Trade unions want the East Coast franchise back in public hands permanently.
So do I.
The franchise experiment has failed.
Rail has to be run for the public good as a not for profit enterprise - which would not, of course, preclude profit being made.
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Franchising as it has been attempted has had its problems, but nationalisation has been tried before and that experiment failed too.
Responding to failure by going back to something which has failed in the past doesn’t seem like the right way to go.
I can thoroughly understand why the TUC want nationalisation. It serves their own self-interest, as nationalisation tends to give the work force more power, at the expense of the customer, but the self-interest of special interest groups isn’t a sound basis on which to legislate.
Spot on, Richard!
Paul
How do failed franchises serve the interest of the customer who is, usually, a taxpayer?
Tell us all!
And what are shareholders if not a very special interest group who society does not need to privilege with subsidies?
Richard
Richard, you seem to have an obsession with trying to attribute views to me that I have not expressed and do not hold.
“How do failed franchises serve the interest of the customer who is, usually, a taxpayer?”
If I say that the correct response to a poorly designed franchise system is not nationalisation, it very clearly doesn’t mean I’m endorsing the franchise system.
“And what are shareholders if not a very special interest group who society does not need to privilege with subsidies?”
I said “the self-interest of special interest groups isn’t a sound basis on which to legislate.” Does that really sound to you like I’m saying that I like the idea of subsidies being given to benefit shareholders?
The railways are a natural monopoly and belong in the public sector. Any improvements in the years since privatisation have come from the public purse and huge fare increases. And some have also made a pile for themselves out of the exercise. The freight service has been pared to the bone when we actually desperately need to get freight off our congested roads.
New Labour promised an integrated transport network. This is impossible unless the whole system is renationalised. If only the ‘real’ Labour Party could get its way with the next manifesto, this would be at the top of the agenda, along with water and energy, we’d have a chance. We’re sick and tired of this neo-liberal experiment.
With the current franchise system each operator has their own monopoly on their line. Yes, we have multiple operators across the whole country, but if you want to get from Bristol to London you are stuck with First etc. Under the current system these monopolies are endorsed by government.
I personally support the ‘open-access’ model, which operators such as hull trains currently use, and would like to see franchises scrapped.
If all our private operators were truly operating in the free market fares will only go down. Luckily infrastructure is still in public ownership.
Franchising has been a right disaster – profits to shareholders, bonuses to directors, increasing fares to passengers and most of the responsibility and expense to the taxpayer. If nationalisation is not the answer, what is? It might be noted that full privatisation, as it was before British Rail was set up was not a success either, that’s why it was nationalised in the first place.
My gut feeling is that, even though it may be flawed, nationalisation is the only way to reflect the reality that government and taxpayers cannot avoid being involved. But I am open to any better suggestions. As a daily traveller myself, my main concern is getting to work on time!
Carol: “The railways are a natural monopoly and belong in the public sector.”
I think we need to be clear about what is and isn’t a natural monpoly element. The tracks themselves arguably are, but the trains aren’t, in much the same way that local roads are a natural monopoly, but taxi provision isn’t. The natural monopoly element is already in the public sector.
“The freight service has been pared to the bone when we actually desperately need to get freight off our congested roads.”
I think this is a demand rather than a supply issue, caused in a large part by the government’s cowardice on fuel duty, which has seen rail freight become increasingly unattractive compared to road freight. It the motorways had been privatised at the same time as the railways, I suspect the situation now would be significantly different.
“New Labour promised an integrated transport network. This is impossible unless the whole system is renationalised.”
The franchise system is flawed, but previous nationalisation experiments have failed spectatularly and aren’t the answer. We need to move to a system which works, not lurch back towards a system which doesn’t. Let’s also not forget that most of our rail network was created in private hands, whereas most of the closures occurred while it was nationalised, under the Beeching Axe and then under the Wilson government.
“If only the ‘real’ Labour Party could get its way with the next manifesto, this would be at the top of the agenda, along with water and energy, we’d have a chance.”
There is a reasonable case for water to be under some form of municipal control, as there is no effective competition (although as a side issue, I suspect that would make the government’s desire for universal fluoridation easier for them to force on people, which is something I wouldn’t want to see), but the idea of nationalising energy is far too authoritarian and elitist for my taste. There is real choice in the energy market and it is something I take advantage of by using a supplier which invests heavily in renewables. I have no time for the idea that I should have that choice taken away from me.
Paul
Dogma rules for you, doesn’t it?
Rail.way companies built tracks and ran trains on them
The reason is mixing train operators on one track has always been proven to a) threaten capacity due to failed coordination and b) the need for safety
Railway companies were nationalised because they could not make money. That’s because they create massive benefit that cannot be monetised
You out dogma before economic reality and put dogma before the reality of externalities – market failure in other words
You failed to appear here for a while and I enjoyed your absence. Why not take another break?
Richard
Public transport is a public good. Fares need to be subsidised to reprice because of externalities. I cannot see how you can do this efficiently in the private sector. Transport infrastructure improvements feed directly into land values (cf Jubilee Line Extension). Annual land value taxation would ensure that the increase in land values was recouped which would eventually pay for the investment without having to increase fares.
So what or who is the real labour party?
Presumably everyone who isn’t Tony Blair or Gordon Brown or one of their stooges.
I think we stand a good chance of getting ‘real Labour’ but only AFTER the next election, sadly – in opposition for 5 years, until the Conservatives have been revealed to be much, MUCH worse than Brown ever was…
The trouble with public ownership of the rail system is that there is never any investment until it is absolutely necessary. On my local line there were carriages on the line until a year before privatisation that had been in use since before nationalisation. That might sound like a good thing (frugality), but the reality was that they were pulled in 8-car formations by massive locomotives that were always breaking down and were mostly empty during the day. They were replaced by smaller, faster, cleaner, more efficient reconfigurable locomotives just before privatisation was completed, but elsewhere there were still plenty of slam-door trains running that were quickly replaced after privatisation.
Hmmmm – when the “unreal” labour party got elected in 1997 one of their big ticket items was an integrated public transport system. So much for political promises 😉
Alex, delayed investment is not special feature of public ownership. This is just your own prejudice speaking.
We also have to remember that the party who privatised the railways and had been responsible for them since 1979 was not exactly favourable to any public transport. That the railways were run down in the 1980s along with other public infrastructure should not come as a surprise. We had a prime minister who said that any man travelling on a bus at the age of 30 was a failure. I don’t think she was much more positive about trains, although they do have a more bourgeois cachet than buses.
Why has no-one in this debate pointed out that public ownership of railways, municipal bus lines et al still works in much of continental Europe; eg, the SNCF in France has pioneered high-speed rail transport while London commuter costs are recked to be twice as high on average than any other major European capital. In the EU, public transport is seen as having significant external benefits, thus meriting strong subsidies. Neo-liberals in the UK (and in the rest of EU it must be added) have tried to pick away at this logic for a generation but have failed. The market may be a good servant, but it’s a very poor master.
Investment in new rolling stock was a condition of many of the new franchises. Nowadays I rarely travel on trains that are more than ten years old. Fifteen years ago I hardly ever travelled on trains that were less than 35 years old. Your experience may be different.
Which just shows what an utter prole she was. The landed gentry have always held the railways in high regard, usually because the railway company’s were kind enough to build stations in their back gardens when they built the line across their estates.
However, even very mean gentlemen do not travel by bus because they do not understand them. A story is often whispered in the darker corners of London clubs of the shire Tory who was so impressed by the rumours of inexpensive bus travel that he decided to give it a go. Boarding the first bus that passed along Piccadilly he was asked by the conductor where he wanted to get off. ‘Drive me,’ he commanded, ‘to 25 Eaton Square.’ 😆
“Alex, delayed investment is not special feature of public ownership. This is just your own prejudice speaking.”
It does seem to be the case for the water industry. A lot of critics of water privatisation often trot out the line that the companies “aren’t investing in the Victorian infrastructure/leaky pipes etc”. Failing to point out, of course, that if that is the case then neither did the government in the years up to privatisation.
It’s interesting that the French GWI has popped up, as it often does in these debates. What I think you find is that France ploughs all her money into the high-speed network between major cities to the neglect of the rest of her citizens. These high-speed lines are then held up as examples of other countries doing better than the UK. What is never mentioned is that in France you don’t get provincial lines at all, for example lines such as Birmingham-Telford and York-Hull to name but two in the UK, wouldn’t exist in France.
Alex
I don’t think the operating companies invest in rolling stock. They can’t. They have to lease it. This is essential to make it possible for franchises to be taken away. Can anyone tell me who actually owns the trains?
The trains are owned by about four leasing companies. I am told one is owned by HSBC and another by a Japanese concern. I have just consulted an expert!
@James from Durham
That is correct, although Porterbrook leasing used to be owned by Stagecoach andwas sold to a consortium of banks, Angel Trains used to be owned by Nomura, then RBS and is owned by a consortium of Australian investors led by Babcock & Brown, and the third privatised leasing company, Eversholt Leasing is now called HSBC Rail.
However the way the franchising system works is that incoming franchisees make their bids for franchises on the basis of operating a particular style of train, which typically in the past meant that they had to agree to long term leases of new trains. The leasing companies then bid to the franchisees to provide long term leasing contracts for the term of the franchise.
Clearly the leasing company would have preferred to lease the old rolling stock they have on their books, and the franchisee might have been happy to go along with that, but the regulator makes the franchisee go for the more expensive new equipment and the leasing company finances this largely against the security of the lease and franchise agreement. The operating companies are “investing” to the extent that they have to pay for all the new training and maintenance facilities and commit to a lease which generally covers the greater part of the capital value of the leased trains.
So technically you are right that it is not the franchisees who make the investment but the leasing companies, but the leasing companies are only willing to buy the trains and lease them to the operating companies because of the lease commitment. This is not dissimilar to the way that many transport companies (airlines, shipping companies) fund their assets, but in the case of the UK rail industry it is closely tied to the franchising system.
Thanks Alex
You clearly know your stuff about the rail system!
For an analysis of the tax implications of all this see this report;
http://www.taxresearch.org.uk/Documents/RMTRailTaxReport.pdf
I did, of course, write it
@Richard Murphy
I think that should read “for a polemic on capital allowances read the following report.”
The idea that the deferred tax liability arising from capital allowances is a loan from the government is a nonsense.
The depreciation policy represents the view of the management of the likely value of an asset. The rate of capital allowances is the rate at which the government chooses to allow all tax payers to claim relief for historic capital expenditure. It is only a matter of tax policy that determines that the payment is not immediately allowable or is only allowed on a straight line basis over many years.
The immediate presumption is that expenditure on plant and machinery should be allowable against a company’s profits and the only issue is to define a common regime that applies equitably to all tax payers.
Alex
Nonsense: there is no reason at all why CAs need not be given at the lower of the statutory set rate or the rate at which the asset is depreciated over its life in the accounts of the reporting entity
So yes, these are loans in all but name
And it is inequitable that loans of this sort be given to some
And there is nothing inequitable about what I note
Richard
The tone of the reports was framed to make the deferred tax liabilities arising from the capital allowances look like they were a gift from the government when in reality capital allowances are simply set at rates that balance the economy.
If a company sells an item of plant & machinery to another company the sales proceeds are brought into tax immediately as trading receipts or disposal value and yet the purchasing company is generally only allowed to reclaim the cost over several years. In effect there is a counter argument that this is a tax loan to the government from the tax payers.
Certainly a company that leases out its surplus capacity temporarily sees a very different tax position to a company that sells surplus capacity, bringing disposal values into tax with a view to reacquiring more equipment later on which it will only be able to claim capital allowances over several years [all subject to WDA pools etc].
It would obviously be wrong to allow 100% relief, but equally deduction of the cost in line with depreciation is equally inappropriate. Depreciation is a systematic measure of the estimated decline in the value of an asset in terms of its ongoing utility to a company.
The tax allowance that should be given should be independent of the asset
‘s utility. We don’t adjust the salary costs of a company for tax purposes according to the value of the work produced. The test is simply whether the capital costs represented the fair value of plant and machinery at the time they were incurred and whether they were incurred wholly and exclusively for the purposes of the relevant trade or business, and allowed on the statutory basis.
As I understand it, successive governments have allowed write off of plant and machinery at a rate in excess of depreciation quite deliberately in order to encourage capital expenditure. Whether this policy is a good one is one thing (100% capital allowances are insane), but there is no sense in which to claim capital allowances deliberately offered by the government is avoidance. Deferred tax is simply the accounting outcome.
The alternative to deferred tax provisions is for government to reduce the statutory first year allowances and writing down allowances (which they have done recently. Alternatively, we move to a system like the one for intangibles where what is allowable is 4% or depreciation, whichever is higher.
The question is then whether such a change would discourage capital investment and damage the economy. Those who enjoy the benefit of high capital allowances will obviously argue that this would be the consequence.
James
When the owner uses the asset that’s true
When banks set up leasing structures we’re in another whole ball game of abuse…
That is avoidance – big time
Rail leasing is just that
Richard
Would you like to explain that in the context of the fact that
(i) no two UK tax payers can claim capital allowances on the same asset because of the way the capital allowances regime is structured, so that either the lessor or the lessee will claim allowances, but not both. The bank (lessor) only benefits from tax allowances that would have been available to the lessee if he had enough profits to use them, but the startup costs in many industrial projects are such that most large startups would disclaim capital allowances for many years.
(ii) FA 2005 has largely prevented lessors from claiming capital allowances on assets subject to finance leases
(iii) There is a specific exemption for leasing of rolling stock, although the franchise system ensures that most of these leases would pronbably qualify as operating leases
(iv) leasing is generally not subject to disclosure to HMRC.
Leasing has a long history and was used to finance most of the inward investment in plant and machinery by foreign companies starting up in the UK and creating substantial employment (Toyota, Nissan, NEC, Siemens, gas and electricity interconnectors) in the 1980’s and 1990’s. The lack of similar availability of funding has been a reason for the total lack of ongoing industrial investment in the last decade.
It has largely happened already under both sets of governments with the 6% WDA’s for long life assets in the 1990s (which meant that a company got to write off less than 80% of the cost of long life plant and machinery over 25 years). That was made worse by the reduction in general WDA’s to 20% which was used to pay for a general reduction in corporation tax to 28%, shifting the burden of tax towards investors in capital equipment, and the legislation against finance leasing that put startup companies, standalone projects/JV’s and capital intensive companies at a competitive disadvantage to established companies.
Alex
This is nonsense
Banks use leasing abusively onshore and offshore, using illegal non-coterminous year ends and much more besides
Either you do not know what you are talking about or you are dissembling
Richard
@Nathan
Nathan – “I personally support the ‘open-access’ model, which operators such as hull trains currently use, and would like to see franchises scrapped.”
Open access requires the fare income to cover the operating costs, that means running fewer trains and none at all in Scotland, Wales or rural England. Which from a tax payer’s perspective sound attractive, no?