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The Return of British Rail

 

 The railways were nationalised in 1948, in a state of collapse. They were then built up as an integrated system until the 1960s, when the Beeching reforms attempted to transform them into an intercity service, and a freight service (aided by the questionable and possibly corrupt expansion of the motorways by a motorway construction executive who was also Minister of Transport, Ernest Marples, between 1959 and 1964.) This involved closing lots of small lines and network points. The service did prosper, and invested in advanced passenger trains, but was starved of funds by government during the stagflationary episode of 1973-1983. It was then privatised in 1992.

A nationalised or integrated railway has positive externalities in terms of geographical mobility, though these have only recently become apparent. In the 1980s, consumers were still discovering the car, which became a more flexible and personal substitute, especially as the expansion of finance allowed more people to own them, and as more businesses grew up in out of town areas with parking. Government expansion of the road network, along with the decline of the coal industry (which trains had transported and which allowed for cheap freight because trains drew on coal-fired electrical grids) undermined rail.

The privatisation illustrates the difficulty of showing that a market can exist. The railway itself is in most cases a necessary monopoly, bordering on the natural. This compares to the Post Office. If the system does not reach everywhere, and integrate ticketing and stations as it does, it will just become a regional niche (letters would be concentrated between urban areas and would not reach the highlands or Cornwall, trains would only run on commuter routes, stamps and tickets would be too expensive and complicated etc.) So the Major government with trains, like the Cameron government with the Royal Mail, privatised parts differently. Railtrack went to one private company; freight and passenger franchises were awarded to other companies; and (disastrously) maintenance was outsourced.

This created a pressure to get rid of experienced staff to cut costs, and to price discriminate. It also left the shareholders of the new companies making money, but the industry still requiring subsidy, which was a serious principal-agent problem and reputationally destructive. After a series of accidents and public anger, Railtrack collapsed and was replaced by the non-profit Network Rail. After the covid crisis, when working from home undermined the commuter model, franchises became uneconomic, and in 2022, Greater British Railways began to reintegrate the railways, though some franchises remain. This has led to the railways becoming a monopsony again, and to the inevitable fears of a summer strike as workers act rationally to make the monopsony raise wages and protect their conditions.

The railways have also created such a degree of price discrimination that the public would prefer (on every survey) a much simpler service. Price discrimination reallocates consumer surplus to profit by offering different prices to different consumers, or by changing the pricing of the service to take advantage of different elasticities of demand at peak and off-peak times, or by charging wholesale or season prices differently. The discriminating body must ensure no transfer between customers is possible (and tie tickets therefore to photographs, ID, or personal names and credit cards or email accounts.) This allows for revenue to act as a return on investment, and for cross-subsidy, but is deeply complicated in a fragmented railway system.

Government since 2010 has also returned to cutting investment in real terms, but this has been balanced by very substantial investment in new trains by the franchises. Since this investment is over, and the new trains are running, there is no need for government to continue to support the franchises with subsidies, and inflation is eating at their revenue anyway. The rational thing to do, therefore, is to allow the railway franchises to collapse or negotiate deals to transfer the new equipment to a government body at low or no cost.

There is also a need for strategic planning in the railway industry. With petrol-driven cars and buses in long term decline, and new technology expensive, recreating a regional and inter-town network of trains for short journeys is one option. Creating very fast prestige trains which nevertheless take pressure off the existing network and redistribute passengers is another. Before covid, the latter strategy was viable, but in 2022 the network is still only carrying around 15-20% of the passengers it had at peak commuting times in 2019. Shareholders in the current financial environment will not pay for the short journey expansion, and yet such infrastructure development would relieve some carbon and congestion costs and calm housing bubbles by spreading jobs and settlement, as well as improving mobility in a tight labour market. Only government can expand the system now, although the investment required might add to national debt. Increased tax revenue and productivity gains might justify the expenditure.

This leads to the question of nationalisation. There are different models of partnership, but a straightforward integration of the maintenance, track, and stations, accompanied with a clear policy towards car parking and ticketing, could allow for great gains. The gradual absorption of the franchises for passengers, and the integration of the profitable freight sector would allow for others. The problem which arises is the relationship of the new body to unions, the front-loading of integration costs at a time of high national debt, and the decline of commuting and the housing market which is ongoing or imminent. When these factors are considered alongside the gains from an integrated railway, in terms of environmental benefits and power usage, then nationalisation, perhaps with an element of private investment, becomes the most rational course.

 

 

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