Network Rail joins the public sector- Reforming the Railways programme

Posted on: 08/09/2014

Still from our Reforming the Railways programme

Our Reforming the Railways programme is very topical at the minute with the furore surrounding next years’ huge rise in train fares. There is also huge debate after Network Rail joined the public sector last month. Our programme examines the current issues within the UK railway industry, with industry leading companies like icomera, Norgren and Furrer and Frey contributing.

So, what does Network Rail joining the public sector actually mean?

British Rail was privatised in 1993, which meant that companies would bid to operate their services as part of it. This was a very costly and unstable procedure. For instance, a train operator could win the contract, but then be outbid when their contract was up. This meant that the future of the rail industry was uncertain and was at the beck and call of the company who won the contract.

This system is a flawed one as the costs of running a public service railway far exceed the revenue that the fares generate. The Government then has to subsidise train operating companies. A privatised railway also allows operating companies to pay out dividends. Between 1997-2012 Virgin Trains paid out £500million in dividends, although they had received a Government subsidy of £2.5billion. So how can they get away with rewarding owners with money that has come from a Government subsidy, which was ultimately funded by the tax payer?

Network Rail moving to the public sector means that they are now accountable to Parliament. In theory this will apply pressure to stop dividends like these being paid. Currently Network Rail is in debt to the tune of £34billion. Justine Greening, Secretary of State for Transport in 2011, voted against these bonuses but chose not to demand action. This was a real pity and could have affected a huge improvement in the UK rail industry.

East Coast went a huge way to prove that publicly owned operating companies could be a very viable option for the UK railways. Since they took over the East Coast Mainline in 2009 they have returned £1billion to the Government. This is despite receiving far less in Government subsidies that Virgin Trains. They have also won a number of industry awards and have a a passenger satisfaction rate of 92%.

So an option for the Government is to wait for each franchise deal to expire and to then return the route to the public. Considering the success of East Coast, and the expensive and flawed privatisation system, returning the railways to the public is essential to the future of the railway industry and the economy in general. This could also curb the huge increase in rail fares under the coalition Government.

Our Reforming the Railways programme will be broadcast on Tues 30th Sep, 7pm, on Sky channel 212. Please comment below and if you enjoyed this article please share it on the social media links below.

Written by Martin Stocks | @Stocks1986