Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham.
Joshua Bowden is a Research Scholar at the Vinson Centre and is working with Len on an IEA paper on railways.
At the weekend Prime Minister Andy Burnham and Transport Secretary Heidi Alexander announced that Avanti’s West Coast rail services will be nationalised from March next year.
Like rather too many recent government announcements, this is just a restatement of something that was going to happen anyway. Under Labour all the former franchises are being taken into the public sector as their contracts expire. There was an option to end the contract from last October, and this has now been formally agreed.
The classic rail franchise allowed bids to operate a part of the passenger railway for a given period. Bids for profitable routes such as the West Coast Main Line (running to places like Glasgow, Birmingham, Liverpool and Burnham’s Manchester) involved a commitment to pay the Government an agreed sum, but then the franchisee was able to use its commercial nous to improve services, bring in new rolling stock, smarten up stations, offer discounted travel and thus hope to boost passenger numbers.
The system worked well for a while, with usage rising rapidly. However, a series of problems with delayed infrastructure investment and poor maintenance (the responsibility of state-owned Network Rail), together with increasingly onerous operating specifications from the Department for Transport (DfT), led to some operators going bust and fewer groups bidding for new franchises. Then the restrictions on travel under Covid completely wrecked the system, which had to be replaced by contracts under which operators ran the former franchises simply for a fee.
It is a contract of this kind that Avanti will now surrender. ‘Nationalisation’ will mean very little change. Already Avanti is under tight control from government and simply provides services specified by the DfT. The revenue goes straight to the Exchequer. In the summer, Avanti was instructed to cut services to save money. It could not refuse.
From March onwards, essentially the same Avanti staff will work the same timetables on the same tracks. They will get new uniforms, and their trains will eventually be repainted in the garish new Great British Railways (GBR) colours. But little else is expected to change. Passengers will pay the same fares. They will be subject to the same delays on the overcrowded West Coast lines, no doubt as frustrating to Andy Burnham as he shuttles between his Number 10s as they will be to the rest of us.
Renationalisation of the railways has been Labour policy for a long time, because left-wing activists and the powerful rail unions wanted it. But little preparation seems to have been done. The Railways Bill is trundling through Parliament, but it is largely about enabling powers and does not really tell us much about the Government’s vision for the future of the railways.
There are many questions. The big one is how to tackle the financial black hole. In the last completed financial year, the railways cost the taxpayer £20 billion. Fare revenues covered only about half of the operating costs of the railway, and none of the massive investment costs associated with HS2, the new East West Rail line, the northern electrification and various line reopenings around the country. Yet travellers will be hoping for lower fares (the reason a large proportion of the public favour nationalisation). They are unlikely to get them.
Unless there is a spontaneous increase in passenger travel – which would be difficult to accommodate in many parts of the network – fares will surely have to rise or productivity improve at an unprecedented rate. Productivity, flatlining for years, is unlikely to shoot up while the unions maintain their grip on the industry. On the contrary, unions continue to press for increased staffing (such as demanding unnecessary ‘guards’ on commuter trains) and for maintaining traditional ticket offices. And the drivers continue to resist changes to rotas that currently make weekend work a generously rewarded option rather than standard working practice.
Other questions concern the future of ‘Open Access’ – where purely private train operators such as Grand Central and Lumo buy timetable slots to run services that franchisees had neglected – and of freight services, which remain in the private sector.
Open Access, originally an EU initiative, has been a considerable success in Britain despite restrictions imposed under the so-called ‘abstraction’ test, which allows Open Access services only if they generate new passengers rather than poaching existing ones. With the new GBR both operating trains and controlling the track, new Open Access proposals will face real difficulties.
As for freight, the Government has set targets for expansion – for example, 40% growth in tonne-kilometres by 2040 – but it is unclear how this is expected to come about. Since both the supply of and demand for freight services lie in private hands, targets like this mean very little. GBR could certainly help by freeing up more timetable slots and investing in track improvements, electrification and signalling on freight routes. But there would be little direct improvement in GBR’s bottom line as a result.
Then there is the continued debacle of HS2. We are no nearer to seeing a definite date for completion, the extension into Euston from Old Oak Common is unfunded, and the link between Birmingham and the West Coast Main Line is still undefined – while Burnham’s musings suggest we may yet see a revival of the extension to Manchester, which Rishi Sunak kiboshed.
These and other issues need some sort of strategic vision for the railways, which Labour has not yet provided, preferring pointless PR exercises such as the Avanti announcement.
In February last year we were promised a strategy for the next 30 years (perhaps an over-ambitious timeline given the changes likely to occur in the economy and society over that period), but the usual delays and obfuscations set in, and we are now told it will appear late in 2027. Don’t hold your breath.
If the State owns the infrastructure and owns the right to run trains over it, how can that have been privatisation?
That’s the problem. Either British Railways should have been turned into a PLC and floated on the stock exchange (Like BA, BT.) or the different lines comparable to the old companies sold off.
The Government could then keep its big nose out. It didn’t so we are where we are.
The author asks how the black hole in the finances will be fixed - the taxpayer!
The real problem is railways are a two hundred year old technology which would have been superseded by new tech, new modalities - like railways replaced canals for example - if left to innovation in a free market environment. Instead they have been set in aspic by subsidy and regulation. They only run at or near capacity for about 20% of the time - near empty often.
Nowhere in the World are railways viable without massive taxpayer support.
Putting our railways on life support by Labour - the same bunch and economic illiteracy with nationalised them, let them get bloated with workers (to please the unions) and starved them of investment.
This time it will work of course.
Thank you for this informative read. In May 2018 a railway timetable change resulted in chaos across the network. Some time later, a Commons select committee sat to determine what went wrong. By chance I was watching the BBC Parliament channel (often surprisingly interesting) and saw a room full of railway executives. For those of us old enough to remember, to my cynical eyes it resembled a Lew Grade cast-of-thousands Biblical epic, no doubt representing a hefty salary bill. No-one in the room admitted to any knowledge or responsibility for what had happened. Apparently the buck stopped somewhere over there in the distance, a symptom that perhaps all was not well.