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Rail Nationalisation Costing Commuters And Taxpayers A Fortune

Remember all that talk about how rail privatisation cost us all a fortune? You know the thing, there were private companies in there, making a profit, stands to reason, dunnit, that we all get screwed by the capitalists.

So, clearly, everyone is just overjoyed that the franchises are now renationalised. No one does make a profit, they gain a couple of percent of revenue as an operating fee and that’s that. So, we’re all better off, right?

The government took over rail franchise agreements from train operators in March, following the collapse in demand for travel caused by the virus crisis. This is expected to have cost about £10bn by mid-2021.

Oh. Maybe not. Even in government £10 billion is real money. So, who has to pay this?

Rail fares will rise more than expected next year – although the new inflation-busting 2.6% increase is being delayed until 1 March.

Regulated fares were expected to increase by 1.6% in January, as successive governments linked annual rises to July’s RPI inflation rate.

Rail minister Chris Heaton-Harris said the rise reflected “unprecedented taxpayer support” for rail this year.

So consumers are going to have to pay the price for the renationalisation then. It appears that the original story of capitalist ripoff wasn’t quite, wholly, and exactly, true.

Still, there is a joy here still:

But unions said the rise was “plain daft” and would deter travellers.

Supply and demand still work then. Rising prices reduce demand. We should recall that next time a union asks for a pay rise. It does mean a reduction in demand for the services of those now to be higher paid, doesn’t it?

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TD
TD
4 months ago

There is growing agitation to repeal the law of supply and demand because it’s not woke.

Charles
Charles
4 months ago

It may well be that privatisation was a brilliant idea that saved the nation a lot of money, but there is nothing in what you say here to suggest that. All you can prove is that when provision of a service cannot make money, a private operator cannot provide it, as they will inevitably go bankrupt, while a public body can provide it as they can be funded from taxes. That is completely consisitent with a position that private provision is more expensive than public.

BlokeInTejas
BlokeInTejas
4 months ago
Reply to  Charles

Err no.
It says that the service has lower value than its costs.

John B
John B
4 months ago
Reply to  Charles

‘… a private operator cannot provide it, as they will inevitably go bankrupt, while a public body can provide it as they can be funded from taxes.’ Taxes not being a cost to anyone? Which is how UK & France got a supersonic airliner and the USA didn’t, why State funded BA and Air France operated the only Concordes in service, and US airlines didn’t. All those British & French taxpayers must have been delighted to be poorer so that captains of industry, pop stars, royalty, rich people could enjoy supersonic travel, when at the time most tax payers couldn’t… Read more »

Chester Draws
Chester Draws
4 months ago

The NZ government privatised everything it could towards the end of last century. Some things it made into commercial entities that had to make a profit and not directed by politicians instead.

Most everything improved — service rose and costs dropped. In a couple of cases (the telephone system for example) it was spectacularly better.

The one exception? NZ rail. It had to be re-nationalised because it simply could not make money.

It does seem to be a world-wide thing that rail cannot make money.

TD
TD
4 months ago
Reply to  Chester Draws

freight does well in the US

Chester Draws
Chester Draws
4 months ago
Reply to  TD

And passenger?

TD
TD
4 months ago
Reply to  Chester Draws

Not so well. though I wonder if the hobos still hop a freight.

Quentin Vole
Quentin Vole
4 months ago
Reply to  TD

Freight does well in the US for the same reason that passenger* doesn’t, it’s the distance. A lot of US freight is intermodal (containers to right-pondians), which can run on the back of a truck for a hundred miles, transfer to rail for the next thousand, and then shipped by truck to its final destination. In the UK the two truck segments would often exceed the length of the total journey if sent direct. The other US traffic is block trains – coal (diminishing) and oil, mainly. In the UK the only block trains left are mineral aggregates, and there… Read more »

Matthew H Iskra
4 months ago
Reply to  Quentin Vole

Pedantry alert pending in 3… 2… 1… (also disclaimer: I have worked for US Railroads – SP and BN&SF). Freight in the US does remarkably well. It’s all about the Intermodal (Containers) and the ton-mile (tonne-kilometer). Its all about Containers, Oil, Coal, and Cars. Passenger service was already declining in the 1930s and would have stopped altogether without Federal Government subsidy through the mail contracts. Then a US Postmaster General in the mid 1960s declared that mail contracts would go to trucking companies to help justify all those Eisenhower Administration national freeways. Nearly ALL passenger service stopped the following year… Read more »

Spike
Spike
4 months ago
Reply to  Chester Draws

Freight is still run by several separate private “common carriers,” regulated as public utilities. They set their own rates (though there was a bill in Congress this year to claim to solve some problem by imposing price controls) and are stock corporations whose holders would insist that they divest the rail business if it were permanently unprofitable.

Inter-city passenger rail in the US is all the Amtrak federal monopoly. Congress keeps voting for the chronic money-loser coz it makes us feel European.

Boganboy
Boganboy
4 months ago
Reply to  Chester Draws

One assumes this is because rail is early 19th century technology, designed to compete with the horse and cart.

Naturally the huge growth in other forms of transport means it’s just not competitive in most cases these days.

Spike
Spike
4 months ago
Reply to  Boganboy

Having other options does not mean rail cannot be competitive. The key problem is that consumer preferences change, and trucks and buses can be rerouted easier than trains. This is especially true for passenger rail, planners hoping to coerce Americans to live downtown though they didn’t want to, even before Covid.

There are huge economies of scale in using big engines to move a lot of stuff from the same place to the same place. But the fixed-track model begs for regulation, unionization, and eventually barriers to entry.

Bloke on M4
Bloke on M4
4 months ago
Reply to  Spike

The problem is that there isn’t that much extra scale economy of trains vs an artic. Same with buses vs trams. A full bus is already a very efficient way to carry people. Doubling capacity saves a tiny fraction of energy and driver wages.

But then you hit the costs of monopoly and infrastructure. Tram drivers cost more, trams cost more. You need infrastructure people managing the electrics, smoother surfaces and rails. Change is also incredibly slow because of the massive, bloated bureaucracy.

Spike
Spike
4 months ago
Reply to  Bloke on M4

A locomotive does more than double capacity, if you had all those people wanting to go from city center to city center at the exact same time (even though burglaries in many city centers are no longer being prosecuted); but that’s a big if. But yes, people no more want parallel competing train tracks than multiple sets of utility poles on the street. So rail is a sitting duck for regulators with idle hands.

Addolff
Addolff
4 months ago
Reply to  Chester Draws

Chester, back in the late 80’s before BR was nationalised but talk of it was in the air, BR announced a £100+ operating profit in an attempt to make it look viable. At the time there was a big meeting (in Germany I think) of most / all the national rail operators. The head of Germany’s DB made the comment that the only way a nationalised rail service makes a profit is by cooking the books, so perhaps you’re right.

HJ777
HJ777
4 months ago
Reply to  Chester Draws

There is no reason to nationalise railways just because they cannot make money.
If the government decides that certain rail lines and services are desirable for social purposes even though they are financially not viable, then it has the option of offering a subsidy. It then picks the (private) bidder who will accept the lowest subsidy while guaranteeing the required service requirements. It does not mean that the government has to own and run the service itself.

Bloke on M4
Bloke on M4
4 months ago

I’m not sure the £10bn was about taking them over so much as subsidising the services to keep them running because passenger numbers are down.

It’s nuts that rail fares are rising. Demand isn’t so why are fares that are already pricing in high demand (which isn’t there) going up? To pay for the RMT staff? Tell them to go on strike if they don’t like it, because right now, there is no way they’d win that fight. You could put everyone on roads and it would make no difference.

jgh
jgh
4 months ago

I think all the way back to the 1830s freight has made the profits and passengers has made a loss. Even the Victorians had to force railway companies to run passenger services, and being integrated companies they could fund the loss making passenger services from the frieght services. Nowadays you can’t just slice money off EWS Railfreight and give it to Northern Rail.

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