Rail franchises Labour

Paddy Briggs is a writer, blogger and member of the Fabian Society.

Labour is apparently to set up a task force on “rail nationalisation” – and the statement above makes it clear that the goal is indeed “public ownership”. The problem with this is that it seems fiercely ideological – the solution for the problems of Britain’s rail network has been arrived at with no consideration of alternatives.

The arrival of Jeremy Corbyn as Labour leader gives succour to those who see politics in ideological terms. The phenomenon of Philip Blond’s Red Toryism and also, to some extent, the The Good Right (well-liked by many on this website) is not ideological; nor, of course, is their inspiration from across the political divide – New Labour.

But Corbyn’s arrival changes the rules – and what to do about the railways is an intriguing test case. It is characterised as as a left versus right (nationalisation versus privatisation) issue. When the successful East Coast, a state-run firm which returned more than £1 billion in premiums as well as several million in profits to the Treasury was denationalised recently many cried foul. East Coast was one of only two operators to make a net contribution to government – and yet it was privatised. Why? The battle lines are clearly drawn and even Network Rail is in the privatisers’ sights. The left, under Corbyn, want everything in the railways to be publicly owned. The right want private ownership of the whole shooting match. Is there a “third way” ?

The privatisation of the railways was a disaster. As a recent report by “Action for Rail” says our railways require billions in government funding, the heralded private investment has failed to materialise and passengers experience the highest fares, and travel on some of the oldest rolling stock, in Europe. And private train operating companies are net recipients of public subsidy while distributing nearly all their operating profits as dividends to the shareholders of their parent companies.

The creation of Railtrack (which ran the track and the stations) by the Thatcher and Major governments was botched in concept and execution. The private company set up by them eventually collapsed, partly through mismanagement but mainly because the idea that profits could be generated from private ownership of such national assets was flawed. Most income from the railways comes from passengers and freight – the rail infrastructure is not in itself revenue generating, but a cost centre. When Railtrack collapsed, the assets were brought back into public ownership under Network Rail – a not for profit company which is 100 per cent publicly owned.

The operation of train services was also privatised in the 1990s, with the likes of Virgin Trains and Stagecoach running services. Across the country there are some thirty separate operators in total. The performance of these companies is variable and public service is not their primary goal – providing a return for shareholders is. That’s how free markets work, and in many areas of our economy they work well because of competition. If you don’t like what’s on offer at Tesco you can go to Lidl or Waitrose. The choice is yours. The problem with the railways is that with a few minor exceptions there is no choice. These are private sector monopolies – the worst economic model of all.

Because the railways are socially important, it has long been recognised that the pure workings of the market will not deliver a proper public service. They receive subsidies to keep open uneconomic lines or services – for example, Northern Rail, a joint venture between Serco and Dutch state rail subsidiary Abellio, received £713 million in 2013. Without this subsidy the company would have been unable to pay dividends of £36 million.

With so many operators, it is hardly surprising that services are variable in respect of service and value. There is little consistency in quality or fares – and the fare structure is incomprehensible. Journey planning, especially for a long trip which might include three or four different companies, is also a problem. Timetables do not coincide sufficiently to make planning easy or fares affordable.

The idea that all would be well if all of our railway system was brought together with Network Rail into a new National Railway network is a superficially appealing one. However, the idea this must be through nationalisation is much more questionable. Indeed it is resonant of 1945 rather than 2015. Over the years there has been some attempt to run national assets on business-like lines, but the reality is that this can only really happen through public/private partnerships. I wrote here how such partnerships are an important part of the NHS and that the charge that the NHS is being “privatised” is wrong.

The London Underground is publicly owned but run substantially as it would be run as a private company. This was the cause, among other things, of the disputes over the closure of ticket sales offices and in respect of 24 hour working. But if we step back from the sterile public versus private debate and look for a new paradigm, then why not argue that the real challenge is for the railways to be publicly accountable? It doesn’t really matter who owns the assets, providing that they are operated in the public interest. We are not talking about a sector in which competition is the regulator – we are talking about a private sector monopoly. Do you suddenly make that sector more accountable by nationalising it? In 1945, maybe. Today, surely not.

The new paradigm for the railways says that like our economy as a whole they should be a public/private partnership. A mixed economy has some things that are publicly owned and run and some which are in the private sector. They are inextricably reliant on one another. No private firm could operate without the publicly owned and run road network – but equally without the privately owned and run ports and airports.

Public accountability is the key. At the launch of The Good Right Michael Gove said this:

“If citizens can see the link between actions and consequences in the economic sphere – if endeavour brings success – then the system is seen as fair, and markets are seen as moral. But if rewards accrue and benefits accumulate without evidence of effort then support for our system and faith in free enterprise decline.”

So the point about the railways is that if we accept that they are important, that everyone who can be persuaded to take a train rather than drive in their car contributes to the environment and that it is a vital national asset, we can apply Gove’s test. Have benefits accrued (underpinned by subsidy) without effort to the rail operators? Many would say yes. Is our faith in free enterprise damaged by high prices, woeful service levels, inconsistent performance and an almost total absence of real competition? Yes again.

In the context of Labour’s new affection for public ownership (not just Corbyn – Andy Burnham also supports railway nationalisation), there is a real risk of withdrawing to our ideological comfort zones – on left and right. But what is really required is a national consensus about what we expect our railways to deliver. The key is public accountability, not necessarily public ownership. We need new models under which it is neither shareholder value nor job protection which dominates. The London Underground, struggling with the unions though it is, is a good example of a publicly accountable enterprise. Its generated returns are ploughed back into the business and no shareholder takes a cut. That may be the way forward for Britain’s railways.