Since British Rail was privatised in 1993, rail services in the UK have been provided by private companies. Passenger services are franchised, for a specified period, to train operating companies. The award of the franchise is determined by the Department for Transport, which assesses the bids on a number of criteria, including the projected public subsidy and the amount of money the franchise is expected to return to the government. There are currently 16 franchises in the UK, all run by private firms except for East Coast, which was taken into public ownership after National Express walked out on their contract in 2009. Network Rail, a not-for-dividend company set up by the government in 2002, owns and operates most of the rail infrastructure in England, Wales and Scotland.
PRIVATISATION HAS FAILED
Rail privatisation was sold to the public in the 1990s with the promise of a better, cheaper railway that would require less public subsidy. Private firms would bring capital and innovation to the railways. None of these promised benefits have materialised. According to the Rebuilding Rail Report, the cost of running the railways has more than doubled in real terms since privatisation, from £2.4 billion during the five year period 1990-95 to around £5.4 billion per year during 2005–10. We could save £1.2 billion a year by bringing the railways into public ownership, enough to fund an 18% cut in rail fares.
Since the cost of running the railways cannot be met by passenger fares alone, the government pays billions of pounds in subsidy to the train operating companies. However, much of this public subsidy doesn’t even reach the railways, but goes straight to shareholders. For example, between 1997 and 2012 on the West Coast Mainline, Virgin Trains paid out a total of £500 million in dividends, having received a direct subsidy of £2.5 billion.
Since the train operating companies are private firms, they have a legal duty to maximise their profits for shareholders, rather than put passengers first. The five largest private train companies received almost £3 billion in taxpayer support between 2007 and 2011. This allowed them to make operating profits of £504 million, over 90% of which was paid out in dividends to shareholders.
With increased corporate profit has come higher fares for passengers. Since privatisation, the average price of a train journey has increased by 22% in real terms. The price of season tickets on some commuter routes is regulated to prevent large above-inflation rises, so this headline figure disguises the fact that walk-on tickets on some routes have been hiked by 245%! This has left Britain with rail fares that are nearly twice as expensive as France, Germany, Italy and Spain.
The sell off of our railways has also failed to deliver increased investment in rail infrastructure. Lack of private investment means the average age of trains is higher than it was in 1996, and what investment there is usually underwritten by the government, as was the case with the electrification of the West Coast Mainline. And whilst there has been a 60 per cent increase in rail passengers since 1994/95, there has only been a 3 per cent increase in new carriages, causing in serious overcrowding on many routes.
PUBLIC OWNERSHIP IS WORKING
Since 2009, the East Coast Mainline has been run by Directly Operated Railways, a publicly owned rail company set up after National Express walked out on their franchise contract. East Coast has been highly successful, and is working better for passengers and for taxpayers (read more). It boasts a 91% customer satisfaction rate according to the National Rail Passenger Survey. East Coast also requires less public subsidy than nearly all of the privately-run lines and is projected to return nearly £1 billion to the government, money that can be invested back into the railways. It is also the most efficient franchise in the UK, according to the Office of Rail Regulation.
The success of East Coast is a clear indication of what the railways would look like if they were run for people, not for profit. Putting the public back in control of our railways need not cost a penny - each line could be brought into public ownership as the private sector franchise expires.
France has a largely publicly owned rail system, and provides fares that are half as expensive as those in the UK with the same level of government subsidy.
According to a recent YouGov poll, 66% of the public support bringing the railways into public ownership. Which? says that only three in ten people trust the rail industry to act in their best interests.