What to do about the railways?

Despite the sharp rise in demand and therefore revenue, it is widely agreed that the railways are in a mess. A significant proportion of the electorate think that renationalisation is the answer, and indeed Network Rail itself has been renationalised. Although there have been some successes, the overall performance of Network Rail has been generally poor, and at times appalling. Major electrification projects, like London to Swansea, are behind schedule, there have been problems around London, and the general day-to-day efficiency has been subject to the McNulty Review and constant criticism from ORR.

Matters are not much better elsewhere in the industry. The train operating franchises have also had a mixed record. Some have been persistently bad, many are operated by bus companies, who bring a very different management culture, and service quality has been at best variable. Then there are the other bits – like the train leasing companies, whose profits since privatisation have had questionable tangency with the risks, and which have been more the focus of repeated M&A and big pay offs than on the value for money for rail customers and taxpayers.

This catalogue of concerns is not exhaustive, but it does serve to illustrate a general point: it is very unlikely that tinkering at the margins with incentives will significantly change the outcomes. Furthermore, it is far from obvious that simply nationalising the complete industry will address the fundamental problems that beset this industry. On the contrary, what this catalogue of failures suggests is that something fundamental is going wrong, and that something fundamental needs to be done. The structure and organisation of the industry in general, and Network Rail in particular, is not fit for purpose.

This paper sets out how this unhappy state of affairs came about, and what to do about it, making the case for a system operator and then the pragmatic disaggregation of Network Rail, with the potential for a wide variety of partnerships and private sector involvements, and gradual re-privatisations. Disaggregation is argued to be both desirable and possible, but only when combined with a strong central system operator, capable of coordinating the system as a whole – within which the parts can then flourish.

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