The latest bright idea about how to deal with Britain’s trains is that there should be a windfall profit tax on those franchises which don’t meet certain time and punctuality standards. Which, if all such franchises were profitable, if all such parts of the system were running on profit making franchises, may or may not be a good idea. But given that not all are either it’s a terrible one. It’s sofa thinking, the worst of the Blair years. Dream up something without consideration of reality, then struggle to impose what turns out to be a very bad idea indeed:
A multimillion-pound tax on poorly performing rail companies should be used to freeze fares for passengers hit by weeks of disruption, Labour says.
Andy McDonald, the shadow transport secretary, backed the move as another major fares rise is set to be confirmed this week, despite disruptions on several lines that have affected thousands of passengers.
The first bit of thinking that should be done about this idea is that those passengers who have been hit by the disruption already get compensation. Quite why those future passengers who haven’t been hit by it should gain cheaper travel is not obvious. It’s also true that any such tax would be a windfall now, but will be built into any future bids for franchises – the risk of it will. Thus the taxpayers will get less money from future lettings of the railways, the net cost to taxpayers will rise. We will all thus be paying, through general taxation, to compensate those who have not had their journeys interrupted.
Sounds like a hell of a plan really.
McDonald said three train companies affected by major disruption this year – Govia Thameslink, Arriva Rail North and First Transpennine Express – should fund a fare freeze as a “gesture of goodwill” to passengers. Labour said it backed the idea of profits tax as a one-off move.
Profits tax?
Those northern railways receive subsidy so any profit is purely an accounting exercise. Transpennine, dunno. And the Govia Thamelink line that everyone whines about, down to Brighton, isn’t even a franchise. It’s an operating contract with fare revenue going to DoT and agreed costs being paid to Govia.
They’re not really thinking this through before they start making plans, are they?
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Point one, I don't like trains and I think they are an outmoded form of transport with a few good applications. That's for perspective.
Point two, can we, after Brexit, be allowed to arrange the railways in a way that they will work? Nationalisation is not my thing, but it should be on the table. My preferred option is to return to rail companies which own their lines, track, stations and rolling stock and can operate them as they think fit. With no government financing, subsidy or interference. Like a free market, you might say.
Railways were invented to carry freight which they can do all the time. Carrying passengers started off as an accident and became popular because most people had no other means of travelling more than short distances.
Railways is 200 year old technology which would have gone the way of canal transportation - a leisure activity and curiosity for tourists - if the Government had not taken them over, heavily subsidised them and regulated and taxed their competition.
Railways are a prime illustration of the concept that it is somehow efficient to get everyone to do something a single way, using a single service provider. (Which "we" will regulate, or own entirely, so as to ensure that it delivers good results.) Bus routes can be changed effortlessly, compared to laying new track.
Railways are good for local commuter-type services, most major cities rely on them for this purpose. They work for freight when there are a lot of block loads going from A to B - containers to/from ports to a central distribution point, coal trains from mine to power station, ...
Inter-city (high speed) lines can work well if major population centres have the right degree of separation. In the UK they're too close; in the US they're too distant.
We would solve so many problems if government would not use the power to commandeer the funds that government needs, to instead change private behavior. (Obama-care is Example 1. That private behavior, the decision whether to buy health insurance, has public consequences, is a result not of individual poor planning but of government providing a free alternative to those individuals.) (This applies as well to Tim's beloved Pigou taxes, where the goal is not punishment but to invisibly induce desired behavior by setting prices wrong.)
Implement this proposal and government suddenly has a fluctuating source of revenue, on which it can blame all budget shortfalls, and an incentive to keep the trains not running on time.
Tim is right that the "penalty tax" ultimately comes out of the pockets of riders. The tax might make the service so unattractive, compared to the alternatives, as to put a service out of business. Parliament will resist this result and will hear the concerns of operators to include excuses in the terms that make the penalty meaningless. Otherwise, the bankrupt line will have to be nationalized, and the penalty waived, as it makes no sense for government to penalize itself. Customer service will go straight to hell.