?

Wood Green Underground station, north London. Image: Getty.

On 14 May, hours before London’s transport authority ran out of money, the British government agreed to a financial rescue package. Many details of that bailout – its size, the fact it was roughly two-thirds cash and one-third loan, many conditions attached – have been known about for weeks. 

But the information was filtered through spokespeople, because the exact terms of the deal had not been published. This was clearly a source of frustration for London’s mayor Sadiq Khan, who stood to take the political heat for some of the ensuing cuts (to free travel for the old or young, say), but had no way of backing up his contention that the British government made him do it.

That changed Tuesday when Transport for London published this month's board papers, which include a copy of the letter in which transport secretary Grant Shapps sets out the exact terms of the bailout deal. You can read the whole thing here, if you’re so minded, but here are the three big things revealed in the new disclosure.

Firstly, there’s some flexibility in the size of the deal. The bailout was reported to be worth £1.6 billion, significantly less than the £1.9 billion that TfL wanted. In his letter, Shapps spells it out: “To the extent that the actual funding shortfall is greater or lesser than £1.6bn then the amount of Extraordinary Grant and TfL borrowing will increase pro rata, up to a maximum of £1.9bn in aggregate or reduce pro rata accordingly”. 

To put that in English, London’s transport network will not be grinding to a halt because the government didn’t believe TfL about how much money it would need. Up to a point, the money will be available without further negotiations.

The second big takeaway from these board papers is that negotiations will be going on anyway. This bail out is meant to keep TfL rolling until 17 October; but because the agency gets around three-quarters of its revenues from fares, and because the pandemic means fares are likely to be depressed for the foreseeable future, it’s not clear what is meant to happen after that. Social distancing, the board papers note, means that the network will only be able to handle 13 to 20% of normal passenger numbers, even when every service is running.


Shapps’ letter doesn’t answer this question, but it does at least give a sense of when an answer may be forthcoming. It promises “an immediate and broad ranging government-led review of TfL’s future financial position and future financial structure”, which will publish detailed recommendations by the end of August. That will take in fares, operating efficiencies, capital expenditure, “the current fiscal devolution arrangements” – basically, everything. 

The third thing we leaned from that letter is that, to the first approximation, every change to London’s transport policy that is now being rushed through was an explicit condition of this deal. Segregated cycle lanes, pavement extensions and road closures? All in there. So are the suspension of free travel for people under 18, or free peak-hours travel for those over 60. So are increases in the level of the congestion charge.

Many of these changes may be unpopular, but we now know they are not being embraced by London’s mayor entirely on their own merit: They’re being pushed by the Department of Transport as a condition of receiving the bailout. No wonder Khan was miffed that the latter hadn’t been published.

Jonn Elledge was founding editor of CityMetric. He is on Twitter as @jonnelledge and on Facebook as JonnElledgeWrites.