Re-nationalising rail could save

01 July 2005

"Last year delegates at the Labour Party’s annual conference voted to adopt a policy of ‘introducing an integrated, accountable and publicly owned railway’. Ministers argued that such a move would be too expensive and deprive the industry of private sector investment.

But a pre-election briefing paper by the labour movement think tank Catalyst shows how this policy could be carried out in a third term without breaching the government’s fiscal rules. 

Drawing on research by Professor Jean Shaoul of Manchester University, it shows that this could produce immediate savings of at least £500m a year on the government’s annual rail bill of £4.5 billion, as well as leading to further savings and service improvements over the medium term as the industry was reintegrated.

Martin McIvor of Catalyst says: ‘Ministers have suggested that we cannot afford to take the railways back into public ownership. The reality is that we cannot afford not to. Continuing with the status quo means continuing with low growth, poor performance, compromised safety – and spiralling cost escalation. The Exchequer will not bear this increasing burden indefinitely – sooner or later there will be pressure to shift the costs of privatisation to passengers, through fare rises and cuts in services. Either way, the public loses. 

‘Britain’s railway has a vital role to play as part of a rejuvenated transport strategy for the twenty-first century, delivering vital social, economic, and environmental benefits. To meet these public interest objectives, we need a railway that is public owned and publicly accountable, and which delivers a real return on the public money invested in it.’

Catalyst’s briefing paper, ‘The railways in a third term’, draws upon research conducted by Professor Jean Shaoul as part of Catalyst’s ‘Future for Rail’ programme. A final report will be published in the coming weeks.
The government is currently spending around £4.5 billion a year on the railways, most of which is made up of investment grants to Network Rail, the ‘not-for-dividend’ infrastructure operator, and subsidies to private Train Operating Companies, who pay leasing costs for trains to private Rolling Stock Companies.

In January last year the government announced a major review of the structure and organisation of the railway industry, the conclusions of which were contained in the ‘Future of Rail’ white paper published in July. This admitted that record levels of public investment had failed to produce the desired results because privatisation had bequeathed ‘an inefficient and dysfunctional organisation coupled with a failure to control costs’. 

Nevertheless ministers stated that they were committed to "the principle of a public and private partnership for the railways" and proposed only modest changes to the regulation of the industry. These measures are contained in the Rail Bill currently progressing through parliament.

In September 2004 an overwhelming majority of constituency and union delegates at the Labour Party"s annual conference voted to adopt a policy committing Labour to ‘resolving the fragmented structure of the industry by introducing an integrated, accountable and publicly owned railway’.

97 MPs have also signed an Early Day Motion (No 382) supporting ‘the principle of an integrated, publicly-owned, publicly accountable railway’.


Catalyst is an independent think tank of the left committed to promoting ‘practical policies for the redistribution of wealth, power and opportunity’. 
For more information please contact the Catalyst office on 020 7733 2111 or visitwww.catalystforum.org.uk.


Catalyst key points

  1. any private sector investment in the railway must ultimately be paid for by farepayers and taxpayers - with interest. Around £800m is taken out of the industry every year as returns to private lenders and investors, a total leakage of more than £6b since 1996

  2. the majority of passenger services could be taken into the public sector by 2013 at no cost. Reductions in regulatory bureaucracy and in the subsidies paid to private Train Operating Companies could save more than £200m a year 

  3. restoring network infrastructure and rolling stock to public ownership would entail a one-off increase in public debt by, at most, 2.15 per cent of GDP. This would not breach the government’s Golden Rule or Sustainable Investment Rule. This capital investment could produce immediate savings of £300m or more a year in current spending

  4. overall, the most conservative estimates indicate that bringing the railway system back into public ownership could produce immediate cash savings of £500m a year or more through reduced bureaucracy and leakages to private providers of finance. Over the medium and longer term, reintegration would produce further savings and improvements as the post-privatisation trend to waste and cost-escalation was reversed.

  5. rolling stock companies should also qualify for a one-off windfall tax on excess profits. If this was calculated and applied in the same way as Labour’s 1997 windfall tax on privatised utilities, additional revenue of £100m to £200m could be yielded

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