Wednesday, 2 June 2010

It is time to consider bringing the railways back into public hands

In proposing this, I understand that it is unlikely ever to happen. For myriad reasons, but most prominently neo-liberal ideology and lack of government money, the present privatised state of the UK’s rail industry is here to stay.

Yet simply because something is unlikely does not mean that one should not air it. Nor does it mean that it cannot happen. Only a few weeks ago, how likely were we to witness Conservative and Liberal Democrat parliamentarians hailing each other as ‘honourable friends’ on the government benches?

When Sir John Major’s Conservative government introduced the Railways Act (1993), which broke up the creakingly ancient British Rail into scores of miniature tapas companies, Labour, who pledged to re-nationalise the railways if re-elected, vigorously opposed it. Yet then along came Tony Blair and the party’s Clause VI moment and by 1997 any appetite to reverse the Conservatives’ privatisation programme had waned. Although grumbles bubbled below the surface, Labour went on to complete the privatisation process. Various ups-and-downs later, the coming and going of Railtrack and here we are in what can only be described as an enormous, unwieldy, inefficient mess.

The rationale for privatisation was that the competitive pressures of the marketplace and shareholders would drive down costs for consumers and instil much-needed efficiency and management into public services. This has worked, for the most part, in utilities like energy and telecommunications, or public transport like airlines, where properly competitive marketplaces have developed and thrived. It has not worked for the railways because there is no competition.

Yes, there is proxy-competition in terms of national statistics for punctuality and customer satisfaction. One could almost stretch to the notion that trains are competing with personal car use, aviation and buses. To an extent, this is true: the M4 corridor has a reasonably healthy rivalry between the coach companies and First Great Western’s services from London Paddington. However, for the most part customers have no alternative to train travel. When I was commuting between Richmond and Holborn, my only sensible choice every morning and evening was to take the South West Trains service to London Waterloo. Taking a bus would have been a nutty idea. Fine, sometimes I took the tube if I fancied a seat (or did not want to spend my journey with my face nuzzled into Vince Cable’s armpit) and was not in a rush. Yet what choice had my fellow commuters, those who hopped on nearer Reading, or in Twickenham, or in Mortlake?

So most train companies have a captive market. What is more, they present this captive market with a bewilderingly complicated menu of ticket prices. This, ostensibly, is all in the name of providing customers with choice and flexibility. In reality, it is the company carving up its market into dozens of different segments based on willingness-to-pay. As a bona fide former pricing consultant, I am well versed in the dynamic pricing models used by train companies that alter fares by time and customer segment. Put simply, as in any rational market, demand dictates the price. Therefore, at times of high demand, prices are higher – but this is only stinging the already captive commuter market, which must take the train before nine o’ clock in order to get to their desk on time. Another facet of this dynamic pricing is the yield management technique of varying your price not only by the time of travel but also by the time of booking (or by whether you book at all). If you have the spare time and foresight to arrange your travel several months in advance and know exactly what train you wish to catch, then you can get some quite good deals. For most people, though, they are stuck with turning up at the station and remortgaging the house only to obtain a standard open return to Manchester.

Not only are we being exploited and charged steep and incomprehensible fares to use the railways. As taxpayers, we continue to contribute billions of pounds a year in public subsidies to keep this apparently thriving marketplace alive. The Guardian reported on Monday that big cuts in these subsidies are being planned by new Transport Secretary, Philip Hammond. The Department for Transport has to trim £683 million from its £15.9 billion annual budget and Network Rail, which owns the tracks and stations, must cut £100 million. Furthermore, the annual expenditure of £5 billion on the rail industry will have to be reduced even further. Yes, that is correct: £5 billion. We were barely spending £1 billion when we owned the whole thing yet now we are propping up the industry with five times that amount. Without government support, it would collapse.

Last year, even the country’s highest-earning rail service – the East Coast Main Line – had to be nationalised when National Express defaulted on its operating franchise payments. This is meant to be a temporary act whilst a new buyer is found but why not keep the service in public hands? Use the country’s busiest inter-city rail service as a test case for how an efficient, well-run, affordable public train company can operate. If it is a success, proceed with the re-nationalisation of all rail services in the UK. After all, under the current terms of franchise agreements, train companies are not awarded deals long enough to invest properly (a complaint regularly made by Sir Richard Branson). In addition, if companies like National Express can just default on their obligations and hand the keys back to the government, where is that white-hot pressure of competition and potential collapse that drives private sector companies?

The UK government would have the chance to create a rail network that we can be proud of once again. We are the nation of George Stephenson and the Stockton and Darlington Railway. Let us revive this national spirit for ingenuity and engineering! Politicians talk endlessly about rebalancing our economy so to make us less reliant on financial services and other service industries. A new age of rail travel can provide a boost in the regeneration of British manufacturing. Greener technologies, better and more efficient trains and tracks. Plans for a high-speed rail line. Crossrail. This can all fit together as part of the critical task to de-carbonise our economy. Get rail travel right, particularly fare levels, and the railways can replace short-haul flights in the UK. It takes less than 5 hours to get the train from Edinburgh to London and vice-versa. Once you factor in the time taken to get to and from airports, flying does not improve on that duration by very much. The real sticking point is price, so trains need to become more affordable – if that requires a public subsidy to do so then it is a price worth paying.

I know that this is wishful thinking. I know that it is going to be the last thing on people’s minds whilst public funds are non-existent. However, I believe that most of the opposition to even considering the renationalisation of the railways (specifically in the Conservative Party) is based not on rational assumptions and concerns but on narrow ideology. Renationalisation does have its supporters, even amongst Tories. Even more people would concede that the privatisation was a botched effort (Chris Grayling said as much in 2006). Let’s have a proper debate about it. We don’t have all the answers right now but what I am certain of is that the current model does not work.

In any case, to borrow a phrase from a successfully privatised company, it’s good to talk.

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