Rail Privatisation

1994-97

On the advice of the Adam Smith Institute, under John Major's Conservative government's Railways Act 1993, British Rail (BR) was split up and privatised. This was a continuation of the policy of Margaret Thatcher's Conservative government of privatisation of publicly owned services.

The ownership of track, trains and infrastructure was separated into different companies.

Passenger services in each sector were franchised out to private companies. Many of these were bus operators.

The Association of Train Operating Companies (ATOC) was created to organise ticketing and to market the rail services.

The company Rail track plc was setup as a monopoly to control the infrastructure and its shares were floated on the London Stock Exchange.

Privatisation under the Labour government

The Labour government (elected in 1997 once almost all of the privatisation process had been completed) did not fulfil its prior commitment to keep the railways in the public sector. Instead, it completed the privatisation process.

In 2000, the infamous Hatfield crash occurred, which led Railtrack to impose over 1000 emergency speed restriction on its network, as it did not know where else on the network the type of metal fatigue (called gauge corner cracking or rolling contact fatigue) which had caused the crash might occur.

The Hatfield crash led Railtrack to suffer severe financial difficulties and a year later - on 7 October 2001 - the company was put into railway administration by the English High Court on the application of the then Secretary of State for Transport Stephen Byers. The administration lasted for a year and on 2 October 2002 the administration order was discharged and a new organisation, Network Rail, bought Railtrack Plc.

Government support for Rail

Prior to 1994–95, Government support to the rail industry comprised of grants to British Rail (BR) and the Passenger Transport Executives (PTEs), and borrowing by BR from the National Loans Fund.

Any cash surpluses that were earned were returned to the Exchequer and used to reduce the net level of support to the industry while the rail companies were still in the public sector.

In 1995–96 and 1996–97 the net funding requirement for the industry was further reduced by proceeds from the sale of the rolling stock leasing companies and BR’s non-passenger business.

The Cost of Privatisation

Despite the railways being privatised, vast sums of public money continue to be poured into the industry.

Since the railways were privatised, government funds have supported the rail industry to the tune of about £3 billion a year.

Since 2000 there has been a sharp and steady increase in government support to the industry whilst multinational companies continue to take profit out of the British railway system. 2006/07 saw the government support the rail industry by contributing £6.3 billion. That equates to about £17.3 million a day or £719,000 an hour.

Just over £2 billion of this took the form of direct subsidies to the TOCs, with an average subsidy of 7 pence for each passenger kilometre. Despite this, train companies made up to £80 million each from franchises.

Direct Subsidies to Each Train Operating Company - updated January 2009