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Public ownership: winning the argument

21 August 2013

Twenty years on from the start of privatisation, Britain’s rail network is at a critical turning point. Almost all major franchises will expire during the next Parliament, so whoever forms the next government will have the chance to shape the industry for decades to come.

The Conservatives are clear – they want more of the same, creating a cheaper railway by cutting frontline staff whilst ignoring the underlying inefficiencies of the system. Labour have committed to keeping East Coast in the public sector as a benchmark, but are still reviewing their overall plans for the shape of the industry. Meanwhile, the public are, and always have been supporters of public ownership. It is their voice – as passenger, taxpayers and voters – that we need to amplify in this debate to make it clear that the experiment of privatisation has failed and rail should be allowed to come back into public hands.

With all to play for, we need to be getting out there and making the case for public ownership more clearly than ever before. These are a few of the arguments.

Rail as a public service
Even the most ardent market fundamentalists in the current government accept that our railways provide an essential public function and cannot simply be allowed to go bust, through lack of profitability. This compromise, of supporting services which hugely benefit the national economy, but do not run at an immediate profit, results in the payment of subsidy with the aim of creating a fake ‘profit’.

Were nothing else changed in the fragmented system, just franchises progressively given over to the publicly- owned Directly Operated Railways, this would allow hundreds of millions to be retained in the system or sent back to wider public funds. By the end of this year, East Coast will have returned £800 million to the public purse since it came into public ownership in 2009. In a publicly-owned system, this revenue, combined with savings from greater integration, could bring down ticket prices by 18 per cent according to the Rebuilding Rail report.

‘Corporate Benefit Scroungers’
Many of the companies involved in the system – from TOCs to the ROSCOs who hire the vehicles – are attracted by the low level of risk, and highly dependable income on offer. Compared to almost all other areas of the economy, they can invest relatively little and know they can sit back and receive their regular payments from the government. Some companies have innovated more than others, but few have taken risks proportionate to the rewards they’ve paid out to shareholders – in the case of the West Coast main line, Virgin has extracted over £500 million from the route.

The most cautious view is that the public money going into the railways has increased from around £2.4 billion per year before privatisation (1990-95), to around £5.4 billion (2005-10, all at 2009/10 prices).

Rolling Stock Operating Companies (ROSCOs) have a guaranteed market, so can deliver a trickle of investment at a high price. So much so, that since 2006, the average age of rolling stock has increased year after year. Public financing of new rolling stock, whilst making the debt more visible, would bring to an end the removal of billions of pounds from the railways by the ROSCOs – a class of company which has no need to exist.

A structure which works for rail users, not shareholders
The recent report from CRESC, the Centre for Research on Socio Cultural Change at Manchester University, describes how large parts of the franchising system are run for the benefit of corporate bidders, not passengers, taxpayers or the national interest.

They see much of the activity around franchising – the only time when any real competition exists between TOCs – as them ‘gaming’ the system to extract maximum profit. Big payments back to government are deferred to the end of the contract, with TOCs confident they can just walk away (like National Express on the East Coast) if the burden becomes excessive.

Large parts of the system add cost not just due to the inefficiencies of fragmentation, but because they provide attractive points around which profit can be made.

Removing fragmentation and duplication, delivering integration
The Rebuilding Rail report calculates that on the most conservative basis, the cumulative added cost of privatisation is over £11 billion. Significant elements of this come from the duplication of structures across each TOC and the cost of interfaces between them.

More integrated public transport has been a long-discussed goal, but currently there is little incentive for operators to make any innovation unless it is immediately profitable. Public ownership would allow for more long-term thinking towards achieving integration between rail, buses, trams and cycling.

Democratic control
At present, despite the billions in public funds given to the industry, accountability is weak and control only through complex regulatory processes. Franchise holders can threaten legal action if they are challenged, whilst deals are kept secret from Parliament and the public for reasons of ‘commercial confidentiality’. Even the ‘almost-public’ Network Rail can set wildly excessive boardroom bonuses with near impunity. Public ownership would bring real accountability and control. Ministers would no longer have to shame chief executives into not accepting millions of public cash as bonuses – a genuinely democratic system could reward success whilst preventing abuse.

A voice for railway workers
No public service is run primarily for the benefit of its staff, but a publicly owned railway could give a much fairer hearing to those who actually run it, day in, day out. Hammering down on staff numbers, pay and pensions would no longer be the default option it is when profits are being squeezed. Ed Miliband has praised the inclusion of workers’ representatives on company boards – the case for the inclusion of employees at all levels of decision-making would be even stronger in a publicly-owned railway.

Rail for the benefit of all – people and planet
The rail network is a driver of economic growth and a way of delivering social goals whose impact is felt far beyond the railway. With public ownership would come a clearer understanding that the economic and social usefulness of a service was just as valid a reason for running it as whether it is ‘profitable’ in the most immediate of senses.

Fares set to encourage people to shift from their cars and planes, rather than to maximise profit could make a significant contribution to cutting carbon emissions.

We can have genuine pride in our railways, but if they genuinely were ours, under public ownership and control, their success could be so much greater. Let’s protect what we have in public ownership, and fight to extend it across tihe industry. 7

You can find the reports mentioned in this article at

Polling shows huge support for public ownership
Polls have consistently shown the public support public ownership. Regardless of which party they support, far more people back not-for-profit rail ownership than agree with continued private franchising. The latest poll, specifically on East Coast, shows an almost 3:1 ratio of backing for public ownership.


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