Rail privatisation has failed to deliver on its promises

Rail privatisation has failed to deliver for rail users and taxpayers and has brought in little private sector investment, according to a recent  TUC- commissioned report.

The Great Train Robbery – written for the TUC by the Centre for Research on Social-Cultural Change (CRESC) at the University of Manchester – shows that private train companies are heavily dependent upon the public purse to enable them to run services.

And when train companies do make a profit, barely any of it is re-invested in the railways. The report reveals that those firms receiving the largest state subsidies spend, on average, over 90 per cent of their profits on shareholder dividends.

This contrasts sharply with the East Coast Mainline, which is currently state run and which re-invests all of its profits into improving the service.

The Great Train Robbery report looks at many of the key objectives behind the decision of John Major’s government to privatise the railways in 1994. The report questions whether any of these have been achieved:

Cost effectiveness – train operating companies are entirely reliant upon public subsidies to run services. The top five recipients alone received almost £3bn in taxpayer support between 2007 and 2011. This allowed them to make operating profits of £504m – over 90 per cent (£466m) of which was paid to shareholders.

Extra investment – the report shows how the average age of trains has risen since rail privatisation, from 16 years in 1996 to 18 years old today. Just £1.9bn was spent on rolling stock between 2008 and 2012, compared to £3.2bn between 1989 and 1993 (the four years before privatisation.)

Over 90 per cent of new investment in recent years has been financed by Network Rail (the taxpayer funded body responsible for rail infrastructure), and comes mainly from taxpayer funding or government-underwritten borrowing, says the report.

Significant upgrades to infrastructure, such as the development of the West Coast Mainline, have been paid for by Network Rail.

Passenger comfort – the report says while there has been a 60 per cent increase in passengers since 1994/95, there has only been a 3 per cent increase in new carriages, resulting in serious overcrowding on many routes.

Innovation – even where there has been private sector investment in new technology, such as Virgin’s tilting trains, it has been underwritten by the state through subsidies to train operating companies and guarantees to rolling stock leasing companies.

Added value – The Great Train Robbery shows how train operating companies paid Network Rail just £1.59bn in track access charges in 2012, compared to £3.18bn paid to its predecessor Railtrack in 1994. This represents an ‘indirect subsidy’ from taxpayers as train companies are getting track access on the cheap. It also means that the full extent of taxpayer subsidy is far greater than is often reported.

Investment in infrastructure has largely been funded through borrowing by Network Rail which now has debts of over £30bn, and is spending more on repaying this debt than on railway maintenance, says the report.

Competitive fares – the UK has the most expensive rail fares in Europe. Long distance, day return and season tickets are all around twice the price of similar tickets in France, Germany, Italy and Spain, which have publicly-run rail systems. Average train fares in the UK increased at three times the rate of average wages between 2008 and 2012.

More passengers – the report dismisses claims that privatisation has helped increase the number of people travelling on the railways.It says that passenger growth has mostly been down to rising GDP and changes in employment patterns rather than because of privatisation.

Commenting on the report, TUC General Secretary Frances O’Grady said: ‘This study explodes the myth that rail firms are bringing added value to our railways. In reality they rely upon taxpayers to turn a profit, virtually all of which ends up in shareholders’ pockets, rather than being used to improve services.

‘Rail privatisation has not brought the improvements its cheerleaders promised – the average age of trains has increased and most new investment is funded by the state.

‘The claim that private train operators are responsible for more people using the railways must also be taken with a huge pinch of salt. Passenger growth has mirrored changes in the wider economy and is not the result of creative marketing drives by companies.

‘The government must accept that the current model is broken. Its determination to impose franchising across the network – even on the East Coast Mainline which is performing well as a nationalised service – shows ministers are ignoring the evidence of 20 years of failure.’

CRESC Director Professor Karel Williams said: ‘The privately owned train operating companies have hijacked the government’s rail reform agenda which is all about ‘getting franchising back on track’.

‘Our research shows how the franchising system allows them to distribute profits at low cost from public subsidy.

‘It would make sense to abolish the train operating companies and it would cost the taxpayer nothing if it were done as the franchises expired.

”Train and track operation could then be integrated under a new publicly-owned National Rail, operating within defined budgets over sustained funding periods.’

 Net profits and dividend distribution rates for the top five recipients of public subsidy in 2011/12

And for more on this theme, check http://www.guardian.co.uk/commentisfree/2013/jun/10/truth-richard-branson-virgin-rail-profits