Did the free market ruin British railways?

Squeezing the debate about Britain’s railways into the tired free market vs nationalisation script makes no sense

by Tim Black 

Britain’s privatised railways are once again in the public firing line. It’s not hard to see why.

On Monday, it was announced that our already relatively expensive train fares would rise by up to 11 per cent next year. And then, to add a wallet-shaped insult to each consumer’s injury, it was revealed that the rail operator FirstGroup, the object of a high level of customer complaints, was to take over the running of the lucrative West Coast Main Line franchise from Virgin Trains – a feat it had achieved by bidding £5.5 billion for the 14-year contract compared to Virgin’s £4.8 billion. Quite how FirstGroup was to pay for its outlay without cutting back on services and staff has been open to question. Virgin chief Sir Richard Branson called the bid ‘insane’.

For many commentators and campaigners, there is little doubt about what this price hike and unedifying scrabble for a state contract represents: private-sector greed aided and abetted by right-wing, ‘neoliberal’ politicians intent on reaping the benefits of privatisation. The state gets a wodge of cash, the private sector gets a cash cow – every free marketeer wins! ‘It is clear’, thundered the Rail, Maritime and Transport Union chief Bob Crow, ‘that this franchise is being let… with a gold-plated, extended contract linked to massive cuts to jobs and passenger services and huge increases in fares as the winning FirstGroup looks to extract every penny that they can in profit’. Or in the words of a Guardian column, ‘The only people who don’t see the need to renationalise the railways are profiteering firms and their supporters in parliament’.

Yet there is something that doesn’t quite add up about the imagined object of all this criticism, this Thatcherism in coalition clothing. Of course, the criticism might be accurate if reality was different: blaming profiteering firms would make sense if there really were immense profits being made; attacking an army of free-market champions in parliament would resonate if the state really was being reined in, if the market really was becoming freer. But neither of those things is true.

For a start, the example of National Express a few years ago should put paid to rumours of the rail industry’s profitability. In 2007, National Express agreed to pay the government £1.4 billion for the East Coast franchise. But the failure of revenue to increase sufficiently (which is exactly what FirstGroup is betting its money on, too) to cover National Express’s running costs and outlay meant that it decided to cut its losses and break its contract – and lose significant government subsidies in the process. And here we come to the second wrongheaded assumption.

Far from the state cutting loose what used to be a nationalised state asset, and slashing public expenditure in the process, precisely the opposite has occurred: public spending on the railways has actually increased since privatisation in 1994. The state hasn’t given free rein to the market; it has had to regulate and intervene more thoroughly, dishing out cash with one hand, and setting performance targets on the other. So according to a Department of Transport report released last year, public subsidy of the supposedly privatised rail service has not fallen since the sell-off; it has actually increased by £1.7 billion between 1996-97 and 2009-10. Incredibly, in 2006/7, £6.8 billion of public money was used to prop up the supposedly privatised rail industry – that’s nearly 50 per cent of the the rail industry’s total costs. This figure now stands closer to £4.5 billion but it still represents significant state intervention into what is supposedly a privatised industry.

To grasp the customer-unfriendly hodge-podge that is Britain’s railways in terms of some free-market attempt to make loadsamoney, and, just as importantly, save the state a fair bit, too, misses the point. Privatising the railways was never really about rolling back the state as the lazy Thatcherism-cliché pedlar would have it. The key dynamic here was all about the state cutting its responsibilities, not public services. It didn’t want to save money so much as save itself accountability. Hence the paradox: state responsibility has lessened while public expenditure has risen.

The reason for the state’s willingness to keep itself apart from a national service like rail travel is the profound crisis of authority, of legitimacy, that has afflicted the British state since the Cold War drew to a close and deprived the British state of one its last raisons d’être. In fact, so lacking in confidence, in direction, has the state been, that it hardly feels itself to be capable of organising the proverbial brewery drinks party, let alone running a national rail-network. The solution has been to pass the buck, be it to assorted, heavily subsidised rail operators, or Network Rail (formerly Railtrack), the track-management company.

Of course, this erosion of state authority and the concomitant attempt to outsource responsibility to the private sector is not limited to the rail industry. One can see the same process at work in the health service, in the military, in prisons. As Patrick Hayes reported earlier this year, it is even affecting the state’s ‘armed body of men’, the police, with core services such as crime investigation and intelligence management up for tender. (And while this is happening, state expenditure as a percentage of GDP is not falling; it is remaining steady. During the 1980s, it averaged 44 per cent - a couple of years ago it was up to nearly 48 per cent.)

Nevertheless, the rail industry provides a very good illustration of the real dynamic at work in these instances of seemingly rampant ‘neoliberal’ privatisation. That is, it is not a project driven by political ideology; it is a tendency informed by the hollowing out of the state’s authority and, therefore, its capacity to assume responsibility for national services and infrastructure projects. This is why the stripe of political party makes little difference to the state predilection for outsourcing authority and responsibility to private companies.

When John Major’s decrepit Conservative administration was desperately trying to do in the mid-1990s what Thatcher herself never felt comfortable doing - privatising the railways - New Labour bigwigs, from leader Tony Blair to deputy leader John Prescott, were falling over themselves to issue ‘over my dead body’ proclamations. Come New Labour’s election victory in 1997, however, the privatising trajectory was not reversed; it was embraced. Of course, it wasn’t phrased quite as the Tories would have phrased it, but recognisably Tory innovations such as the private finance initiative (PFI) - where a private company might build a hospital or a school according to public-sector specifications, before the state then bought it off the company - were embraced and repackaged in friendlier, New Labour jargon, such as public-private partnerships (PPPs). But the tendency, the state’s impulse, remained the same: to pass responsibility over to private companies with no let-up in state expenditure. This was the political essence of so-called public-private partnerships.

That the rail companies were turning a ‘profit’, helped in no small part by the fact of huge state subsidies, actually served as a justification for New Labour’s quasi-privatising rail policies. In 1998, then secretary of state for transport John Prescott seemed almost happy to admit governmental impotence: ‘The privatised railway is producing windfall profits for a few people as a result of the contracts awarded by the last government. There is nothing I can do about that.’ And so it continued. The state continued to pour money into a privatised industry in return for taking little or no responsibility for its performance. A 2005 House of Commons Transport Committee Inquiry into the London Underground PPP reported that there had been some customer benefits. But, it also pointed out that this was hardly surprising given state expenditure had risen from £44million in 1997-98 to £1,048million in 2004-05.

But pointing out the increase in state subsidies despite ostensible privatisation does not amount to a call for the re-nationalisation of the railways. Because what we are witnessing in Britain’s rail industry, or indeed the health service or the police, has little to do with a conflict between ruthless free-market types and those who think nationalisation is the solution to society’s ills. What we are seeing, rather, is the abdication of responsibility by a state lacking in both authority and will. And this is the real problem for Britain’s railways. As a recent government report put it, ‘[there is] fragmentation within the rail industry, including a lack of coordination and clarity as to who is responsible for planning and delivery’.