Can Labour’s Plans to Renationalise Britain’s Railways Work?

The Confederation of Business Interests (CBI) delivered a damning report of Jeremy Corbyn’s plans to renationalise water and energy utilities, the Royal Mail and train companies.

They argue that the Labour Party’s policy would cost an ‘eye-watering’ £196 billion and there could be a 10.7 per cent increase in debt as a result of their plans. This is equal to the amount of income tax British citizens pay in one year and Labour’s policy would cost as much as the annual budgets for health, social care and education combined.

Furthermore, the National Grid, the electricity transmission networks, the gas distribution networks throughout the UK and the rail rolling stock would all be nationalised.

There is certainly an argument to be made that Britain’s railways are failing passengers to a certain extent. The problems with British Rail date back to when it was ‘privatised’ in 1993. The then Conservative government chose to break the company into three components of track, rolling stock and train operators. The cost of operating the UK’s railways is 40 per cent higher than it is in the rest of Europe, according to Sir Roy McNulty’s 2011 government report. Trains may be leased by a private company, but they have a franchise which is owned by Network Rail and paid for by taxpayers. As McNulty told the Financial Times: ‘This complexity is expensive.’

Therefore, an element of Britain’s railways is already owned by the taxpayer, which is increasing prices for passengers every year. Labour’s plans to renationalise the UK’s trains would only cost the taxpayer more money via increasing fares. Yet that is not an excuse to shy away from reform or return to the failed British Rail model Clement Attlee’s Labour government introduced in 1948.

Despite flaws with the current system, privatisation has been a success in many ways. Railway journeys have doubled since 1994 to 1.65 billion annual trips. The volume of freight carried on the railways is up 80 per cent since privatisation. According to Sky News, these levels of growth exceed those witnessed in France, Germany and the Netherlands. Before the 1990s, passenger numbers fell by a third.

Two-thirds of delays are caused by National Rail, which has been state-owned since the 2000s

Private train operators’ profits are wafer-thin. At an average of just three per cent, this means that 97p from every pound from fares contributes towards running and improving services. Renationalising the railways would simply fail to generate enough money to make fares more reasonable than they currently are. Taxpayers should not have to subsidise those commuting by train every day in London.

The IEA proposed ensuring that state intervention is completely removed from this sector. This will allow the rail industry to evolve to market conditions. Separating companies may not increase profits and if integration truly worked, track owners could collaborate with train operators. Successive governments cause problems when they decide to impose a certain structure on the industry, preventing firms from merging or separating. When this happens, the only ones who pay for this model are the taxpayers.

This was the case with the West Coast Main Line, completed in 2008. Track owners and train operators were highly interdependent upon each other. The project’s costs increased and the confusing contracts behind it involved complex negotiations. In 2008, train operators demanded compensation for the West Coast Main Line’s £9 billion upgrade.

The CBI is right to warn against Labour’s plans; they are only a populist solution to a growing problem. Christian Wolmar argued in 2003 that the British should have learnt from the Japanese experience of privatisation. What they did differently to John Major’s government was that they did not privatise the railways into big companies, but smaller ones, and this improved efficiency and competition. Railway prices then reflected different regions in Japan. Maybe the current government could learn from the Japanese experience?