Issue 196 of SOCIALIST REVIEW Published April 1996 Copyright Socialist Review

Rail Privatisation

The great train robbery

Feature researched and written by Sabby Sagall

What a bargain--for the Tories' friends

A story of greed and huge gains for a few, of government subsidy for private profits, of fewer, more expensive and more dangerous rail services for the rest of us. That is the tale of railway privatisation. Yet Tony Blair has refused to make an open commitment to renationalisation under a future Labour government. Despite recent pledges by his deputy, John Prescott, to take Railtrack back into public ownership, a 'friend' of Blair recently told the Financial Times, 'We are no longer committed to ownership for ownership's sake.'

Privatisation of the railways in Britain offers a bleak prospect: in the interest of profitability, the lucrative InterCity lines will of course be retained, but branch lines will be cut, jobs lost, fares raised, safety compromised and the quality of services reduced with the general fall in investment. According to the rail workers' union, RMT, privatisation is causing a massive investment crisis on the railways. Britain is now spending less actual money (let alone after allowing for inflation) than in the 1960s: £663 and £617 million for the years 1994 and 1995 respectively compared with £941 and £967 million for the years 1978 and 1979.

Privatisation has produced a nightmare of fragmentation and restructuring. The Tory plan has meant breaking up British Rail into some 40 companies and selling them off. There are now four levels of organisation in the industry. Railtrack was set up in 1992 as the British Rail company owning the infrastructure: the stations, track and signalling. At least 51 percent of the company is to he sold off next May. At the next level are three companies set up to own and lease the rolling stock to companies at the third level: the actual train operators who have bid for franchises. A total of 25 companies will operate the passenger trains. A fourth group of firms will be in charge of track renewal and maintenance. All aspects of maintenance have been contracted by Railtrack to British Rail Infrastructure Services which is being sold off as 13 separate units.

British Rail has also been busy selling off its three regional companies operating freight services. The justification for separating the track and signalling from the actual trains is to encourage competition: more than one company will be able to operate the same line. So far, only two passenger franchises have been granted. A third, the Tilbury line, was temporarily annulled due to ticketing irregularities. In total, proceeds from the sale of franchises to passenger, freight and maintenance companies totalled £2,485 million in January. This figure undervalues by possibly £4 billion the assets of Britain's railways.

Destroying the integrated network will cause immense difficulties. The creation of 25 passenger train companies, some running just one line, will make it hard to coordinate timetables and the purchase of tickets to distant destinations. Early last year it was revealed that through tickets may be sold by fewer than 300 of the network's 2,500 stations. In February 1995 the Financial Times reported that the first four passenger operators will be allowed to reduce services below existing levels. This suggests that the minimum standards specified in the franchise agreements are below even the levels to which the railways have been allowed to sink as a result of several years of cuts in government subsidies. These grants fell during the 1980s. Two advisers to the Commons Transport Committee estimated last year that a shortfall of £400 million in BR's income could lead to the closure of 4,000 miles of branch lines or cuts of 25 percent in peak services.

Ironically, even under privatisation the rail companies will still need government subsidies. The franchising system is designed to give them the best of both worlds: introducing the discipline of competition, that is, encouraging them to cut lines and jobs, while maintaining government subsidies to those businesses that struggle to make a profit. Indeed, the net result of the rail market madness has caused the basic costs of train operators to rise substantially--so much, in fact, that the government grant required to keep the railways going rose from £1,061 million in 1993-94 to £2,090 million in 1994-95, an increase of £1,029 million. British Rail and Railtrack had to return £646 million of this to the government. But figures have been produced showing that a privatised railway will cost taxpayers up to £560 million a year more than when it was public.

The train operators will pay track access charges which will be fixed according to the rail regulator's estimate of the value of Railtrack's assets. There was an argument over this between John Swift, the regulator, and the treasury. The latter originally valued British Rail's fixed assets at £6.5 billion and demanded that Railtrack earn an annual return of 5.1 per cent rising to 8 percent after four years. The level of track access charges the franchise companies would have to pay to enable Railtrack to meet these targets meant that passenger services would be loss making and reliant on subsidy.

The regulator lowered Railtrack's performance standards so that track charges would be reduced. This will lower the value of Railtrack on flotation and will therefore reduce reliance by train operators on treasury subsidy to make a profit. It should thus be easier to attract private bidders to run passenger services.

The problem of attracting private bidders was highlighted when Red Star parcels was first put up for sale in June 1993. The accounts revealed losses of £9 million on a £43 million turnover. it failed to find a bidder. Since then it has undergone a thorough 'restructuring', sacking half the staff, and was sold to a management buy out for a nominal £1. Since the rail privatisation programme began its passage through parliament in 1992, the total workforce has declined from 134,000 to 110,000, a loss of 24,000 jobs.


Road rage

Jam every day

Privatisation of the railways has led to many people asking what sort of transport system we need. The priorities of the present government are clear--less than 4 percent of total investment in transport goes to rail (excluding the Channel Tunnel) whereas 93 percent goes on roads.

Labour could halt the privatisation of the railways immediately, and throw the whole Tory programme into chaos, if it were to give a clear commitment that on coming to office it would immediately renationalise the whole network, with no compensation to the Tories' friends who have profited from the sell off.

A well funded, integrated fad network would solve many of the problems of pollution and traffic congestion that we face today. Where there have been attempts to reduce fares and improve services--such as the GLC scheme on the London underground--there has been an increase in passengers, higher revenue and less road congestion.

Increased use of the car occurs, firstly, because of the high cost of public transport, and secondly because of the unreliability of the service. All the evidence shows that building more roads generates more traffic, more congestion, and the need for even more roads--a vicious circle.

If the billions of pounds spent on the roads or the rail privatisation was actually spent on improving the rail network then we could have a system that served the needs of all, was cheaper to use, more reliable with more regular services, spent less on energy costs and did less harm to the environment.


Green light for danger

Fears about safety under privatisation have compounded the anxiety over cuts in jobs and branch lines and the anger over the further decline in service. According to Labour Research, the Tories have spent around £1,208 million so far on breaking up British Rail, including the cost of redundancies and consultants' fees. At the same time, safety has been seriously compromised by cuts in funding. Labour Research also revealed last November that the Tories tried to suppress an internal BR report on safety improvement measures commissioned after the 1988 Clapham train disaster. This pointed out 'that three quarters of a £170 million programme of work to replace defective signalling has fallen seriously behind schedule or been scrapped.' Many projects due to start no later than 1993, 1994 or 1995 now have no starting dates. In addition, British Rail closed down the York signal design office, making 169 engineers redundant. A further sign of the neglect of safety is the decline in investment in rail infrastructure: the turnover of the UK's three largest signalling equipment suppliers fell from £58.2 million in 1993-94 to £44.1 million in 1994-95.

In November 1994 the then Tory transport secretary, Brian Mawhinney, travelled to Chicago to press Wisconsin Central, a notorious anti-union American company with an appalling safety record, to buy British Rail's freight service. So desperate were the Tories to sell the company that they recently parted with assets worth £3 billion at the knockdown price of £225 million. In the space of two weeks recently Wisconsin's trains were involved in major crashes in both the US and Britain. The company is being investigated in the US, New Zealand and now Britain.

According to the RMT, had the money spent on rail privatisation been invested in railways, it could have modernised all the rolling stock, built Thameslink 2000 and installed a safety system known as Automatic Train Protection across the entire network. ATP, costing around £750 million, automatically applies brakes if a train passes a red signal. The drivers' union Aslef claims that its introduction could have prevented five out of six accidents in the past six years--accidents in which 48 people were killed and over 1,000 injured. Railtrack's cost benefit analysis concluded that every life saved by the introduction of ATP would cost £14 million. It was only prepared to install the system if it cost less than £4 million to save a life.

The Tory government is making clear that its sole concern is to cut the cost to the state of the railways. It is thus demonstrating its complete lack of interest in public transport. No reliance can be placed on a future Blair government restoring the railways to public ownership. Clearly the idea of Labour having the guts to renationalise without compensation belongs to fairyland. Bryan Wilson, Labour's transport spokesperson, promised that Labour would return the passenger railway to BR and would not renew the franchises or would offer franchisees the chance to negotiate an early end to their contracts. But it remains to be seen whether Labour will do anything to seriously challenge the private rail companies.

The chances are that, if Labour does renationalise, it would convert Railtrack shares into preference shares, continuing to pay dividends to shareholders. In this way, they would secure control of Railtrack while avoiding the cost of buying back the shares.

Clearly, it will be up to ordinary working people, through the unions and through local community organisations, to build a fight to restore the railways to public ownership and control.


Profit at the margins

All change:nationalisation is now being reversed

Historically, neither the construction nor the operation of the railway industry has been particularly profitable. Even in the 19th century, the railway age, British capitalists did not make vast fortunes out of them. Following the disastrous slump of 184142, there were vast surpluses of capital desperate for investment and for which British industry didn't provide a sufficient profitable outlet. Much of it went abroad, but a great deal went into railway construction, particularly during the years 1845-47. Such profits as were made came from constructing rather than running railways. The building of railways was economically valuable not so much for its profits but as a great new source of employment and a major stimulus to the coal and iron and steel industries. Railway construction formed the basis of the second, more advanced, phase of industrialisation in the second half of the 19th century, when Britain was 'the workshop of the world'.

In the US the railway boom began in the 1850s. It is not generally known that in this bastion of free market capitalism the pioneering role in railway construction was played by public money. Funds to build the first railways, in Baltimore, Ohio and Massachusetts, came from the states of Maryland and Massachusetts in loans raised from the English money market. States also gave land to private companies, pledged credit to assist the financing and bought stock in the ventures. From 1850 the federal government made generous grants to help railway promoters in raising capital.

The Labour government of 1945-51 carried out a series of nationalisation measures under pressure from the rank and file and the general postwar mood of radicalism. But the programme it carried out in no way challenged the main structure of capitalist power. On the contrary, the industries it nationalised, including the railways, were largely loss making and derelict, in desperate need of investment and modernisation. Nationalisation in no way weakened British capitalism. On the contrary, in crucial ways, it strengthened it.

As for the railways, most of the rolling stock, engines, track and stations were either obsolete or in bad repair. The fragmentation of the rail system between a number of small companies led to the duplication of resources and the failure to take advantage of potential economies. Hence one of the main achievements of the Attlee government was to modernise British capitalism, to provide it with an up to date infrastructure.

This was apparent even to some enlightened British capitalists and their political representatives in the Conservative Party. Some of them had already recognised the advantages to their class of the state taking over financial and administrative responsibility for crucial industries such as the railways. As early as 1918 Winston Churchill had remarked:

Tory governments from the 1950s to the early 1970s never considered denationalising the railways, though the profitable road haulage service was sold back to the private sector in 1953.

The former owners of the nationalised industries received generous compensation from the Attlee government much better than if they'd remained saddled with their inefficient, loss making property. Compensation, however, imposed a heavy burden of debt on the nationalised industries, contributing significantly to the problems that were later ascribed to the inherent nature of public ownership.

For years British industry was subsidised by below market railway freight charges. The huge expansion programmes of the public corporations, including the railways, provided highly lucrative markets for private contractors and manufacturers.

Private ownership of railways in the US illustrates the effect on the system of fragmentation and the need for profitability at the expense of public service. For example, there is no integration of lines owned by different companies. Until a few years ago, it was impossible to get from New York to Chicago in a single journey. The passenger companies do not cater for local connections. Only freight and the main passenger routes are considered profitable.


More cost, no benefits

A recent government report reveals how our increasing dependence on the private car at the expense of public transport is exhuasting domestic oil and gas supplies. Since 1970, car travel has almost doubled to an average of 6,500 miles per year, while travel on public passenger vehicles has fallen by a quarter, to less than 600.

In 1970 only the comparatively well off could afford to travel by car, which was more expensive than public transport. Since then, as incomes have risen, the real cost of motoring has fallen, along with the cost of petrol and oil. At the same time, bus and rail fares have risen dramatically, rail fares, by 89 percent.

Millions of people travel to work alone, in cars, much of the time sitting in traffic jams, instead of sharing a bus or train and using less fuel each per mile. Use of fuel for road transport has increased by 90 percent in 25 years.


Return to
Contents page: Return to Socialist Review Index Home page