Rail nationalisation call won’t help infrastructure

A train run by state-owned East Coast (Flickr CC pic: Michael Day)


British media were full of stories last week that Ed Miliband, who might well be prime minister next year, is being urged to renationalise train companies. Too much money, the argument goes, is being funnelled into the pockets of private companies from excessively high ticket fares and from taxpayer subsidy. Shouldn’t that money be reinvested in the physical rail network (which is owned and run by Network Rail, not by train companies) instead?

It’s true that the railways cost billions a year in subsidy, and that ticket fares continue to outpace inflation. There are several arguments in favour of what is being proposed. But investment in infrastructure is not one of them.

According to The Observer, Miliband is being called on by many in the Labour Party, of which he is leader, to bring franchises, which are contracts to operate passenger trains on a given part of the rail network, under state control, as and when they come up for re-tendering.

This would ensure that any profit made by the train operating company would revert to the state, not the private sector. But the premiums paid to government by train operating companies (TOCs) don’t get reinvested in the rail network, or in better trains. They just go into the Treasury pot. Yes, the same pot that helps pay for the rail network, through subsidies to Network Rail. But the revenue is not ring-fenced for that purpose.

Besides, the current government has a clear policy – which the Labour plan does not propose reversing – of progressively reducing the share of Network Rail revenue that comes from the taxpayer, and increasing the share that comes from TOCs. The TOCs (stay with me, it’s simple really) pay Network Rail to use their tracks, and the more Network Rail charges them, the higher they hike their ticket prices to pay the charges the more this is offset by a cut in the premium they pay back to the government or the ‘network grant’ paid via them to Network Rail by the Department for Transport. So it’s unlikely that the increased revenue the Treasury would get would find its way back to the railways.

Perhaps a publicly owned TOC could do what TOCs do very little of and invest in its network – for example improving facilities at stations? East Coast, which runs trains on the East Coast main line, is publicly owned, but has done next to nothing of this; in fact its franchise deal calls for even less investment than those of its peers. (Contrary to what East Coast’s website implies, it hasn’t paid for the new Wakefield Westgate station; Network Rail has.)

An alternative or complement to the Labour plan might be to overhaul or scrap the franchise system, which has proved open to abuse by TOCs in the past. However, that is outside the realm of infrastructure, and therefore of this blog…


About René Lavanchy

You can contact me at rene dot lavanchy at googlemail dot com.
This entry was posted in Rail infrastructure, UK policy. Bookmark the permalink.

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