Opinion: Now is the time to re-nationalise the railways

Virgin trainAs the 2015 General Election approaches, the principle challenge for Liberal Democrat policy makers will be to come up with distinctive policies which don’t trade in our party’s radicalism while allowing us to trade on our experience as a serious party of government.

One policy which we can be confident won’t be pursued by either of the other two parties is that of re-nationalising the railways.

Readers familiar with my previous posts on this site would be surprised to see me advocating nationalisation as a policy.

The traditional economically Liberal view is that the ideal state for a market is to have “thousands of little buyers and sellers” (Adam Smith, The Wealth of Nations) and that monopolies, whether state or privately controlled, are the most socially damaging market construct.

However, as with most aspects of the Liberal tradition this is a view with nuances of its own, and in the 21st century we should adopt Keynes view that “The State should provide only those things which the market cannot provide” (JM Keynes: The End of Laissez Faire.)

The contention of this article is that a 21st century railway cannot be provided by the market.

This is because use of the railway instead of motorised transport is now a social rather than an economic good. This means it’s better for society that you use the train, rather than the car. In such situations it is better that the state controls the railways, as the transport market is no longer merely an economic construct, rather it is an instrument for delivering the greater good.

The mantra of the arch-privateer is that greater competition delivers greater outcomes for society as whole – but the railways are private monopolies, rather than competitive markets, and there is no way one can have competition on an individual train route. This makes the railways uniquely unsuited to the private model.

The macroeconomic benefits of less gridlock on the roads, making it cheaper and quicker to get goods to market, place a different perspective on the economic debate around nationalisation.

The environmental impacts of greater railway usage will help deliver the government’s goals in this area.

For those goals to be achieved one must run the railways as a long term project, which is exactly what the current franchise system prevents, as the competing tenders focus on delivering short term profits.

The principal objection to a renationalisation is cost, but this can be ameliorated simply by allowing the existing franchises to run down. As this means bit part renationalisation, the lessons learned from the first franchise reclaimed can be applied to later ones, which is the sort of empirical approach that sets Liberals apart from the two ideological parties.

I’m not advocating recreating the old British rail monolith. All back office functions, catering and procurement could be done by firms competing for the contract, while the areas which deliver the social goods, track maintenance drivers and train attendants be run as part of the state.

This approach combines the best of both worlds, using the commercial market where its power can be harnessed for the greater good, the public sector to deliver long term social objectives.

 

* David Thorpe is a member of the Liberal Democrats in Newham, and works for an economics publication.

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34 Comments

  • The railways are currently nationalised, it’s only the train operators who are private companies. Actually, there has been wholesale investment in new carriages, etc. since the privatisation, it is the track that lags behind.

  • david thorpe 13th Nov '12 - 4:24pm

    @ thomas I believ the rrailways are run by some construct which is neither nationalised nor privatised?
    also its the train operaing companies which matter-and they need subisides or are failing ot honour contracts

  • david thorpe 13th Nov '12 - 4:25pm

    lonson undergorund is nationlaised and very suvccessful-compared to the rest of the railway network in the UK

  • Richard Dean 13th Nov '12 - 4:57pm

    The two reasons given for nationalization don’t seem too convincing.

    > it’s a distinctive policy – so, let’s bring back hanging!
    > railway travel is a social good – so is agriculture, fisheries, holidays, water, energy, …. shall we nationalize everything?

  • Firstly, if the old British Rail had the same subsidies which the current privatised companies enjoy, does anyone doubt that the services offered by the state-owned railway system would have been a great deal better?!

    Secondly, the current privatised model means that UK rail fares are some of the highest in the world, which still means it can be cheaper to drive long distances and thus contribute more to the UK’s carbon emissions

    Finally, it was the radical Liberal government in 1908 which undertook the first nationalisation – the Port of London Authority.

  • This is big topic Dave and good to see some radical thinking going into it.

    I have gone backwards and forwards over the years on how best to deal with the problems you outline and come to two conclusions:

    1. The state should run part of the rail network in competition with private opetators e.g. the circle line on the London Underground and the East cost mainline.

    2. Rail subsidies should be discontinued and replaced with full tax relief on public transport fares i.e. employers could reimburse public transport costs without deduction of tax or national insurance..(Such a policy could be effective in meeting living wage standards).

    This approach may not meet all your objectives, but goes a long way to using the commercial market to harness the benefits of competition for the greater good while maintaining public sector tax support to deliver long term social objectives.

  • Leekliberal 13th Nov '12 - 6:54pm

    So the idea is that civil servants who could not even organise an effective bidding process for the West Coast franchise should be responsible for key aspects of service delivery on our vital railway network. Even a old romantic BR trainspotter like me can see this is nonsense!

  • The strongest reasons to renationalise are that;
    It is a strategically important system in terms of our environmental, social and planning goals.
    It is a monopoly system, meaning that a market will not operate effectively and people are exposed to high costs, through fares and subsidies.

  • . The reason Railtrack was taken back into public ownership was the private sector were not up to the task and there were some very serious accidents. But let’s be honest this also true of energy suppliers and the water companies both of which are needless complications reliant infrastructure that only existed because governments paid for it..
    I’d re nationalise the lot because in the case of rail they all run on the same tracks which are publicly owned or there’s no real competitive force involved. You can’t for instance swap your water supplier. Price fixing appears to have replaced competition in the case of energy and none of the companies are really investing in future.

  • Alex Macfie 13th Nov '12 - 8:03pm

    What is most shocking about the current private rail system is how much control civil servants have over the running of the railways, even specifying the number of cars that should form a passenger train service. Interference by mandarins from Whitehall has led to the discontinuing of some successful experimental train services, such as the increased service (from 2 to 5 trains a day) that ran for a few years between Swindon and Westbury via Melksham. There is now a proposal for their reinstatement, but it would need permission from the Department for Transport for that to happen. Let us be in no doubt (and LeekLiberal especially take note: you put forward a false dichotomy): the railway services in Great Britain are micromanaged by civil servants to a much greater extent than they ever were under British Rail.
    I think the railways should be run in a similar fashion to British Rail as it was in the 1980s and 1990s until privatisation: state-owned but run at arm’s length from government, with decisions on what services to run etc taken locally and regionally by railway managers, and with the organisation being allowed to reinvest its profits. BR was no longer a monolith at the time of privatisation: it had already been sectorised, and the original franchises were based on the BR sectors of the time. Some BR sectors (the very ones that seem to need massive subsidy today) were actually making a profit.
    On competition, as suggested by Joe Bourke, I’m rather sceptical. It might work for long-distance services, but even there, the benefits of ticket integration outweigh those of direct competition. The idea of having competing metro or commuter services is particularly absurd. As a commuter and travelcard-season ticket holder, I would not appreciate the benefits of “competition” if what it meant was that in the morning for my journey to work I could not use the train that has just arrived on the platform because it was run by the wrong company, and the next train for which my season ticket was valid would arrive in 15 minutes.

  • Alex,

    the Tokyo subway sysyem is a semi-privatised system. Competition is not principally on the basis of fares but rather on convenience and route networks. There are industry-wide revenue sharing agreements so that journeys can be taken on a single ticket throughout the network.

    The Japanese PASMO card system provides for one unified stored fare system for most of the Tokyo transit system, including the overground Japan Railway sysytem. The fare charged by the stored fare system is the same as for the users of paper tickets.

    There are two primary subway operators in Tokyo:
    Tokyo Metro,privatized in 2004 and presently operating 168 stations and nine lines. The minimum price for one ride is approx £1.30.
    Toei Subway, an arm of the Tokyo Metropolitan Government, operates 106 stations in four lines. The minimum price for one ride is approx £1.40.

  • I find it a little disappointing that this article seems not to build on the recent discussions on the same topic – see:
    http://www.libdemvoice.org/opinion-how-contracting-fiascos-such-as-west-coast-threaten-localisation-dreams-30630.html
    http://www.libdemvoice.org/norman-baker-writes-rail-fares-30649.html

    Yes, a national 21st century integrated mass transportation system that we as a nation can be proud of cannot be provided by the market alone, because markets are very poor at strategic thinking and investment. However, that doesn’t mean that the competitive market can’t be used to deliver against the strategic vision. Milton Keynes is a success story where the strategic vision was funded and driven by government, but the private sector was engaged to deliver.

    I see a lot of merit in Joe Burke’s suggestions (partially because of discussions in previous postings), which basically formalises what we have now but modifies the funding/subsidy model – something that would be relatively easy to get through parliament before 2015…
    I also wonder if perhaps the overall management of the railways wouldn’t benefit from being extracted from the DoT into a statutory corporation ie. effectively put an operating company under the “National Rail” brand. With this new company being responsible for managing the various consortium members (ie. train operators, station operators, infrastructure maintainers, retail etc.) along with the management and development of the entire enterprise. This leaving the DoT free to think strategically about just what a national 21st century integrated mass transportation system should do and look like, without worrying about the day-to-day operations of the current systems.

    Alex, I think Joe was referring to the style of competition we see today between the East Coast line and the other operators, not a Tokyo style of service where each operator only issues tickets for their line (Aside: part of the art of navigating Shinjuko station is knowing which platform entrances and exits to use so as to avoid having to go through more barriers and hence incur more expense than is absolutely necessary.) – so far with National rail and TfL we have largely managed to avoid this.

    Glenn
    “I’d re nationalise the lot because in the case of rail they all run on the same tracks which are publicly owned or there’s no real competitive force involved.”
    So what does this mean for our road users (hauliers, bus operators etc), since the roads are publicly owned…

  • Joe, my experiences of the Tokyo subway predate your’s – obviously I need to find an excuse to visit and bring my knowledge up-to-date – although I suspect navigating Shinjuko probably still requires more skill than that required for any station in London.

  • Richard Dean 14th Nov '12 - 12:17am

    I see no reason why there cannot be meaningful competition on all railway routes.

  • Andrew Martin 14th Nov '12 - 1:16am

    YES

  • Roland,

    the ticketing system on the Tokyo subway is much improved from the nineties. Even with paper tickets you can purchase a special transfer ticket for single rides across Metro and Toei systems. It costs 70 yen less than the sum of the Metro fare and the Toei fare, calculated based on the shortest possible route between the origin and destination stations.

    I have on my bookshelf ‘Down the Tube’ by Christian Wolmar and his earlier book ‘Broken Rails’. They are a great account of how we got ourselves into such a mess.

    The penultimate paragraph in the later book concludes with remarks from Susan Kramer on the Public Pivate Partnership model developed for the railways and London underground:

    “Partnership? It is not a partnership. If it were a partnership, you would create a company to run the tube with both the private and public equally at risk. A partnership is two equals coming together and sharing, equally. This is not what has happened. How does the word partner come into this apart from the fact that it alliterates with public and private?

  • Obviously, the Tokyo metro system is superb and one of the major traumas of my move back to the UK last year. However, I don’t think that it is necessarily due to the competition between the two operators. I am sure that if there was just one, it would also work just fine (and perhaps even better).

    The most interesting thing is that the Tokyo area contains two metro companies, a publicly owned regional rail company (JR Rail) and numerous private rail operators. All of them use stored value cards which are compatible with each other (PASMO and the JR Suica). The ability to coordinate this kind of thing in Japan is amazing and if we could somehow learn the lessons, it would be a huge advantage.

    Coming back to the topic, I think we should all be able to agree that the current system is a total mess stemming from the misguided approach of separating track and trains so I think the suggestion of renationalising based on expiration of franchises is insufficiently radical. When a franchise expires, we should consider setting up a regional railway based on unification of track and train – ultimately moving towards a regional model which could be public or private or something in-between.

  • Alex Macfie 14th Nov '12 - 1:32pm

    Roland and Joe make some very sensible suggestions and comments. I particularly like the idea of taking management of the railways out of the hands of DafT; for me ownership of the railways is not the most important issue; what matters most is having decisions about railways made by railway people not civil servants.
    I see the point also about the ‘managed’ competition that can work and that we have on some routes, particularly between franchised and open-access operators. [But we must ensure that they play nicely with each other: Virgin Trains killed off the open-access Wrexham & Shropshire Railway through the “moderation of competition” rule that it had imposed on the West Coast Main Line, preventing W&S from carrying local passengers in the West Midlands.]

    Some examples of how not to do things comes from EU cross-border rail routes, where there is no common ticketing structure. There used to be one: at one time one could buy a ticket from any local railway station to anywhere else in Europe, valid on any train and ferry by any reasonable route. Maybe this is still possible on some European rail routes, but this system is certainly dead as far as the UK is concerned as some train operators do their own thing as far as ticketing is concerned. Eurostar in particular operates a pure airline-style ticketing model, where a ticket for travel is intrinsically tied to a particular scheduled service. This makes it difficult to integrate with other rail services, where you simply buy a ticket from A to B and travel on any trains suitable for that journey; so such through tickets as are available from UK to mainland Europe do not have the same degree of integration and flexibility as the aforementioned British Rail International / Sealink tickets.
    In one of the earlier articles that Roland linked to (http://www.libdemvoice.org/opinion-how-contracting-fiascos-such-as-west-coast-threaten-localisation-dreams-30630.html#comment-223847), I also provide an example (Brussels to Cologne) of a route where there are 2 or more operators with little or no fare integration, and the consequences for trying to book a rail journey involving that route.

  • Old Codger Chris 14th Nov '12 - 1:36pm

    I entirely agree with those who advocate re-nationalisation of the railways and other public utilities where no true competition can exist due to the nature of the product.

    Government should indeed be at arms-length, concerning itself with strategy and not micro-managing. Investment could be obtained from the market by issuing bonds – no need to pay high interest since the investment would effectively be guaranteed by HMG.

  • I think Dave’s advocated approach in the article would be a sensible one – “bit part renationalisation, the lessons learned from the first franchise reclaimed can be applied to later ones, which is the sort of empirical approach that sets Liberals apart from the two ideological parties.”

    This would provide for a two-tier combination of regional public and private railways. We know that track maintenance and operation of rolling stock are best unified under single management. Railway land can remain in public ownership and be leased to private companies but track,and signals maintenance needs to be undertaken by the rail operating business.

    Bond Issues for the funding of investment and infrastructure development on publicly owned railway land can reasonably be guaranteed by government to ensure that the cost of capital is comparable with government issued debt. In the event of failure of a private railway company that resulted in a calling in of government guarantees, the government would always be in a position to step-in and directly operate a struggling railway business, as has been done with the East Coast Mainline.

  • When it comes to ownership models, I don’t understand why debate is automatically reduced to the two polar opposites of privatisation and nationalisation. The railway network is strategically vital, it’s too important to impose or derive any ideological lessons.

  • david thorpe 14th Nov '12 - 3:47pm

    @ richard dean-gihseries are not a social good-there are quotas to stop people doing too much of it!-holidays are not a social good-

    water supply is a social good-and I believe the central mains should be owned by the state-same with the electrivity grid-wtiht eh utility companies paying to access it-state as wholesaler-private compnaies as retailers….
    @ cp-those two lines sum up ,my arguments exactly///
    @ leek liberal-thsoe civil servants wouldnt be let near it-dedicated transport people wotrking for the state would-and those civil servants were following guidelines laid down by theresa villiers when in oppositiona dnt hen government
    @ richard dean-because the trains would crash into each other -f running at the same time on the same track-if not running at the same time on the same track then its not compettion its micr monolpolies…

  • Liberal Eye 14th Nov '12 - 4:49pm

    “The mantra of the arch-privateer is that greater competition delivers greater outcomes for society as whole …”

    That’s a good brief statement of the neoliberal view which is, of course, wrong. Competition ALWAYS costs something – often a lot – for instance, maintaining several organisations rather than one, designing different models and so on. For railways it also means loss of network benefits (easier through ticketing for instance) and conducting relations between the various parts largely through lawyers rather than between divisisonal managers. Bob Crow of the RMT recently claimed that Network Rail employs 300 lawyers to argue with another 300 employed by the operating companies. If broadly correct – and I see no reason why it shouldn’t be – that really is a scandal.

    There is a very simple test for for whether competition in any particular context is a good plan or not. Will it deliver greater savings than the costs it adds? Very often the answeris emphatically NO.

  • Liberal Eye 14th Nov '12 - 5:27pm

    I emphatically agree with those arguing that the railways should be state-owned but run at arm’s length from government. Allowing civil servants to meddle and micromanage is a receipe for disaster. A far better plan would be for professional railmen to run the railways, always competing against their own past performance to improve service and lower costs. The DoT should be involved only as representative of the public in agreeing strategic objectives and broad funding levels.

    I should say I once worked for a highly successful company that was taken over by a much larger one in a different business whose staff at every level liked to meddle with little or no knowledge creating an explosion of corporate red tape and committees which drove our business into catastrophic losses. It was spookily like what the government does – and not just in railways.

    Fortunately, that story had a happy ending. The meddlers were defeated and within three years we were coining it. That could happen with the railways.

  • I don’t think competition is at the heart of the issue. Rather simpler, more robust and stable structures with the objective of ensuring the unhindered continuity and continual improvement of the rail network at reasonably priced fares.

    A good argument can be made for semi-private or automonous state operation of railways, if a common sense approach (not franchising) is adopted. Solutions such as creating simple management contracts with no revenue risk, as with London Overground or Merseyrail, or as Dave Thorpe suggests, simply allowing Directly Operated Railways to gradually take over franchises would seem far preferable to the creation of yet another new railways agency, taking over where the Strategic Rail Authority left off when it was abolished in 2006.

    Whatever stucture we eventually alight upon, I would advocate withdrawal of operating subsidies contiguous with the intoduction of tax relief on public transport commuting costs and unified management of track maintenance and rolling stock.

  • Roland,
    re “where dose this leave roads”. Roads are not restricted to one set of tracks and can accommodate more than one vehicle run by one company at . a time. They are more like pavements. anyone can use them to go anywhere. They are also paid for by a direct tax and haulage firms are not subsidised.

  • Predominantly agree with the gist of the piece. However,

    European competition law would mean that a way would need to be found to put out to tender those lines/sectors/areas requiring subsidy – which was much of the old Regional Railways but not Intercity or Network South East. I’m sure a way could be found for these to be designed to be most attractive to a state owned provider, but its not as simple as letting the franchises end

    Most, perhaps all if none of the PTEs have held onto theirs, rolling stock is in private hands and would need to be leased at significant cost regardless of who was running the railways. The leasing costs along with the armies of lawyers and PR people and so forth that we didn’t have in BR days accounts for much of the gap in subsidy profile between then and now

    Regardless of model, less influence for DfT is a necessity for a sensible running of the system – as others have said it is surely a nonsense that a civil servant has more influence over day to day railway decisisions today than ever with BR.

  • Alex Macfie 15th Nov '12 - 9:12am

    “…navigating Shinjuko probably still requires more skill than that required for any station in London” except maybe Wimbledon? There are 4 different types of Oyster reader so if you are using Oyster and changing there you need to make sure you touch on the correct one!

  • “except maybe Wimbledon? There are 4 different types of Oyster reader”
    I think Wimbledon doesn’t match the complexity of Shinjuko (see http://www.jreast.co.jp/e/stations/e866.html )
    However, Shinjuko (back in the mid-90’s) didn’t have the issues associated with barrier-less Oyster touch-in and out that Wimbledon certainly suffers from and which the webpage http://www.oyster-rail.org.uk/wimbledon/ explains all!

  • I agree that we should at least partly re-nationalise the railways on a regional and arms length basis. As regards E.U. competition laws, I am sure that there are ways around this. Dont the French Government have a majority stake in their Railways (as well as E.D.F. Energy)?

  • This is a terrible idea. Are we really saying, following the West Coast Mainline fiasco, that we want to give these people control over the whole of our railways?

  • I agree with renationalisation 100%. unlike the naysayers on here who either a) don’t need to use the train or b) are wealthy enough not to worry about exorbitant fares, I care very much for the rail infrastructure and I believe it needs to be run as a viable alternative to the car. at present, I can drive a particular journey for 25 quid’s worth of diesel in the car. to use the train would be 97 quid. not good enough, I’m old enough to remember BR, and also how fares were never so stupidly expensive.

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