Privatisation in retreat and a gamble well worth taking

It’s time, at the beginning of a new year, to take a hard look at the economics of the railway,

It’s time, at the beginning of a new year, to take a hard look at the economics of the railway, as with the advent of Great British Railways, the industry will be under the microsope in 2026. The rail industry is quite big bananas. Its operating turnover is around £26bn, the size of say those of Marks & Spencer, Centrica or Rolls Royce but around half the turnover of Vodafone, AstraZenica or Tesco. But in terms of being a vital part of the nation’s infrastructure, the rail industry is definitely at the top of the tree. It is vital keeping the wheels of the British economy running but the railway is increasingly going to have to justify itself in the face of mounting pressure from both the government and the public. Make no mistake, the guns of the Treasury are pointed at Great Minster House, the headquarters of the Department for Transport.

The examination of the railway’s economics set out by the Office of Rail and Road in December offers a useful starting point for 2026. There is no getting away from the fact that the railway industry is very heavily subsidised, which was one of my arguments against privatisation. Given the ever present need for subsidy and the fact that the railways could not stop running even if their owners went bust, privatisation was always what I called ‘pretend capitalism’. There was no real risk for any private capital invested, apart from the odd security provided by franchisees to ensure they fulfilled their remit. The railway was never really privatised as there never was any genuine financial risk to the operators. Now that privatisation is being partially reversed, the government is simply taking on the extra risk of changes in revenue – more fare income should mean reduced subsidy - in the hope that this will make the industry more efficient. It’s a gamble, but the right one.

The bare figures demonstrate the extent of the task. In terms of operating expenditure alone –basically the train services provided for the public – the government supported the industry to the tune of £11.9bn, a decrease of 0.6 per cent on the previous years. This represent a shade under 46 per cent of the cost of running the railway, which rather oddly the ORR suggest this is ‘nearly half the industry’s costs’. I don’t mean to nitpick but that is a somewhat negative interpretation but is nevertheless an important sum.

It is though, just slightly less than is spent on maintaining and enhancing both the local and national rail network annually, a total of approximately £10.2bn in England. This does open up the railways to criticism and makes them vulnerable to political attack given that the railways share of passenger mileage across the country is just 10 per cent – in other words road transport, which includes buses, accounts for nine times that of rail.

It gets worse. The rail industry spent £10.3bn on infrastructure enhancements and investment last year, of which all but £800m came from government sources. In other words, the idea that the railway could be funded by private sources even after 30 years of privatisation is a myth. Of course HS2 ate up by far the largest part of this, with just over £7bn, an annual figure which has been guaranteed until the next general election. The various large road schemes being proposed, such as the £11bn Lower Thames Crossing, are not, so far, included in the figures because the source of funding is unclear, making it difficult to provide a comparison.

The figures reveal that the recovery from the pandemic has been slow, with numbers only now just about reaching the 2019 levels but that is largely down to the tremendous success of the Elizabeth Line which is considered as part of the national rail network, not the Underground. Nevertheless, there was still growth of passenger numbers on long distance franchised operators, with a 5.5 per cent rise above pre pandemic levels. For open access operators, who are all on long distance routes, the increase was even greater, at 8.2 percent – but they are not necessarily cheaper, with their average fare being £26 70 compared with £25 17 for the franchise providers. The fact that the railway still operates as a commuter service is highlighted by the fact that overall the average fare is just £6 65, an increase of a mere 1 per cent on last year.

Despite these healthy increases indicating a return to pre pandemic levels, all this makes salutary reminder for what critics of the railway see as a marginal form of transport. Except that it is not. And it is vital to get that message across to both public and politicians. The very existence of the railways is vital for Britain’s economy as they provide enormous benefits both by facilitating business, offering leisure opportunities, taking people to work and for people without a car, providing the only method of getting round the whole country, given the paucity of coach services in many areas. Most of those reading this column will think all that is axiomatic, but the message has to be told and sold.

There was quite a good effort in that regard when the new timetable with all its extra services was announced just before Christmas. This resulted in good publicity and the coverage was largely positive, as, thankfully, no 2018 timetable change debacle was repeated. It did, however, give a few critics the chance to get on their usual hobby horse about late trains and even, disgracefully, go on about British Rail sandwiches. How long will it take for that trope to disappear?

Railway 200 also provided a positive message last year, although it should have been better funded by the industry. I was very impressed with the number of ordinary families who turned up to the Greatest Gathering in Derby. Let’s hope for an even bigger event in 2030 for the Liverpool & Manchester.

Apart from coping with the dicey financial situation and keeping the Treasury at bay, selling that positive message effectively is the most difficult and pressing task facing Great British Railways. The person heading GBR needs to be an inspirational figure able to communicate with both the public and the government and who is neither defensive nor apologetic when the issue of support is raised. The leader must be a public figure, getting on the media whenever possible, prepared to extol the wonders of the railway at every opportunity, from anniversaries, reopenings, project completions, fleet renewals and so on. A feeling of progress in the industry must be created as that is the only way the huge financial support – always call it investment, not subsidy – for the railway can be justified. The big question remains: is there a person out there ready to take on that role?

Mystic Wolmar flies again

Here’s the useless crystal ballgazer’s predictions for a year which is almost impossible to predict given the political and global uncertainties. But here goes and he is sticking his neck out on a couple of these, notably on politics and on his beloved QPR

1. The Railways Bill will be passed by the summer recess with some amendments over the role of the regulator.

2. Keir Starmer will no longer be PM and be replaced by Shabana Mahmood but….

3. …Heidi Alexander will remain in post to see the Bill through, as will Lord Hendy who will be running the show behind the scenes.

4. There will be great difficulty finding a replacement head for the Office of Rail and Road given its diminished powers under the new regime.

5. Most new open access bids will not be accepted and any appeals will fail

6. The independent ticket retailers are going to struggle against the new Great British Railways online operation and will complain loudly about the difficulties they face.

7. In terms of passenger numbers, the railways will be booming, helped by the fares freeze

8. HS2’s promised ‘reset’ by its new boss Mark Wild will involve a delay to the earliest possible opening being 2038

9. …and QPR will struggle into the play-offs, only to be knocked out straight away

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Also consider joining me : The South Eastern Railway – A journey through the past, present and future Wednesday 11th March 6:45 PM at One Birdcage Walk London. Join us for a special event to celebrate the proud history of the railway in London and the south east. Buy tickets here https://tinyurl.com/24d2ch4f