Railways, renationalisation and political risk

Recent announcements that rail fares will rise by up to 11% have produced a significant political reaction.  Formerly supine Tory MPs for commuting constituencies have been making subversive noises; on the left, the call for renationalisation has been strong.

It’s difficult to argue with renationalisation in principle.  Privatisation has resulted in a hugely inefficient structure based on a vastly complex system of contractual arrangements, from which private companies cream off profit while fares and subsidies soar and service standards fall.  Significant investment – which the privatisers claimed would come from the entrepreneurial spirit of the private sector – comes from the public purse, with the benefits accruing to private shareholders.  Managing the contractual interfaces between providers becomes a vast, expensive task overseen by a bureaucracy of regulators.  The whole system is a mess, and it is clear that it is the structure designed to allow the private sector to run rail for profit that has done this.

Moreover, Network Rail is close to being a nationalised industry; it is a not-for-profit company without shareholders entirely dependent on Government-backed debt and Government subsidy.

So in principle the case for nationalisation is obvious.  But the practicalities of nationalisation are a nightmare for a number of reasons.   For a start, the law would have to be substantially rewritten; even if you allow franchises to lapse and Government decides not to let them again, the basic structure that creates the lunatic inefficiency of the current system would still be in place and would need to be repealed and replaced. It’s difficult to see anything other than a large and complex piece of legislation that would occupy a lot of Parliamentary time and effort.

And there would be huge financial implications.  Most franchises are being let for 15 years, and decisions would need to be taken on whether to allow those franchises to continue – with no possibility of renewal, thus incentivising operators to run down services and grab as much profit as they can, while perpetuating the costly inefficiencies of the current structure; or to buy them out at huge costs.  There is the problem of what to do with the rolling stock companies.  And of course all existing contracts are likely to have change-of-law clauses under which the nationalisation legislation would probably trigger large payments.  All of this implies huge costs.

None of which is to say that renationalisation could not or should not be done; simply that it would be a hugely complex and expensive undertaking, which would probably involve an incoming Chancellor being prepared to sink huge amounts of up-front funding to secure benefits that might not be apparent for years, with no PFI to squirrel the capital costs off the books (and if that incoming Chancellor were for example Ed Balls with a commitment not to reverse Tory cuts, it is difficult to see these decisions being taken).  It would be a massive and risky political investment  which would need a clear political commitment and a clear mandate.

One important point of this is how it relates to other privatisations.  The railways are important, but they are used by a minority of people – millions never go near a train – and  still represent a relatively small part of overall public expenditure.

Consider then the remnants of the NHS, farmed out by Condem ideologues to a range of private service providers, the legislative framework for state provision dismantled, and facing all the same issues of bloated costs and poor integration of the railways, but providing services that everyone uses, with vastly greater overall costs (and potential for profits), and for the first time subject to the constraint of EU procurement law.  How do you get that particular genie back into the bottle?  The costs and risks would be enormous.

Back in the 1970’s, when Margaret Thatcher and Keith Joseph were reclaiming the Tory Party for neoliberalism, there was a phrase that one used to hear all the time – “the ratchet effect of socialism”.  What this meant was that once the state expanded into an area of activity it was impossible to roll it back, because of the electoral popularity of state provision.  The genius of the neoliberals in the Westminster political mainstream has been to make state provision unpopular and to ensure that the media are indifferent – witness the BBC’s complete failure to report the full implications of the recent NHS reforms.  We now have a different effect – whereby even within the lifetime of a single Parliament, privatisation can become so structurally embedded that it becomes politically and economically hugely ambitious to reverse it.

And that assumes that opposition parties have that ambition.  Labour, as I’ve argued here many times before, is part of that neoliberal consensus; it showed itself quite content in Government to outsource and in opposition its leaders have simply not grasped the need for an alternative to a neoliberal narrative.  Ed Balls has said in terms that cuts will not be reversed and there is no ambition to look beyond austerity economics – even when there is ample evidence that it would be hugely popular to do so.  The spirit that established the NHS in the face of a far weaker economic position than we face today is singularly lacking in Labour’s leadership.

Renationalisation of any privatised service is difficult, costly, risky and in those circumstances requires a clear political commitment and mandate.  Where will that come from in Con Dem Britain?

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2 thoughts on “Railways, renationalisation and political risk

  1. Sad but true. Interesting that you say “decisions would need to be taken on whether to allow those franchises to continue – with no possibility of renewal, thus incentivising operators to run down services and grab as much profit as they can” in relation to re-nationalisation as if this doesn’t already happen. Virgin may be painting itself as the unfairly treated underdog in losing the West Coast Mainline franchise but they have withdrawn facilities and avoided investing in or maintaining their trains properly over the last few years as they approached the end of their franchise. Rail privatisation is a system designed to fail the public and simply enrich private companies at our expense.

  2. i would have thought that the place to start would be with the ROSCOs. They are almost a complete waste of space and money. Their profits are enormous for little risk. It makes sense to me for the rolling stock also to be owned by Network Rail as it appears that the recent purchases of new trains have been made by the government anyway(?)

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