Nationalisation isn't he answer to government failure - Credit, public domain via Wikicommons

Chris Grayling has decided to take the East Coast franchise back into government ownership. Seems an entirely sensible thing to do. Someone who leases such an asset screws up then why not take it off them according to that original contract? It’s the next bit of the lesson which is going to be misunderstood. We’re going to have the most almighty shouting that this means that all train sets should be taken back into government ownership. Which isn’t the correct answer at all.

For it is the government owned Network Rail which has screwed up here. Government screws up is not an argument that government should do more:

The government will renationalise the East Coast mainline following a string of failures, it was announced on Wednesday.

Transport Secretary Chris Grayling has confirmed that he will be terminating the contract for one of Britain’s busiest railway lines on June 24, bringing the line back into public ownership.

Virgin Trains East Coast – a joint venture between Stagecoach (90%) and
Virgin (10%) – was awarded the franchise to run trains between London King’s Cross and Edinburgh for eight years in 2014.

The service will be renamed London and North Eastern Railway (LNER).

There’s nowt wrong with this at all, it’s the reason why it’s happening which is important to understand. For, of course, why it is happening will give us a good clue as to what to do next:

The east coast rail line will be temporarily renationalised, the government has decided, after operators Virgin and Stagecoach could no longer meet the promised payments in the £3.3bn contract.

The franchisees agreed to pay a certain amount of rent to the government for the right to run the East Coast line. That amount was predicated on what number of what sort of trains they could run along that line. Well, obviously so. That then depends on what Network Rail – recall, government owned and run – says it’s going to do about upgrades upon that very railway line. They agree to upgrade it so that more trains can be run faster then obviously the franchise is worth more, the payments will be higher.

Labour used the announcement to call for other parts of the railway system to be taken back into public ownership.

No, that’s the wrong answer.

For what has happened is that Network Rail hasn’t made the upgrades it said it would. Therefore the franchisees are paying too much for what railway they’re getting – recall, they bid on the basis of upgrades happening. As Richard Branson is saying:

The Virgin owner did not dispute the £2bn figure in his blog but stated his company’s initial bid was based on a “number of key assumptions and a promise of a huge upgrade of the infrastructure” by Network Rail, which has been dogged by delays. These have, Sir Richard argued, impeded Virgin Trains East Coast from running more trains and carrying more passengers.

“The considerable delays to this upgrade, to new trains, as well as poor track reliability will cost us significant lost revenue (amounting to hundreds of millions of pounds) and torpedoed the assumptions of our original bid,” he said.

So, our basic analysis says government, in the form of Network Rail, screwed up. This is not an argument in favour of government now taking over all of the railways, is it?

Well, OK, it is the way the Labour Party is using events but then charlatanry in the pursuit of power isn’t limited just to that quadrant of politics now, is it?