Nationalisation would be a real rail rip-off

January 02, 2018 12:01 AM

As the debate around 'renationalising' the railways continues, and rail fares are due to increase yet again, a new report from the TaxPayers' Alliance shows that privatisation has actually been a good thing for commuters in the UK.

CLICK HERE TO READ THE FULL PAPER.

Despite claims about how poor the privatised rail services in Britain are:

  • Two thirds of delays are caused by Network Rail, which is nationalised.
  • Every year of privatisation, except during the recession in 2009-10, has seen an increase in the number of passenger journeys.
  • Passenger satisfaction is already high and stands at 83 per cent.

Significantly lower fares could only be delivered by increasing taxpayer support which would disproportionately benefit high earners: the top fifth of households travel six times as far by rail than those in the bottom 20 per cent. It would be deeply unfair for poorer taxpayers to subsidise wealthier taxpayers' rail journeys.

Commenting on the report, John O'Connell, Chief Executive at the TaxPayers' Alliance, said: 

"Whilst we hear from some on the left that nationalisation is the only way to improve the railways, the evidence clearly points in the opposite direction. Dividend payments from the private companies are very small whilst investment is fairly high, and the only way to significantly lower fares would be to make taxpayers subsidise them. Rather than waste billions renationalising, efforts should be spent on ending the disruption of trade unions, as well as scrapping the true rail scandal in this country, which is HS2."

The 'dividends are preventing investment' argument is bogus

Support for the full nationalisation of the railways in the UK is increasingly popular. A recent poll showed that three-quarters of the British public support nationalisation of trains and the headlines over trade union disputes with Southern Rail have been widely reported.
Those who support nationalisation say that Train Operating Companies (TOCs) pay their shareholders dividends, which means higher fares, and that nationalisation would improve efficiency and the level of service. 
But dividend payments were equal to just 2.5 per cent of fare income in 2015-16, or 13 pence per journey.
And half of train operators did not pay any dividends to shareholders in 2015-16.
The many billions nationalisation would cost, as well as the signficant disruption to services, is unlikely to be worth the 13 pence per journey, even in the highly unlikely outcome that government could run services better and more efficiently than private companies.

Continental comparisons

Revenue from passengers would have been £21.7 billion lower since privatisation if the growth in passenger numbers in the UK had been the same as in more government-controlled railways such as those in Germany, Spain and France.

This would mean either more money from taxpayers or higher fares:

  • If paid for by fares this would mean £1.12 per journey more.
  • If paid for by taxes, it would mean £853 per household over the period.

Either of these figures vastly out-weighs the dividends paid and shows that the private sector incentive to grow the railways more than pays off for passengers and taxpayers.