Why nationalisation won't fix the railways

Comrade Corbyn makes gradual re-nationalisation official Labour policy, but it's not a fix-all solution.

by Adam Gale
Last Updated: 22 Jan 2016

The 1970s are clearly underrated. So what if there was bland food, an unhealthy addiction to brown flares and the odd day lost to strikes? There was Bowie on the radio, Fawlty Towers on the TV and the mighty hand of the state gently guiding British industry. Motivated perhaps by nostalgia for these good old days, Labour leader (we’re still getting used to that) Jeremy Corbyn has outlined what will be his first official policy – the renationalisation of the railways.

Speaking to the Independent, Corbyn said that if he becomes PM (current odds 7-1, believe it or not), the state would assume control of private rail franchises as they expire, meaning a third of the network would be in public hands by 2025.

‘We know there is overwhelming support from the British people for a People’s Railway, better and more efficient services, proper integration and fairer fares. On this issue, it won’t work to have a nearly-but-not-quite position. Labour will commit to a clear plan for a fully integrated railway in public ownership,’ Corbyn said, ahead of the Labour conference in Brighton next week.

Overwhelming might seem a strong word, but a YouGov poll from 2013 indeed found 60% in favour to only 20% against. It comes at an interesting time, as HS1 boss Nicola Shaw, who was drafted over the summer to get to the bottom of Network Rail’s failure to meet its targets, yesterday spoke of the possibility of privatising the infrastructure company – a neat sign of the death of the ailing Blair-era consensus in British politics.

Does it really matter?

Everyone and their dog have debated the pros and cons of nationalisation (see MT’s most recent exploration here). The economic argument in favour is, broadly, that diverting profits from the pockets of shareholders back into the business and eliminating artificial competition in what’s otherwise a natural monopoly will lead to greater efficiency, reduced fares and more investment.

The argument against, of course, is that without a profit motive to keep costs down and the discipline of the market to reign in those lacklustre bureaucrats, investment will fall, fares will rise, and the system will become less efficient. Oh for some common ground...

When it comes to Corbyn’s proposal, though, the debate is largely moot. The rail system as it is now is more or less nationalised anyway. Fares and ticketing are tightly controlled by regulation, the infrastructure is already owned by the taxpayer through Network Rail and the services are subsidised to the tune of about £4bn a year.

Private operators are thus more like contractors than companies operating in a free market. If they were taken out of the equation, it would make little difference to fares or service (they already tend to charge the maximum they’re allowed and there’s negligible competition with other lines to incentivise customer service or innovation), though it could lead to lower efficiency without the shareholder profit motive. Either way, the difference wouldn’t be huge.

The problem is not really with ownership models at all, but with the fact that Britain’s railway system is very old, stretched to capacity and still suffering from decades of underinvestment. As a result, it wouldn’t be a very viable proposition if left entirely to the free market (hence the subsidy). Indeed, as railway networks are subsidised worldwide, there's an argument that trains are inherently unprofitable.

Taking the state out of the equation would almost certainly lead to rising prices, which may or may not result in more investment by genuinely private operators (businesses only invest if the expected rewards outweigh the risks, but in a largely captive, undersupplied market what’s the point?).

The result would be fewer people using the trains and more people using the increasingly clogged roads, meaning more time and money lost to commuting and more pollution, the avoidance of which is exactly why the state is involved in the railways in the first place.  

Cheap(ish) fares and sustained investment in the railways is a combination that can only really be achieved through state intervention, either through full nationalisation or some form of subsidised or hybrid model as exists now. For that to happen though, there needs to be political will to spend. Say what you want about Corbyn, but that’s something he has in spades.

'They are shit, awful.' - Read MT’s in-depth interview with Sir Peter Hendy, then boss of TfL and now chairman of Network Rail, talk about suburban rail services.

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