Is it time to nationalise the railways in Britain? It might just be…..

​The Jeremy Corbyn-ite brigade are banging their drum loudly that now is the time to nationalise the railways. The penny pinching capitalist nature of Britains Railway systems have lead to a summer of strikes and chaos – most notably Southern Rail. Such an aggravating strike has flung grumbles of nationalisation from the cold platform edge to the heart of national debate. But what do the statistics say?

​To the modern day Corbynite it would seem that the railways had always been a national institution but of course this is not true. As Figure 1 shows, the railways have been private a lot longer than the period of nationalisation heralded in by Labour in 1948. There are mentions in of small tramways here and there prior to 1830 but it was in this year that the Liverpool to Manchester railway opened. This heralded in an era of engineers and names which will live in long in British memory such as George Stephenson and Isambard Kingdom Brunel. It was the latter’s famous Great Western Railway which became one of The Big Four railway companies in 1923.

However, the Big Four struggled to make a profit as rail freight moved more and more towards road haulage resulting in an outdated system of coal powered steam locomotives. It was post WWII that Labour nationalised the railways - as per Fig1 - heralding in a new era of diesel and electric trains. 

Figure 1: A timeline of the number of rail passengers and history of British rail. Source Wikipedia; Credit: Tomp

It was in this period of nationalisation that many lines and stations were closed under the Beeching Axe. But this was only natural in an era where car ownership was increasing dramatically as shown in Figure 2. Customer numbers dropped significantly. It is little wonder that it was a loss making organisation. But in Figure 1, and as private train companies like to purport, the number of passengers increased dramatically in the era of privatisation post 1995, a move started and ended by the Conservatives. 

Figure 2: Shows car ownership increase during period of British Rail (Source: National Travel Survey 2007)
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But this increase in passenger numbers was by no means a phenomenon limited to the UK or indeed private companies. As Figure 3 shows the number of passengers have increased significantly among many European countries such as big hitters Germany and France. Across the EU, passenger numbers have increased on average 20% although the UK does lead the way with about a 50% increase since 1995. As shown in Table 1, the UK is virtually alone in Europe in the privatisation of its railway service (although Northern Irelands Translink  is nationalised). Although private railway companies (such as Veolia) do operate in some countries such as France and the Netherlands, the majority of trains are operated by state companies. In fact, some so called franchised or private companies that operate in the UK are actually owned by state companies such as Abellio (NS - Netherlands) and Arriva (DB - Germany). 

Figure 3: Increase in passenger-km travelled from 2005 to 2014 (Data Source: Eurostat

Table 1: The UK as a standalone without a fully or part national owned rail service provider amongst its peers in Europe (Source: Company Websites

With such an increase in passenger numbers in the UK, there has also been a dramatic increase in revenue taken by the private companies from rail fares since the beginning of privatisation. In the period from 2005 to 2014 where passenger-km had increased by 50%, the revenue taken increased by 200% as seen in Figure 4. This is reflected by the ever rising ticket prices as presented in Figure 5. In fact rail fares have soared an astonishing 66% since 2004 and even up to 72% more for long distance travel. 

Figure 4: Increase in Passenger Revenue taken by private companies (Data Source: ORR

Figure 5: Year on Year percentage increase in UK Rail Prices (Image Source: ORR

Ok so now we know the private rail companies have been taking in more money in with increasein  passenger numbers and increased rail fares. But where are they putting it all? What are their arguments for an increase? They purport a number of benefits of privatisation such as increased safety and an increase in lines available. However, the number of km of track in the UK, and indeed most European counterparts, has remained relatively constant in recent times as shown by Figure 6. The private railway companies promised a modern system of electrification. In fact the UK is among the bottom third when it comes to the percentage of railway lines which are electrified in Europe, above fellow castaways in Ireland but just behind the Romanians. In fact, astonishingly, the investment by private railway companies is trending downwards in recent times as shown in Figure 8.  

Figure 6: Track length of railway lines for European countries in past 10 years (Data Source: Eurostat)

Figure 7: Percentage of Railway lines that are electrified (Source: Eurostat)

Figure 8: Recent Invest by Private Railway Companies (Data Source: ORR)

​In terms of the purported safety benefits the number of all injuries has increased linearly with an increase in passenger numbers as seen in Figure 9, although the small number of on board passenger fatalities has been reduced.

Figure 9: No of UK Rail Passenger Fatalities and Injures (Source: ORR

​So where is all the money going? Into improving existing rail lines? This is where the increase in rail fares begins to become truly baffling and enraging. Of course it is the rail service (physical trains) itself which is privatised in the UK and not the rail lines themselves which are maintained by Network Rail. Such a split in duties is due to EU directives dictating that rail lines and rail services should be run by separate companies to allow for competition on routes. European countries obliged and created two separate companies to do so but were still owned by the same parent company (or government as per Table 1). This is another purported benefit of privatisation – added competition. Of course a vast number of stations around London and the UK are serviced by only one company (South Western, Southern, South Eastern etc). These private companies pay Network Rail a lot of money for the pleasure of using their rail lines. Or at least they did until 2001-02. As shown in Figure 10, the private rail companies were given abalout by the UK government which began to foot the bill. This is not too long after the Ladbroke Rail crash in 1999 which resulted in the deaths of 31 people. The government realised the signalling systems and lines themselves were in need of an upgrade and stepped in to bail out the private companies from suffering an increase in charges to run the rail tracks. 

Figure 10: Subsidies Changes to Network rail (Image Source: CREST Report

​However the government stepping in here has proved to be disastrous for Network Rail. The continued borrowing of Network Rail to pay for upgrades to the system has resulted in an astronomical accumulation of debt since 2003 as shown in Figure 11. £40 billion pounds of debt hidden in a government organisation is simply astronomical.

Figure 11: Increase in Network Rail Debt (Data Source: Network Rail Annual Reports

How does this debt compare to its European rivals? As shown in Figure 12, Network Rail is heavily indebted compared to the rail companies of Europe, some of whom operate both the lines and rail services -  like SNCF (France) and DB (Germany). Much of the debt for National Rail has been pointed at the development of High Speed 1 – or the Eurostar tunnel. However, SNCF of France – who own a 55% share in Eurostar - seem to show no such debt accumulation. In fact the Conservative government recently sold off its share in the Eurostar business - a profitable enterprise – in its continued selling off of the family silver. Very few other countries come even close to the indebtedness of Network Rail with the exception of Switzerland and Austria – both of whom have a plethora of Alpine tunnels to maintain and build. The impressive German rail system provided by DB has also come at a considerable cost. 

Figure 12: Network Rail debt compared to national companies (Data Source: Company Annual Reports

Of course it is not only the network lines themselves that the UK government have subsidised but indeed subsidise rail fares themselves. Figure 13 shows which companies take the most subsidies and which companies actually give back to the government. Figure 14 shows the total government spend on the rail industry. 

Figure 13: Government subsidy per passenger-km by train company 2014-15 (Image Source: ORR

Figure 14: UK government support to the rail industry (Data Source: ORR)

Figure 13 shows that actually the net effect of subsidies to rail fares was beneficial to the government. However note the difference in performance between the publicly operated East Coast trains (-5.1) and Virgin West Coast (-1.8). Expect a net loss to the government once Richard Bransons tactics take hold on the east coast. Expect a further fare increase adding to the burden of the fact that Britain is clearly much more expensive than its European counterparts for on-the-day tickets as shown in Figure 15 (although it can actually be cheaper for advance tickets).

Figure 15: Typical price of UK rail ticket versus European Counterparts (Image Source: Full Fact

​But why on earth are subsidising the rail industry at all? Surely nationalising the railways will put an end to these incessant price hikes? Well this is where we must out the brakes on the anger and gain some perspective. All European railways are propped up by their own governments as shown in Figure 16. The cost of the UK railway system is certainly very high for its population but per capita is not the most expensive. In fact it is almost on par with Germany for cost but it must be said the German rail system is far superior and cheaper to the passenger. 

Figure 16: All European Railways are propped up by the government. Some more expensively than the UK (Source: BCG – 2015 Railway Performance Index

Even though the railway systems of the countries above are subsidised they do manage to turnover a profit, and either return this money to the government or reinvest in the railways – avoiding the astronomical debt accrued by Network rail. The profits attained by these companies is shown in Figure 17 with only Irish and Spanish rail companies making minor losses. Some, such as SNCF (France) and Trenitalia (Italy) make very handsome profits.  Also shown in Figure 17 is the profit made by Transport for London in 2016. The thing is that the UK already have a nationalised rail service in the form of the London Underground that works very well, albeit at prohibitively expensive prices – London is the third most expensive city to travel in after Copenhagen and Stockholm. TfL also receives about 25% of its income from government grants – much less than the typical 50% in other countries rail systems. It has also manged to keep its debt level (Figure 12) from spiralling out of control like Network Rail despite the presence of Crossrail on its investment books

Figure 17: Recent annual profits attained by National Rail Companies (Data Source: Company Annual Reports

​The reality is that nationalising the railways is not a guaranteed path to cheaper rail fares. More than likely government spending would continue as it is. But the key points from this is that Network Rail has accumulated a mountain of debt which could have been avoided had profits not been pilfered away by private railway companies. Or indeed by the German and Dutch state companies who make profits in the UK to improve their own railway systems. Furthermore the prices we are paying in the UK are deserving of a better service and higher quality trains than are being provided. The private companies are not rolling in money. Railway transport is not a high margin business. But the fact that nationalised rail companies across Europe provide better and cheaper services for similar government investment begs the question: What were and are the Conservatives thinking? Nationalising the railways is no golden ticket to success but it could be a ticket to getting Network Rail - and hence the taxpayer - out of the red.