Britain’s improved railway has to be funded somehow

Nationalisation will solve Britain’s problem with ever-increasing rail fares. That’s a view widely expressed on August 16 when the Office of National Statistics revealed the inflation figure that drives next January’s increase in regulated ticket prices.

It’s ironic that rising petrol prices helped set July’s retail price inflation figure of 1.9% which will be January’s rise. Government uses RPI to set regulated fares. In the years after privatisation it decided that fares would rise by 1% under RPI, known as RPI-1%. It then decided to shift the balance between taxpayers and farepayers to see the latter shouldering more of the burden of rail costs and so moved to RPI+1%. Currently regulated fares rise by RPI+0.

A minister could decide to move back to RPI-1%, or RPI+2%, or any other formula. It would be the government’s choice. If our railways were nationalised the fares formula would be decided by the same government.

Rail unions sit in the vanguard of the charge towards nationalisation. TSSA General Secretary Manuel Cortes rails: “Fares on the most popular routes have jumped by more than 245% since rail was privatised 20 years ago. Running a publicly owned railway would end this annual mugging of passengers and give us a network run in the interests of passengers and staff.”

The rail unions argue that private rail companies suck money from the network and that if this money was kept within the railway it could cut ticket prices. Looking over the 19 train operator accounts published in RAIL 801, shows that dividends to shareholders reached £174 million. Eight operators paid nothing – Abellio Greater Anglia, c2c, Chiltern, CrossCountry, East Midlands Trains, Govia Thameslink Railway, London Midland and Virgin Trains East Coast. Of the others, Great Western topped the list by paying £50m, ScotRail paid £22m, Southern paid £18m, Merseyrail £12m, SWT £11m and others smaller amounts.

Of course, dividend payments can be varied to suit the situation of a company. It might pay nothing one year and more the next. Despite this, the £174m is just 1.7% of the total TOC turnover of £10,240m. By contrast, government received a total premium of £2.0 billion from operators. It paid £1.3bn in subsidies to operators, leaving it with a balance of £0.7bn. You could add the ‘diverted’ dividend of £0.174bn to bring government’s money to £0.87bn but this extra almost pales into insignificance when nationalised Network Rail appears with its 2014/15 demand for £4.2bn.

The unions might like to think the dividend would be distributed to passengers as reduced fares. It wouldn’t. It would go to Network Rail, not least because government had to bail out its subsidiary to the tune of £700m as its enhancement programme went badly over budget. Costs of its Great Western electrification programme alone have tripled to around £3bn.

The unions’ claim catches headlines. It keeps pressure on private operators. It lets the nationalised part of our network escape. The biggest driver of cost in today’s railway is Network Rail’s enhancement portfolio. Fix its rising costs and you’ll go a long way to fixing the problem of inexorable fare rises.

Look beyond NR’s enhancement programme problems and you’ll find the company has done better in terms of operations and maintenance spending. Here it’s become more efficient, reducing costs per passenger journey. These figures have been further helped by the ever rising number of passengers. However, those rising numbers also trigger further rounds of enhancements that add more costs. Had the railway been able to carry 2015’s numbers of 1995’s network and fleet, we might have seen the end of continual fare rises. But 2015’s network is bigger and better and 2015’s fleet is bigger and better. This all costs money. Network Rail rebuilt Blackfriars station and is rebuilding London Bridge station to cope with more passengers. British Rail built 86 four-car Class 319s, primarily for Thameslink. That’s 344 carriages. Tomorrow’s Thameslink services will be in the hands of Class 700s, with Siemens building 1,129 coaches. Yes, they will be running on a network more extensive than BR’s original Bedford-Brighton service but Thameslink shows how much some parts of the railway have changed since privatisation.

Even though nationalisation would not solve the fares problem, the timing of August’s announcement did nothing to ease the pain of Southern’s passengers. They have received a dreadful service over recent months. It’s not just the RMT’s strikes, there’s also high levels of sickness leading to cancellations, disruption from NR’s London Bridge works and from generally unreliable track and signalling, coupled with fires and a host of other problems.

If you rely on Southern to take you to and from work every day you must be thoroughly fed up. You probably heard the Prime Minister say on June 29: “I can tell the House we will be providing more generous compensation to passengers affected by the latest strike and the Transport Secretary will be announcing further details soon.”

Since then the prime minister and transport secretary have changed but the misery for Southern’s passengers has not, with more strikes taking place over August 8, 9 and 10. There are still no details of more generous compensation. August 16 would have been a good day to reveal that extra compensation.

Part of the railway’s problem with stories about fare rises is that season tickets come with hefty price tags. I was interviewed by BBC Radio Kent on August 17 and the presenter cited a commuter from Headcorn paying nearly £5,000 a year for a season ticket to London. (Headcorn-Charing Cross not using HS1 is £4,796 with an average per journey of £9.99 which compares with £24.60 for a peak single.) I countered that if you buy a year’s worth of anything it’s likely to be expensive. If this commuter drove to and from work, he’d be spending around £2,500 just for petrol. Of course, you can’t buy a year’s worth of petrol in one go so this cost is less obvious.

Imagine too if petrol sellers could only change their prices once a year. What headlines would this generate? The railway is a victim of its own success. Had it not doubled passenger numbers since privatisation it would not be facing such pressure to deliver more trains, longer trains, running from longer platforms into bigger stations.

British Rail had it easy. It could push prices up to choke demand and save itself the cost of providing more capacity. That’s not an option today. Instead today’s railway is having to tackle its problems.

The effort private operators put into bidding for franchises goes a long way to solving those problems. I don’t think a nationalised operator would have revealed a plan to bring new trains to an entire region, as Abellio plans to do in East Anglia. It’s signed a deal to do this. It will struggle to wriggle out of such a commitment. Even if a nationalised company decided to bring so many new trains, it would likely shelve them at the first sign of financial trouble. Its government paymaster would want the trains shelved to save money, just as government and Network Rail have delayed major enhancement projects.

The deals private companies sign with government give a greater guarantee that a deal agreed between one arm of government and another. If nothing else, this rigour is what the private railway brings to Britain.

This article first appeared in RAIL 808, published August 31 2016. For more about the magazine see railmagazine.com