Re: British Rail post privatization-The "invisible" hand strikes again?
Author: Ed Workman
Date: 01-09-2019 - 07:33
Hey BOB2 you sent it twice
Hey BOB2 you sent it twice
I downloaded a short paper this am before I saw yours
Then I trashed the source
So as it is short I present it here
Hope you find it of interest
Progressive Economics Group (PEG)
Rail privatisation has failed to deliver better value services, capital investment, and
reductions in public subsidies. Despite this successive rail reforms have been unable
or unwilling to renationalise the railway network and address the underlying problem
of financing rail infrastructure even with broad public support for policy change.
Should the railway be renationalised? How should rail infrastructure be
Rail privatisation as a policy has failed on two levels. The first is commonly
acknowledged and centres on higher costs, fares, public subsidies and grants. The
second is less widely discussed and relates to the unwillingness of successive rail
reforms to correct these problems; and instead, to continue promoting privatisation as
a solution. Part of the explanation for the continuation of basic problems comes from
the belief that failure was due to poor implementation rather than privatisation per se.
The poor implementation includes excessive fragmentation associated with the
separation of infrastructure from operations; the rushed implementation of the
franchise system; and regulatory failure.
A more important explanation for the second failure is that privatisation itself is
highly political. The introduction of rail privatisation, and in particular the specific
mode of privatisation that reversed over 150 years of industry consolidation, was
driven by political ideology and sustained by vested economic interests. Successive
rail reforms were similarly motivated, thus continuing to promote a fragmented rail
system. These interests derive from train operating companies (TOCs), rolling stock
companies (ROSCOs), and thousands of railway maintenance and infrastructure
companies in the subcontracting chain that rely on and help justify the existing
privatised rail structure for the purposes of value extraction.
Underlying failures of rail privatisation and rail reforms is the unwillingness of
governments to prioritise rail and public transport in order to fund capital investment.
The result has been a series of policy obfuscations to keep the cost of railway
infrastructure off the governmentís balance sheet, initially through subsidies to TOCs
to pay for track access charges, and subsequently through increased borrowing by
Network Rail to compensate for reduced track access charges. This raised Network
Railís net debt from £6.3b when it replaced Railtrack in 2002 to £46.3b (2016) with
£1.7b in interest payments.
The case for rail renationalisation centres on savings from reintegration; improved
monitoring of performance; and financing rail infrastructure.
Savings from reintegration
The higher costs of privatised rail are associated with the forced introduction of
competition that increased interface costs and leakages due to industry fragmentation,
and profit extraction by the private sector. Savings from costs associated with
leakages, interfaces, duplication (in terms of administration, management, marketing,
and franchise bidding), and dividend payments have been estimated by the TUC at
£80m/year (2015/16) increasing to £600m/year (2019/20).
Regulation is central to ensure efficiency gains are made and performance and
investment targets met, particularly as operating subsidies and capital grants weaken
private incentives. However, the limitations of monitoring associated with asymmetric
information are compounded by a highly fragmented rail network that has created an
unnecessarily and overly complex regulatory environment. Renationalisation in this
context offers the benefits of simpler and better regulation through integration and
easier access to (public) information necessary for effective monitoring.
Financing rail infrastructure
A publicly owned railway will not be sustainable in the context of decades of public
underinvestment and capital financing based on narrow accounting principals and
conventional economic costing. Railway systems are unable to pay for themselves
given the very large disparities between infrastructure costs and socially acceptable
rail fares. The UK already has the highest fares in Europe. Railway financing will
need to be based on the wider benefits of rail linked to reducing road congestion,
pollution and carbon emissions, while improving social access and mobility. These
society-wide benefits should override narrow business models centred on simple cost
recovery and profitability if rail infrastructure is to be properly financed.
Rail renationalisation will work if it addresses both issues of industry fragmentation
and the funding of rail infrastructure. The underlying principles behind rail
renationalisation should thus centre on network reintegration and the public financing
of infrastructure based on the society-wide benefits of rail travel. Three key aspects of
rail renationalisation may be identified.
A. Renationalise TOCs and ROSCOs
Central to renationalisation will be the elimination of train operating franchises,
ROSCOs, and the subcontracting chain by
1) not renewing TOC franchises when these expire,
2) replacing private ROSCOs with a public ROSCO or integrating this function as
part of Network Rail;
3) bringing all engineering and maintenance work in-house for Network Rail (and the
new public ROSCO); and
4) vertically integrating Network Railís supply chain.
B. Rail infrastructure financing
Proper and transparent public funding of capital expenditure must be based on:
1) linking funding for capital investment to wider society-wide benefits related to
lowering road congestion, pollution and carbon emissions, and securing economic
2) separating operational costs from capital costs, with the former subject to strict
monitoring for performance and efficiency gains, and the latter taking into account
positive externalities; and
3) publicly funding capital investment and keeping this on the government balance
sheet rather than through borrowings in order to normalise capital expenditure and to
make this transparent.
C. Institutional coordination and alignment
The wider social and environmental benefits of the railway will depend on
1) developing an integrated transport policy with rail and environmental sustainability
at its core;
2) improving departmental coordination and aligning government priorities through
joined up thinking that cuts across government ministries, departments and agencies
in order to implement an integrated transport policy;
3) developing commercial opportunities from railway assets (stations, property, land)
in order to help finance capital expenditure.
Jeff Tan is Associate Professor at the Aga Khan University