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  1. Politics
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23 March 2023

Keir Starmer needs to privatise the railways

Nationalisation is popular, but the government basically runs the trains already and they are expensive and unreliable.

By Henry Oliver

After months of strife NHS workers agreed a pay deal with the government this week. But up and down the country the railways are still affected by strikes. As well as being expensive, with falling demand during the pandemic making the industry financially unstable, trains are now unreliable. So unreliable, in fact, that they are employed as a synonym for British decline. Want to understand how broken Britain is? Try catching a train.

The deep problem is widely thought to be privatisation, which is why more than two-thirds of the public want to renationalise the railways, including by some polls more than 60 per cent of Tory voters. And yet, after promising to do so when he ran for the Labour leadership, Keir Starmer has decided against renationalisation.

The reason for Starmer’s pragmatism is simple. He knows the government is fiscally constrained. Ideological arguments ignore that the government cannot borrow the money it needs to nationalise industry and that there is little headroom to increase taxes. Starmer also knows that the railways are only semi-privatised. You cannot nationalise something the government is already more-or-less running.

The public can be forgiven for their confusion on this subject – the railways are routinely described as privatised. But the tracks are all owned by Network Rail, a public body. This is often played down but it means the most important part of the service – having signals in working order, tracks that can accommodate the speed of trains, lines kept in good maintenance to ensure timely services – has nothing to do with the private sector. And while the companies that run services are privately owned, they are subject to strict franchises that tell them how many services they run, to what timetable, and at what cost. 

It’s not clear how much advocates of nationalisation should disagree with a system where the government owns the tracks and signalling, and sets the price and the timetable. The market red in tooth and claw this isn’t. If the railways were really privatised, they wouldn’t have cost the government over £150bn since the mid-1990s, as Department for Transport figures show.

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Starmer understands this. His new “pragmatic” approach to utilities is not to nationalise them but to regulate them better or differently, with the exception of the railways, “because so much of our rail is already in public ownership”. He believes this will be the situation for “some time to come”. But if he wants to make growth central to his agenda, Starmer ought to consider taking railways out of their current semi-privatised condition and introducing real competition to the tracks.  

[See also: The Policy Ask with Martin Tugwell: “Free public transport could deliver economic, environmental and social benefits”]

Privatisation advocates will tell you that passenger numbers rocketed after 1993. That’s true. Numbers recovered to their previous high and then continued to grow. Introducing private companies to the railways was a success. But in 2013, those heady days when we thought the Conservatives might actually do something, a report came out showing that subsidies had more than doubled, while fares were the highest in Europe. Semi-privatisation was a semi-success.

That 2013 report found that competition had led to higher productivity and lower costs in freight but monopoly franchising had the reverse effect in passenger trains. Between 2007 and 2012 on the East Coast Mainline the number of journeys at the stations that had competitive passenger services increased by 42 per cent, revenue increase by 57 per cent, and fares by 11 per cent. At the stations without competition journeys only increased by 27 per cent, revenue went up by 48 per cent, but prices were 17 per cent higher. Competition gave us more trains at lower prices. The majority of the network, though, has no competition.

Competition is the approach Europe is now taking. Under an open access policy in Italy – where more than one company can provide services on a route – the market grew by 120 per cent between the start of competition and the onset of the pandemic. The Stockholm-Gothenburg line was opened to competition in Sweden in 2015: prices dropped by 12.8 per cent by the following year. Sweden’s railway liberalisation has generally resulted in lower fares than neighbouring countries. The EU is now moving towards a more competitive regulatory system for railways. Competition is now coming to the Spanish high-speed market. 

In Britain, where a third of trains arrived late before the pandemic, we got the Williams-Shapps review, which acknowledged the problems and then concluded that the government ought to be more involved in an already complicated and inefficient system. The report followed the same misguided privatisation-nationalisation arguments that so often plague this topic. Rather than conclude that we should move to the competitive system like that of the East Coast, freight rail and several European countries, this report suggested yet another public body, Great British Railways, “which will own the infrastructure, receive the fare revenue, run and plan the network and set most fares and timetables”. Inevitably, Great British Railways will be accountable to ministers. The review uses the language of privatisation, but this is the same de facto semi-nationalised system everyone is so unhappy with right now.

Better transport links is one of the priority areas identified in a new study about how to improve Britain’s sluggish economic growth, which Starmer says is at the core of the Labour Party’s agenda. Creating a privatised railway system that allows for proper competition is the only way we are going to improve rail services.

This doesn’t have to mean deregulation. Look at airlines. Several providers use the same routes, all under strict and inflexible regulations. Trains should operate like this – companies bid to use the route and more than one provider can run on each line. If there’s no natural monopoly in the air, there isn’t one on the rails either. If we really want to move away from a car-first system and encourage more public transport, more and better transport links with competition between services is essential. 

If Starmer wants to be really pragmatic, and if he’s serious about growth, he’ll finish the job John Major started and privatise the railways properly. 

[See also: Why we need a train network like France’s]

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