Rail Privatisation Doesn't Work

In the UK the private sector’s entrance into public transportation has been a disaster. The cost-to-service ratio for privatised railways is shockingly bad. The UK has the highest-priced train system in the world and has the worst actual reliability and service in the EU, including at least most of the new entrants.

The initial privatisation was the result of a deeply misguided religion on both sides of the Atlantic that believes the private sector always does a better job than the public sector, therefore as many functions as possible should be turned over to the benevolent arms of industry. The problem with this faith, is that all the evidence points to it being manifestly false.

UK trains are frequently overcrowded, delayed or cancelled altogether, people pay as much as £10 (about $20) for the pleasure of going as little as 27 miles. While the least expensive service will give you 116 miles for the £10, in practice, those cheap tickets are rarely available and the new plan is to get rid of them altogether. A more realistic fare is Virgin’s London to Manchester standard single ticket at an eye-watering £109.50, putting the cost of travel at 55p a mile, making it Europe's most expensive intercity journey. That type of cost is likely to become normal as fares rise.

By contrast, Polish trains, for instance, are fast, frequent, reliable and timely despite antiquated rolling stock. And the cost of travel is dramatically less. For the price of going from London to Brighton (about 50 miles) in Poland you can go from Krakow to Gdansk (about 300 miles).

So what is the government doing about this? Nothing. The government just released a White Paper on transport, in which the government said that they were going to increase the numbers of passengers and improve the quality of the rail system by cutting the amount of money they give to the rail companies by a third. While that makes grammatical sense, it doesn't make any other kind of sense. It's like George Bush saying his No Child Left Behind education bill was going to improve education by not building schools or paying teachers.

Currently, the UK government gives rail companies £4.5 billion a year and the public pays about £5 billion a year through fares. The plan is for the government to pay £3 billion and the public £9 billion. This raises the issue of what would motivate the private rail companies to spend the government’s money on improving the rail network instead giving it to shareholders. Several years ago it was leaked that one of the private rail bosses actually said that eventually they would have to stop raising fares and decreasing service. Thank you privatisation.

As far as I can tell, this is a strategy to give rail bosses and rail company shareholders a lot of money, while sticking it to everyone else. Already UK rail fares are the highest in the world. How far up can they go? Also, the policy in entirely inconsistent with trying to get people out of their cars and onto trains to cut carbon emissions.

In my personal experience living in London and travelling frequently, I’ve often looked for a train to travel somewhere in the UK only to wind up flying or renting a car because it was so much cheaper that the price difference overcame my desire to minimise my carbon footprint. On one occasion, I decided to go to Spain for a weekend because it was half the price of taking the train to Cornwall. As far as cutting CO2 emissions, this is not the way to go about it.

The words and the actions of the Labour government don’t agree. In the last ten years, the cost of car travel has dropped by 10% in the UK while train fares have risen 6% above inflation and service has become worse as private owners discontinue unprofitable feeder lines, those going from small stations, to concentrate on the major routes. The problem is that without the small feeder lines, there are fewer and fewer people who use the trunk routes.
For many places, the number of trains servicing the area have dropped by dramatically. This makes it difficult to rely on the rail network. My personal experience with the rail system is pretty dismal. I used to live in London and work in Surrey for Jane's Defence Weekly. When I started there was a direct train every 15 minutes to and from the office. When I left Jane’s, there was no direct train to the office. There were two trains that I could take to start the journey and they both required that I change twice and that I wait on an exposed platform for 22 minutes (if the trains were on time) to connect to the third train. Anyone who has lived through an English winter knows that 22 minutes of standing on a platform in gale-driven horizontal stair-rods of frozen rain is not a pleasant way to start the morning. The 15 mile journey took at least an hour and a half. For the return journey, although there was a direct train back to London, there was only one train per hour, which frustratingly, sometimes left early on the rare occasions it wasn’t late. For the pleasure of using this system, I paid about £35 ($70) a week. My other option was to drive, but because London rush hour is so gridlocked and there being no rational route, it would have taken even longer and cost about the same.

You might say to yourself that I should quit whining, but there is a hidden economic impact. By the time I got to the office, frequently late, I and everyone else in the company who lived in London, which was many of them, were knackered. We'd already achieved something significant that morning just getting to the office. And we had it easy, at least travelling from London to Surrey you could find a seat. For all the people doing the commute the other way the trains are filled to sardine tin capacity where anyone who does have a seat, also has someone's buttocks in their face. The discomfort of that experience multiplied by millions of people commuting in and out of London and you probably wind up with about a half a percent of lost GDP growth. You probably also lose another half percent of growth on people being late because of the dilapidated state of the rail infrastructure.

Since the rail privatisation went so well, part of the London Underground was also privatised, with the maintenance contract let to Metronet. The result has been that Metronet is now demanding more money from the government to maintain and repair the rails and signals. While the government has refused, it will eventually be forced to give in because they can’t force the company to go bankrupt or even to undertake work at a loss. If people die as a result of poor maintenance, well, tough luck. For the pleasure of riding the technologically backwards tube, you only have to pay a £4 ($8) for a single trip in zone 1. While many in the UK point out that the London Underground is the oldest in the world, that doesn’t mean they have to keep the original equipment like some sort of living museum. The Paris Metro is only slightly younger than London’s yet the French have constantly refreshed the technology. During the four years I lived in Paris, there was only one occasion that a Metro train was cancelled due to a mechanical problem. In London, statistically, there is more than one failure a day leading to a line being temporarily shut down.

The problem with these privatisation schemes is that they fundamentally don’t make sense. When I was studying economics in graduate school, the main thing I learned was that economics is really the science of motivation and how individual incentive-driven decisions multiplied millions of times become the stuff of macroeconomic indicators. While privatisation schemes are often pushed by conservative economists, the arguments in support of privatisation are closer to religious dogma than the result of economic research.

On a very basic level, a company buying a chunk of infrastructure does not have an incentive to provide safe, efficient and low-cost service. The incentive is to make money. To do that fares should be high and maintenance kept to a minimum, leaving the system expensive, unreliable, and quite possibly dangerous.

It is really time for people to start calling infrastructure privatisation what it is—a chance for a few investors to extort money out of everyone else. That’s not democracy, that’s state-sanctioned extortion.