The following article is by is a researcher in urban transport governance at the Centre for Transport Studies, UCL. It was published on The Conversation and I republish it here because it answers a question often asked. Republishing is permitted by The Conversation:
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The UK government has announced that it will take control of the failing East Coast train line. The franchise will now end in June 2018 — only three years into its eight-year contract. Twice before, in 2006 and 2009, the private company running the route from London to Edinburgh ended their contract early.
This has intensified calls for Britain's railways to be renationalised — a manifesto pledge of the Labour opposition in the 2017 national election. It is a policy surveys suggest has strong public support.
Yet, whether and how renationalising the railways might be achieved depends on the final Brexit deal the UK strikes with the European Union. Under current EU competition policy, Britain could not recreate a railway monopoly. It could, however, bring much of the rail sector into public ownership.
The British model
Britain's railways are a three party affair: the infrastructure manager, the train service operators and the train leasing companies. Network Rail is the public body responsible for track maintenance and investment. Its predecessor was a for-profit company that was replaced following a series of fatal train crashes attributed to poor track maintenance.
Train service operators — all the rail company names you encounter on your commute — are a mix of subsidiaries of other European national rail companies and private companies. They run train services, earn money from tickets sales, pay a track usage fee to Network Rail, and hire the trains from a train leasing company.
Britain's railways use a competition-for-the-market model. This means that instead of competitors running the same services alongside each other and vying for passengers, the competition is to win the contract to run part of Britain's railway network for usually five to ten years.
Broadly, railway routes fall into two categories: commercially profitable and public service. Train service operators make payments to government to run commercial routes, while receiving subsidies to run public service routes. Often the bidder most optimistic about passenger numbers — therefore, promising the best deal — wins the contract.
The House of Commons Public Accounts Committee concluded in April 2018 that overly optimistic passenger forecasts were to blame for the collapse of the East Coast mainline franchise.
The franchise's repeated collapse highlights two key flaws with Britain's rail model: it incentivises overestimating to win bids, and the government ultimately holds all the risk. Since transport plays too vital a role in keeping the economy going and all of us moving, the government cannot allow the railways to stop running.
EU rules
The key EU rule governing how member states run their railways is that the management of infrastructure and rail services must be separate. Another is that where a rail route has spare capacity, available time slots to run new services should be open to any operator to purchase. Notable services using this mechanism are the Eurostar and Heathrow Express.
These two key requirements stand in the way of recreating a unified rail monopoly. But, as other EU member states show, the majority of Britain's railways could be brought back into the public sector.
The EU Commission argued that greater competition on the railways will improve services and reduce fares for passengers. For the past three decades, it has applauded Britain's railway privatisation and encouraged others to follow Britain's example.
Key to enabling fair competition on the railways is non-discriminatory track access. For this reason successive EU railway reforms have pushed for independence of infrastructure management. When unveiled in 2013, the EU Commission's latest railway reforms, the Fourth Railway Package, set out to impose strict institutional separation of infrastructure and rail services, adopting the franchise model on all routes.
But after several years of debate and notable push back from European governments and railway operators — in particular the German Deutsche Bahn and French SNCF — a watered-down version of the Fourth Railway Package passed in 2016. It now only requires infrastructure to be independently managed and allows some public service routes to be directly awarded, specifically where a direct award would lead to better quality or cost-efficiency. This is how many regional services are run by national operators. On all other routes the operator is to be determined by competitive bidding.
Different ways to renationalise
Other European nations demonstrate how Britain could take the railways back into the public sector while abiding by EU rail rules. There are two main adopted models. The first is two separate state-owned companies (one for track, one for trains), which is used in Spain and the Netherlands.
The second uses separate companies within a state-owned group of companies (a parent company with a subsidiary company for infrastructure, and others for different train services). This is the model used in Germany and Italy.
Switzerland illustrates how Britain's railways could be renationalised if the UK negotiated an exemption from opening up its railways to competition as part of its Brexit agreement. The Swiss Federal Railway is an example of a unified national railway company that brings together track and trains.
The Japanese model is another alternative that could be adopted if the UK were free from the requirement to separate track and trains. Japan's railways are divided into regional units. Each unit has an integrated management of track and trains and is operated by one company (some privately, some government run). It is a model the current transport secretary of state, Chris Grayling is keen to see implemented on Britain's railways.
Britain's railways are already partial nationalised, as Network Rail is a public body. Although, reinstating a national rail monopoly under current EU rules would not be possible, there are ways that Britain could return many of its railway services to the public sector — Germany, Italy, Spain and the Netherlands all show how this can be effectively done.
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Yes it would be possible, but the issue is that outside the EU all of this could be done at the stroke of a pen. Inside it would be open to challenge and delay at every stage by the corporations that currently own the franchises (and to be frank, most of the EU regulatory institutions too).
That no UK Parliament is able to restrict a successor government in it’s action is a key aspect of our constitution. That the EU offers corporations a way to restrict this is one of the major reasons why I voted to leave – the threats of climate change in particular are so great that a progressive government needs to be able to act without delay.
That any moves to restrict renationalisation and progressive State control will be opposed and obstructed at every stage through the ECJ by cash-rich institutions is a huge blind-spot for the progressively inclined Remainers.
I assure you – the chance we will be ‘outside’ EU influence on this is a) zero unless b) we want to crash the economy, when we will have a lot more to worry about
It’s you with the blind spot
Thanks, Adrian, same reasons I voted Leave.
Crashed in what way and how? By marginally interfering with already overly-complicated and wasteful pan-European supply chains?
I’ll take the chance of that to give any UK Government the ability to restrict the free-movement of capital, to be able to insulate ourselves from tax-competition, to significantly restrict the advertising industry, to cancel PFI deals, to enforce effective rules on the ownership of the media, to properly tax-rents (and on and on) any day of the week. Each one of those would currently be open to corporate obstruction via the ECJ.
That we should be grateful that they might allow us to take ownership again of some of our rail providers shows a rather depressing lack of ambition from much of the left in the UK.
Freseh fruit from mainland Europe is being imported into the Uk at around Euro30+ per month (2017). It varies depending on the season. I have yet to look at fresh veg – but don’t imagine it is much l;ess. Much of this comes in by truck via Dover. Post March 2018 I expect there to be delays due to customs clearnace problems – an issue doubtless you are familiar with – given all the noise (but no sense or would that be nonsense?) the Tories are generating on this subject. This will lead tp prices going up and/or possible shortages. Obviously life will go on if there are no french or spanish strawberries in the shops – but if your car needs some work & needs a spare part you might have to wait for quite a bit for the part from Urope. Come April/May 2018 I predict that the police far from looking out for terrorists will be much more focused on keeping apart rampaging shoppers at Tesco. As for the people of Kent – I’m sure they will not be voting Tory by end 2019. Don’t say I did not warn you.
The House of Commons Public Accounts Committee concluded in April 2018 that overly optimistic passenger forecasts were to blame for the collapse of the East Coast mainline franchise.
The franchise’s repeated collapse highlights two key flaws with Britain’s rail model: it incentivises overestimating to win bids, and the government ultimately holds all the risk.
That’s quite a clever shift of tense. What the Public Accounts Committee says in the linked report shows that this has changed
The Department told
us that it now tests bids against ‘a very pessimistic view of the economy’ but that it only
started doing this in 2015, after it let the East Coast franchise. It also told us that it has put
in place a new risk sharing model intended to shelter operators from ‘the worst excesses
of economic change’.60 It was keen to stress that it did not believe the franchising system
as a whole is failing, and that passenger demand is still growing, albeit at lower rates than
previously
I declare an interest . I am a train buff . Always have been . Ok now that’s out of the way here’s the history lesson : under the Railways Act of 1921 the vast majority of the the private railway companies that had been responsible for the development of the railways from the Liverpool and Manchester onwards were grouped under four companies geographically . This Act was an acknowledgement by Lloyd George’s government that in order to serve the population at large in a manner that wasn’t anarchic ( nothing in the development of technology in the 19th Century came close to the anarchy that laissez-faire railway development achieved ) some sort of collaboration was essential. Fast forward twenty seven years and the railways were nationalised with each of the old grouping companies being named ‘ region ‘ . In neither instance did any politician think that splitting up the infrastructure and the rolling stock might be a novel idea that hadn’t been tried and might just work. But the hapless John Major and his sad little band were so persuaded and so began the era of the privatised railway . Unless and until this absurdity is corrected the mess will continue and no-one, not us, the travelling public , not the government , not the train operating companies and not Network Rail.
I declare an interest. I am a train buff. Nearly always have been. I own about 1,000 books on railway history.
I agree with you.
“The EU Commission argued that greater competition on the railways will improve services and reduce fares for passengers. For the past three decades, it has applauded Britain’s railway privatisation and encouraged others to follow Britain’s example.”
Competition in the UK rail (non) market has led to prices twice that of countries like France (and rail speeds half that of France). In this respect the EC is as wrong as it could be – & deserve to have their noses rubbed in it – & yet & yet they still stick with this utter nonsense. The methods outline for renationalisation are interesting & demonstrate that there are few absolutes within the EU – just various work-around solutions if a given membner state does not like something.