When Owen Smith was asked at his Labour leadership launch about his stance on railways, he replied, “I would re-nationalise our railways tomorrow.” Needless to say, this went down well. In August last year, a YouGov poll found that 58% of the British public support renationalising the railways compared to just 17% who oppose it. The irony will not be lost on followers of the Labour party who may remember that renationalisation of the railways was Corbyn’s first official policy as Labour leader. Recently, Corbyn has thrust this issue back into the spotlight, jumping on the recent troubles of Southern Rail.
To set the scene, until 1994, the railway network in the UK was operated by the Government-controlled and owned British Rail. The Railways Act 1993 started the break-up of British Rail and the privatisation process concluded in 1997. The operation of passenger services is now contracted out under a system of franchising.
The question that I want to answer, therefore, is: would the railways really improve if they were renationalised?
Clearly, for some things like safety and fares, it’s hard to compare privatised rail with nationalised rail as it’s been nearly twenty years since the privatisation process concluded. However, where more appropriate, we can compare pre-privatisation trends with post-privatisation trends; and, where that is not so easy, we can compare our railways with two railway networks elsewhere in Europe known for their efficient and cheap trains: Germany and France.
Firstly, the main argument for privatisation of any commodity is to save the government money. However, UK railways are still subsidised by the UK government. In 2015, this subsidy was £4.5bn. Based on the subsidy given to British Rail in the mid-90s and the subsidies given to the nationalised railways in France and Germany (£13.2bn and £17bn respectively), we can estimate that a nationalised UK railway would cost the government between £9bn and £14bn. Even being generous and using the £9bn figure, the cost of renationalising the railways would be more than double what we might save by leaving the EU but remaining in the single market.
Some might argue this is a price worth paying for better-performing railways, but how much better would nationalised rail be?
Currently, the UK’s railways are the safest in Europe with only four deaths (excluding suicides) on UK railways in the last ten years. In fact, Imperial College London estimated that privatising the railways saved 150 lives in the first ten years of privatised rail.
The UK’s railways are also very punctual with around 92% of all trains reaching their destination “on-time” (less than five minutes late for a local train and less than fifteen minutes late for a long-distance train). To compare, the figure for France is 92% for local trains and 91% for long-distance trains. Trains in the UK are also the most frequent in Europe, and 20% more frequent than they were under British Rail.
There must be a disadvantage to the UK railways though, otherwise there would not be such a clamour for renationalisation and the answer is of course: the fares. Time and time again, we see headlines stating that the UK’s railways have some of the highest fares in Europe and this is often blamed on the huge profits made by the franchises.
There are, however, a few problems with these headlines.
Firstly, only 3p out of every £1 spent on UK railways is profit. Clearly, if you’re spending £4,832 a year on a season ticket from Oxford to London Paddington, you might be pretty miffed that £145 is railway company profits. However, this brings me onto the second issue with the headlines about fares. They fail to acknowledge that fares actually rose faster under British Rail than they have under privatised rail. In the first 15 years of privatised rail, fares increased in real terms (adjusted for inflation) by about 1.3% a year. In the last 15 years of nationalised rail, fares increased in real terms by 2.2% per year. Even taking out the 3% profit element, that same season ticket could now cost £5,352 if you extrapolate pre-privatisation trends.
Finally, the articles about the UK having the highest fares in Europe fail to acknowledge that the UK also has some of the lowest fares in Europe. A train from Sheffield to London might cost £94.50 at 7.54am but it only costs £13.50 at 12.10pm. This price differentiation is a good thing as the people travelling from Sheffield to London in the morning are likely to be business customers who can afford to pay high prices whereas those who cannot afford to pay that much are usually able to be more flexible with timings. Differentiating like this also allows rail companies to spread demand and keep trains full throughout the day, which in turn allows more frequent services.
Be careful what you wish for. The grass is always greener on the other side.