As Virgin are asked to run the West Coast mainline for another year, lets revisit a more radical option

The evidence from other utilities is overwhelming. We should abandon the years of failure that privatisation has bestowed and renationalise the lot of them

Paul Donovan@donno28
Monday 15 October 2012 16:52

The government is to re-run the franchising process for West Coast mainline. Would it not just be better to renationalise the whole network?

The West Coast Mainline could then follow the East Coast line back to direct controlled ownership, to be followed by the other franchises as they expire. The call for the railways to be re-nationalised has grown over recent months, with the latest fare hikes allowing tickets to go up by 3% above the Retail Price Index. This rise has since been reduced to 1% by Chancellor George Osborne, keen to placate angry commuters who vote.

The rises have helped the campaign of those who argue for the re-nationalisation of the railways. They claim that the service provided is the most expensive anywhere in Europe.


Figures from the Campaign for Better Transport (CBT) show a season ticket, including Tube travel, for a journey from Woking in Surrey to central London costing £3,268 last year. This compares to £336.17 in Italy for a similar 22-mile journey from Velletri to Rome. In France, the 24-mile journey from Ballancourt-sur-Essonne to Paris cost £924.66.

The RMT union claims that since privatisation, more than £11 billion of public funds has been misspent “On debt write-offs, dividend payments to private investors, fragmentation costs including profit margins of complex tiers of contractors and sub-contractors, and higher interest payments in order to keep Network Rail’s debts off the government balance sheet.”

They add that “removing complex interfaces, transaction costs, increased debt servicing and private profit and dividend payments from the industry could save over £1bn a year, resulting in lower fares and public subsidy.”

The case of the East Coast mainline further underlines the point for re-nationalisation. Following the collapse of two previous private operators, the East Coast mainline has been run directly by the state for the last three years. Directly Operated Railways (DOR) posted results for the last year showing turnover of £665.8 million, an increase of £20 million, leaving a profit before tax and service payments to the Department for Transport of £195.7 million, an increase of £13 million.

Passenger journeys at East Coast, which runs trains from London to Yorkshire, the North East and Scotland, increased by 2.1% Customer satisfaction at East Coast rose by 2%, and the latest punctuality figures were its best since records began in 1999.

There are signs that the Labour Party may be tipping toward a policy of at least renationalising the railways by stealth, taking different lines back into public ownership as the franchises become due, or are reneged upon by their private owners. It happened with the East Coast line, and Labour Transport spokesperson Maria Eagle has suggested the same could happen with the West Coast line.

Private vs Public

But the argument over renationalisation of the railways is a microcosm of a much bigger debate on public services generally. Put simply: how can a privatized concern, whose first priority is always going to be its shareholders, ever provide better value for money that a nationalized industry? There is always going to be a substantial amount of the money raised via the service going out to shareholders that could otherwise be reinvested in the service and the workforce.

If the neo-liberal argument that the private sector can provide a more efficient service is accepted for one moment, there has to be an evaluation as to why. If it is providing a cheaper service that can only be through reducing the pay, terms and conditions of the workforce. This has implications for individuals and families, so cannot be for the common good of the country.

Should other privatised industries be renationalised? The water industry that was privatised by Lady Thatcher back in 1989 is hardly a shining example of success. Some 23 years on, 25 per cent (3.4 billion litres a day) of water is lost through leaks. Leaks have been reduced by just five per cent since privatisation in 1989. In Germany, where the water utilities remain under the public control of the municipalities, less than 10 per cent is lost.

A look at Thames Water’s record on leakage since privatisation is revealing. In 2006, Thames Water was leaking 900 mega litres per day. It missed its leaks target under the regulatory framework for the third year in a row and was fined. At the same time, the company declared a 31 per cent rise in pre-tax profits to £346.5 million.

The average customer bill for water has risen by £64 since 2001 and is now £376, while the companies have collectively made a £2 billion in pre-tax profits and paid £1.5 billion in dividends to shareholders in 2010-11. Other parts of the energy market tell a similar tale: shareholders first, consumers second. Even the advocates of privatisation have not been able to hide the fact that in an area like electricity, whilst there has been a 40% fall in wholesale cost since privatisation, the consumer has seen only a 25% cut. How much cheaper would it have been to the consumer if those shareholders had not had to be paid?

One Nation

The debate over renationalising some of these privatised public services is only now seriously beginning. The case of the railways seems to offer the most conclusive case for renationalisation. The same argument can be applied to other areas like water and electricity.

This is a popular idea that the Labour Party could push forward under the banner of One-Nationism. It would have to be prepared to face down those in the private sector and Parliament who will attack the idea. But this can be done. The offer would be to provide cheaper transport and energy sources to the tax paying public in austere times. There are be few better ways in which Ed Miliband could put forward a popular idea that epitomizes his idea of One Nation and appeals to the common good.

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