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From 1994 to 1997, John Major’s government privatised the British rail network, following the 1993 Railways Act. Twenty years on, the idea of renationalising the railways is a fiercely contested issue, with the 2015 Labour manifesto containing a plan for partial renationalisation and the current Labour leader in favour of full renationalisation. But what would be the advantages of rail renationalisation and what are the downsides to it?
Since the start of 2017, there has a been a multitude of news stories about the incompetence of Southern Rail, a company responsible for running trains across London and South East England. Some people have argued that the company should be nationalised, in order to prevent so many disruptive strikes taking place, and that renationalisation would improve train services across the UK.
Britain’s railways are already publicly owned
Another common argument is that British railways are already publicly owned – just not by the British government. State owned firms from France, Germany and the Netherlands (amongst others) run railways across the UK, with China looking to invest soon too. Proponents of renationalisation argue that, if foreign state owned companies are allowed to run our railways, why can’t a British firm?
The natural monopoly argument
The railway system is a classic example of a natural monopoly, due to the massive costs that come with building tracks, maintaining them and purchasing trains. Therefore, it is much cheaper for a singular, large company (in this case a publicly owned one) to be responsible for running the network, as they can benefit from the economies of scale that come with controlling the entire network.
The potential for cross-subsidization
Cross-subsidization is the act of using profits made in one part of the business to subsidise another area of the business. In this scenario, it would allow a publicly owned rail company to use profits made on urban lines with many passengers to maintain rural lines with fewer passengers, where revenue isn’t as large. This would prevent a situation that sometimes occurs in the privatized rail sector, where companies stop operating lines with fewer customers, to the detriment of the people in those areas.
The initial cost of renationalisation
Nobody can say exactly how much it would cost to renationalise the railways, but it is estimated that the cost would be in the tens of billions. Seeing as the fiscal deficit for this year is £55.5 billion, the cost of renationalisation would hit public finances hard and would thus likely be very unpopular to implement.
A state-owned company might be unable to make a profit
On a separate but related note, there’s a good chance that a state-owned rail company would be unprofitable, as history has demonstrated before. British Rail, the publicly owned rail company that managed railways from 1948 to 1997, was unprofitable for the vast majority of its existence, meaning it had to be subsidised by taxpayers. If a modern state-owned rail company also failed to ever turn a profit, subsidization would be costly and unpopular among voters.
May lead to a return to poor standards
Before being privatized, British railways were run by British Rail, a company notorious for its poor quality service. While private companies have introduced improved trains in recent years, the condition of trains during British Rail’s era was abysmal. As well as this, dozens of accidents took place while British Rail was in charge – since privatization, the number of accidents has fallen rapidly.
Nationalisation would benefit the rich at the expense of the poor
Studies have found that rail passengers are often affluent individuals commuting into the cities in which they work, while poorer people usually rely on buses to get to their workplace. This means that nationalising the railways, and then subsidising them, would involve using the taxes of working class people to help subsidise the cost of travel for middle-class people.