Thomas Laskowski

It was announced recently that the East Coast Mainline railway franchise – currently operated by Virgin Trains East Coast – may be returned to government hands after Virgin breached the terms of their £3.3 billion operating contract. The East Coast Mainline Franchise has been fraught with difficulty in recent years. From 2009 until 2015 the route was run by the government after two previous private operating companies failed to make a large enough profit to keep to their contractual requirements. During this period the franchise returned over £225 million to the treasury, before it was re-privatised in 2015. Now the government is reportedly considering paying a similar amount to Virgin East Coast – despite the firm returning large dividends to owner Richard Branson and other shareholders over the last three years. How has a profit-generating franchise gone so wrong? To understand what is happening with East Coast, it is first necessary to understand the structure of Britain’s privatised railway network.

The process of railway privatisation in the United Kingdom was started in 1993 by the government of John Major, continuing the policy of privatisation of nationalised industries which had been championed by Margaret Thatcher. Although the idea of privatising the railways had been considered under Thatcher, it had been rejected – along with the suggestion of privatising Royal Mail – by Thatcher herself as ‘a privatisation too far’. It is a common misconception that the private companies which operate Britain’s rail services own the trains that they run and the track and infrastructure over which their routes pass. In fact, this is far from the case. All of Britain’s railway infrastructure is owned and maintained by Network Rail, a publicly owned body which has, since its creation in 2004, racked up £34 billion in government debt. The trains themselves are owned by one of three of Rolling Stock Operating Companies (ROSCOs), and the vehicles are then leased from these to the Train Operating Companies which run the actual services for passengers. The Train Operating Companies compete for government-issued contracts to run various routes, and the whole system is designed, theoretically, to increase performance, investment, and customer satisfaction, while reducing the amount of government expenditure through railway subsidies. Noble aims to be sure, but to what extent have they been achieved?

Unfortunately, an exhaustive and definitive answer to this question would run into the hundreds of pages, and would most likely still be hotly contested by both politicians and rail industry professionals alike. In broad terms, passenger numbers have risen since privatisation, but it is unclear as to what extent this is a result of privatisation, and not simply the influence of other, external factors. What is clear is that the promises of cheaper journeys for passengers and lower government expenditure have not materialised: rail fares have consistently increased in real terms, and the percentage of rail costs covered by government subsidies has barely decreased at all: current rail subsidies amount to between £4 and £6 billion annually, nearly double the sum at the point of privatisation. This appears to me to be an extremely expensive way of saving money. As for the idea that privatisation would ‘remove the yoke of government control’, this claim now seems laughable. Bureaucrats at the Department for Transport now enjoy control over the minutiae of the railway network: government contracts specify everything from the timetable and stopping pattern of services to the exact dimensions of seats and the menus provided at buffet cars. The complexity of the system, involving hundreds of companies, contractors, sub-contractors and freelancers, with a dozen different regulatory and overseeing bodies has attracted criticism from many different sources. The great railway historian Simon Bradley summed up what he saw as the problems with privatisation, specifically the privatisation of maintenance and infrastructure, in this section of his great 600-page epic of social history, The Railway: Nation, Network and People:

The privatised system created, with its separation of operating companies, rolling stock companies, infrastructure and maintenance was characterised by displaced or uncertain responsibilities. Privatisation made no serious attempt to engage with the special character of the railway operation and engineering; instead, it drew on the one-size-fits-all ideology of the free-marketer, by which every exchange must be monetised. Co-operative relationships were thus replaced – deliberately and knowingly – with adversarial ones.

It’s damning stuff, and, digging deeper into the intricacies of the system, it’s hard not to become frustrated with what appears to be a complete lack of common sense. Many of the companies that operate Britain’s trains today are in fact branches of the state-owned railways of other European countries. Services out of Liverpool Street to East Anglia are operated by Abellio, the international arm of the Dutch state railway operator Nederlandse Spoorwegen. South Western Railway services are operated by MTR, the publicly-owned company that runs Hong Kong’s mass transit system. Services from Fenchurch Street are run by Trenitalia, suburban trains from King’s Cross and Victoria by SNCF. Even the Royal Train, that historic and distinctly British institution, is operated by Deutsche Bahn. In total, almost 75% of the UK railway network is run by foreign state-owned railways, all profiting from British passengers’ train fares, and from British taxpayer’s subsidies. The only meaningful investment in the railway network since privatisation has come from the government, and it has been miserly. While other European railway passengers have enjoyed new trains, electrification and the construction of new high-speed lines, the British passenger has endured rising fares, overcrowding, and ageing trains and infrastructure. And when the hard-working commuter opens his morning copy of the Metro on a delayed, crowded and non-air-conditioned train, and reads that the government is once more taking over after a private company failed to make a large enough profit from, he is right to think: why should the government give it back?