The 2nd of January can be a miserable experience. With storm Elanor approaching the UK, this year it was cold and rainy and, to compound the misery for many commuters, featured a pre-announced, but non the less unpleasant rise in rail ticket prices – at an inflation-busting 3.4% average.
Commuters were predictably annoyed, and the news networks filled a news-poor day with live interviews with disgruntled passengers from train stations around the country. Twitter (under the #RailFail hashtag) and the left-wing press was full of the usual indignant howls of profit being put before passengers. Labour has naturally been quick to jump on the bandwagon, touting their grand plan for rail nationalization and promising to cap fares and to ‘put passengers at the heart’ of a public rail service. This is a popular policy. According to some polls, three quarters of voters support nationalization, and fare hikes are likely to increase the unpopularity of the private franchises. British rail passengers pay the highest fares in Europe, and the left has successfully tied that to the fact that most European passenger rail services are publicly owned and state operated. But the predictable debate, pitting profiteering corporations against a benevolent public option, is disingenuous and misleading. Here are a few reasons why.
First of all, most fares are regulated and increases are tied by legislation to the RPI. This year, many unregulated fares in fact rose by less than regulated ones.
Second, funding and delivery of a service are separate issues. The reason why British rail fares are the highest in Europe is mainly that British subsidies are the lowest by some distance. UK passengers simply bear a higher part of the cost of their own journey than in mainland Europe.
Third, the legacy from the nationalized British Rail is a creaking rail infrastructure, still suffering from decades of under-investment.
Fourth, the rail companies are not making excessive profits, as it is routinely portraited. 97% of ticket prices are spent on the operation and maintenance of the system and 3% goes to profits. And that is not even the full picture. A revenue share is in place between the franchises and government, who shares in the downside as well as the upside.
According to Fullfact.org, accounting for all costs and revenue shares, the average return on equity amongst rail franchises is a modest 3.4%. Indignatn calls of profiteering are, as usual ,misplaced.
Fifth, Network Rail, who owns and operates the rail infrastructure, is a public company and shoulders a large part of the responsibility for fares increases. It is also directly responsible for the many delays owed to engineering works on the network, a constant source of frustration for passengers and ammunition for the proponents of nationalization .
Sixth, powerful unions have secured railway staff inflation busting pay rises. On the much maligned franchise run by Southern Rail, Aslef (a union) just secured drivers a pay rise worth 28.5% over 5 years. Southern drivers already make in excess of £50k/ year. This is a fight Labour, who’s funding is dominated by donations from the unions, is unlikely to take up as part of their pitch to run the railways.
Privatization was never a true description of the reforms that took place in the mid ‘90s. The Tories were far from committed to true privatization, with many opposing viewpoints resulting in a convoluted, bureaucratic state controlled system with no true competition but rather a number of state granted monopolistic franchises. Never the less, what is known as rail privatization has been a success: journey times are down, the quality and cleanliness of coaches is up, as is train frequency – and passenger numbers are booming. In addition, the British rail passenger network enjoys the best safety record in Europe.
It is a sad testament to emotive headline politics that rail nationalisation enjoys such large-scale support in Britain. Whatever competition and incentivization to customer service has been introduced via privatization has served the public well, but inevitably whoever runs the system will be get the blame when ticket prices goes up. True competition on the railways might see prices fall, but under the current system only bigger state subsidies can lower prices. But whether tax payers or passengers pays for the ticket, the truth is that British public has been well served by privatization.