The Observer editorial this morning says:
Nonetheless, Corbyn is in the classic post-credit crunch bind: common ownership of rail, as with health, housing and energy, is a common good. But he will struggle to pay for it.
Network Rail's undoubted achievements have left a towering mountain of debt: more than £40bn. It has to be reduced, and it would be dangerous to add to it at the rate seen over the past decade.
Labour, punished by voters last time round for failing to restore trust lost over deficit spending, will struggle to make an argument for pumping more cash into the railways.
Despite saying:
Billions of pounds of state funding has been pumped into Network Rail, through grants and debt, with a noticeable improvement in services as a result.
And
Any train operator pointing to increased passenger numbers, improved punctuality and a sea-change in safety since 2000 should be thanking, therefore, the taxpayer, not the private sector. Private operators run branded carriages while a nationally owned business does the hard work.
In other words, the Observer thinks three things.
The first is that government spending on railways has worked better than anything the private sector has done.
But, however, the resulting debt is unaffordable.
And as a result it thinks we should continue to pay the private sector £222 million a year in dividends through rail subsidies when this is enough to fund the current borrowing cost on £20 billion or so of government borrowing for investment in the rial network, which is way beyond anything the private sector will do.
And remember this £222 million is paid out after the rail franchise companies have already deducted their costs of train leasing, which are exorbitant because the government could fund rail rolling stock investment so much more cheaply than the private sector. Or to put it another way, another subsidy is already implicitly hidden in these numbers, meaning that the private sector return is likely to be much higher than £222 million.
The logic the Observer use is in that case just wrong.
The ability to fund new state investment in the rail network already exists based on the above logic.
And the Observer is wrong to say that the cost of nationalising the railways should be borne by the railways: that's a cost to the state which it just so happens could be covered by QE right now, totally costlessly.
In which case the actual argument that the Observer has left is this:
A Labour party under Corbyn would not be expected to take sides against the rail unions, which locks off a further option for getting fares down and funding new carriages.
Or to put it another way the Observer is anti-union bashing when the union in question is raising what many think to be entirely appropriate safety questions.
Shame on it, I say, for its economic incompetence and its anti-union and anti-safety sentiments.
To say that whoever wrote this editorial is stuck in a neoliberal tie-warp is to be kind to them: however looked at these arguments are just wrong.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
So glad you are providing a rational argument for nationalisation of the railways. Public are being ripped off while private companies cream off profit.
Have no economic background whatsoever but Surely building affordable homes must also be a win-win situation as investment would be set against a basket of benefits including subsidising rents via HB, perk to construction companies, building suppliers, DIY, furniture retail, etc, etc and possibly reduction in house prices/private rents as a by product. What do you think?
I think you are right
It was the two world wars that did for the railways. The 1923 government enforced rationalisation did not result in healthy financed companies and after 1945 they were in a state of financial and almost operational collapse. All the choices involved unpopular etc. decisions. Then we got all those cars and trucks which soon meant the end of postal and parcel monopoly carriage, never mind a lot of ordinary freight and passenger traffic. Ever since then it has been one political bodge after another. But what is public service? The rest of the UK subsidising south east commuter fares? Keeping lines going because they are there? Building high cost lines for businessmen which will never cover either operating costs or return on investment? There are some hard choices but the worst option will be spending for the sake of spending because it is popular.
Come on, off the fence Demetrius
So it’s no HS2 and an end to Pacers? Then what?
Back in the late 70’s after one scotch too many, I suggested to Ray Buckton that it might be an idea if Roy Mason leaned on Bill Rodgers to propose a Barnsley to Baghdad Railway. Ray had had more than one scotch too many and thought it was a good idea.
And the Channel Tunnel was the result?
If the Jubilee Line Extension cost the taxpayer £3.5 and produced a £13bn bonus to local landowners, isn’t the solution obvious? All good public (and private) investment in local goods and services increases land values. http://www.ft.com/cms/s/0/5fcb1d78-5359-11e6-befd-2fc0c26b3c60.html#axzz4Icw2AI2X
Thank you for adding your usual rigor to my anger about that editorial.
The Observer no longer observes. It is asleep at the wheel. Absent – like the party it traditionally backed.
We are so on our own now.
Demetrius:
You are not giving the complete picture.
The minister of state for railways – Marple, was it? – and who took on Dr Beeching also had interests in road building did he not?
So the man who should have invested in the railways that contributed to the war effort decided to rid it of its vital organs – the branch lines. OK, there was some duplication because of the rush to make money initially but Beeching went too far.
Please read ‘Square Deal Denied’ by E.A. Gibbens (1998) for an expose of how post-war Government undermined the railways – he also wrote ‘Blueprint for Bankruptcy’ in 1993. Both books illustrate how vested interests can over throw the strategic interests of a nation very well. Personally what he reveals from mining public records is an absolute disgrace which has made people and the environment much poorer as a result.
You inspired me PSR
I blame you for 30 minutes being taken out of my morning schedule 🙂
I’m sorry Richard.
I love the railways – I always will – I learnt so much about life from them – geography, engineering – even learning to tell the time.
Ours have been treated abysmally – and everything that seems to have happened to them has been a precursor for anything that this country held to be socially useful.
Unlike the disciples of several political movements I could name, I am a firm believer in ‘there’s no such thing as a free lunch’.
It is obvious that the ROSCOs should be abolished, since the government can borrow capital more cheaply than the private sector. BUT a year or so ago, Porterbrook ordered more trains from Derby ‘ on spec’. They now all have users lined up. Can you imagine a new Railway Board being able to persuade the DofT, and them to persuade the Treasury to build trains on spec, and to build them with fit for purpose, reliable equipment? We still have pre-privatisation DMUs which were built down to the price which the Treasury would accept, and then in smaller numbers than were needed even then.
So you see, no such thing as a free lunch.
All you are doing Duncan is confirming the behaviour we have seen a lot of from the mostly Tory Governments – under fund, under spend under provide against demand and people will think the railways are crap and then privatisation can be sold to them can’t it?
It has been very obvious for a long time that much of the economic analysis at the Observer/Guardian is based on lazy Neo-Liberal arguments which have been debunked years ago. It isn’t a “serious” newspaper any more just a propaganda rag for lazy right-wingers. Commonsense tells any thoughtful individual there will always be “agency” issues of greed and corruption in any enterprise whether it’s directed by public or private agencies. The trick is to do as Nature does against virulent and malignant bacteria and create “immunological” safeguards against such “agency” abuse. This is easier said than done especially when a large number of the electorate have a long standing track record of making shallow economic, monetary and political assessments before they vote.
Excellent post Richard, highlighting among man other things the point that supporters of privatised rail continually ignore since they cannot provide a decent answer to it, namely the fact that the private rail companies have received more funding by way of government subsidies than British Rail ever did. Public transport is of particular importance to me since I do not drive.
I watched a recent debate on Channel 4 which included the Taxpayers Alliance and was not at all impressed by the arguments permitted, especially the assumptions. For example, Matt Frei advanced the notion that BR was worse than now; but, sneeringly, as they did not have passenger satisfaction ratings we could not know by how much.
This is blatantly untrue, especially as regards InterCity, which was regarded at the time of nationalisation as the best of its type in the world. Railway experts from all over the world leapt to its defence, and in the last year of its trading under BR it made £98 million surplus from a £700 million turnover during an economic recession. That’s a margin that most service companies would die for. It was rated as one the top 150 best companies in the UK by 1990.
And, yes it did have customer ratings. In 1993 these averaged 94%, the highest being 98% for helpfulness of staff!!!! Compare that with Southern etc.
If it was not for the highly professional BR management teams on the private trains they could not have run. But Matt Frei and other media newspeople do not take the time to research this. They just believe the shibboleths put out by TPA et al. This is what we are up against.
PS Richard, great to see you taking up the cudgels for the NHS, despite being a little late. I think ti really is in intensive care, if not palliative.
In 2013 n academic study rated me the fourth most effective campaigner nationally against the Health and Social Care Bill. I have been in this field for some time
Your data on BR is interesting. Sources?
BR I was the adviser to the board of InterCity from about 1991 to 1994, ultimately looking a strategies to fight and then cope with privatisation. Prior to that I had worked with BR in various consulting roles for about eight years. Loved them all.
NHS: where can I review the 2013 academic study on the NHS? You may have been doing something that we need in KONP.
http://www.healthpolicyjrnl.com/article/S0168-8510(13)00045-6/abstract?cc=y=
Thank you. Twitter – I am so-o-o behind the curve!
Billions of pounds of state funding has been pumped into Network Rail, through grants and debt, with a noticeable improvement in services as a result.
That last statement is simply not provable. NR owns infrastructure: it runs no trains. Whether the improvement in services is down to better track or more reliable trains is entirely arguable (in fact, the shambles that is Southern would appear to indicate that the condition of track has nothing like the bearing on services that the effectiveness or otherwise of train operating companies does)