Posted 8th September 2016 | 12 Comments

Think tank urges part-privatisation of Network Rail

THE Adam Smith Institute has renewed its campaign for more railway privatisation in a new report which suggests that almost half of Network Rail's assets should be sold to the private sector, allegedly raising £8 billion to reduce NR's public sector debt of some £41 billion.

The report, published by the 'free market' Institute, has been written by investment analyst Nigel Hawkins, a senior fellow of the Institute, but he is being accused of regarding railways 'through a narrow set of blinkers'.

In 'Network Fail: getting UK rail back on track', he advocates that Network Rail should be 'progressively sold down' and HS2 scrapped in favour of more investment in the existing West Coast line.

Other measures include more open access and the handover of some smaller lines from Network Rail to local ownership, with the eventual aim of creating vertically integrated regional railway companies forming a 'railway equivalent' of National Grid, which is now
worth over £40 billion.

In addition, he says the Department for Transport and the ORR should 'crack down hard' on underperforming rail franchise holders. The report continues: "Substantial fines could be levied, senior management changes demanded or the ultimate sanction -- franchise withdrawal -- could be imposed."

The report explains: "Network Rail has been widely criticised for its lack of accountability to the public, a major defect of the pre-privatisation decision to split the ownership of the rail network from the TOCs.

"If vertical integration had been undertaken, this shortcoming would be far less apparent since a vertically-integrated railway company would be more directly accountable to its customers. However, to re-design a vertically-integrated railway system virtually from scratch would be immensely complicated and expensive.

"However, where realistic opportunities to introduce vertical integration do arise, as in the case of Merseyrail, they should be carefully considered."

Reaction from the railway industry and government today has been unsympathetic.

Network Rail said: "Network Rail debt is NOT a measure of Network Rail’s performance. It is a measure of the investment that Government has put into improving Britain's railway, a railway that is the fastest growing, the safest and one of the most reliable railways in Europe. Network Rail is not funded to pay off the debt."

The ORR declined to comment, but the Department for Transport said: “Action to sort out Britain's railways is clearly a  priority‎, which is why this government is committed to investing in rail infrastructure. HS2 will have a transformational effect, increasing capacity and helping to rebalance the economy. We are also committed to electrification on routes where it will bring benefits to passengers.

"We are spending £13 billion on transport in the North by 2020, which will see passengers get more trains, more seats and more frequent rail services.

"Network Rail is undergoing a transformation to make our railways more reliable and provide better value for money.”

ASLEF general secretary Mick Whelan described his reaction as 'incredulous'. He continued: ‘We’re stunned that the Adam Smith Institute, given the level of back door subsidy for track access to the current train operating companies, could even imagine the part privatisation of Network Rail. The Conservative government’s current system of subsidising the TOCs by sleight-of-hand would have to cease and the true level of public subsidy would be revealed.

‘We know that Network Rail isn’t perfect. Its governance needs to be improved and it needs to understand its asset base better but every rail professional knows it’s the only show in town for the future of Britain’s railway."

Rail Delivery Group chief executive Paul Plummer said: “The report’s comments on HS2 are somewhat surprising given HS2’s crucial role in ensuring the country has the railway it needs in the long term.

“The planned devolution to NR routes will create a stronger local focus on the needs of train operators, and thus on passengers and freight customers. It will help to drive efficiency and service quality by making routes more responsive to local situations, while protecting the benefits of a single railway that works seamlessly for passengers. Devolution also enables different models for operating rail infrastructure in different parts of the country with the potential for greater competition between train operators where this makes sense.

“Where there is less room for competition, devolution allows closer collaboration between an NR route and the lead operator in that area while retaining transparency over the costs.

“However we organise ourselves we need teams managed effectively, working together towards the same objectives, and with access to finance for much needed investment.”

The Campaign for Better Transport said the author had ignored the benefits of rail. CBT chief executive Stephen Joseph commented: "This report ignores all the wider costs of road transport -- air pollution, road deaths and injuries, increased obesity, climate change as well as congestion -- and so examines railways through a narrow set of blinkers. The solutions they propose will add cost and complexity to the railways, increasing overcrowding and making ticketing and fares even more of a nightmare than they are at present. 

"We were pleased that the Shaw review into the future funding and structure of Network Rail recommended no fragmentation or privatisation and recognised that what's needed is longer term planning and greater devolution, which would make the railways much more responsive to the communities they serve, while helping simplify the sometimes confused relationship between Network Rail, the Department for Transport and the regulator."

Reader Comments:

Views expressed in submitted comments are that of the author, and not necessarily shared by Railnews.

  • david c smith, Bletchley

    A lot of contributors here seem to want vertical integration, if not outright re-nationalisation.

    The Beeching era "route rationalisations" pretty well eliminated alternative lines between given centres. This means that competing operators, both freight and passenger have to use shared infrastructure ; if this is owned and operated by a particular TOC / FOC, it would mean all the other users would be disadvantaged - hence the need for an "independent" infrastructure manager.

    Of course, we could turn our backs on this necessity and have one big, monolithic BR style nationalised railway ; I, for one am old enough to have lived through the BR era, and there is little doubt to me that what we have now, despite not being allowed to achieve its full poential, is considerably better.

  • Hetty Smith, Torquay

    Exactly the reverse of what is needed. The level of travel by rail has simply increased because it is better than the alternative options. Roads have become much more congested.

    Any thought of a hard privatisation or selling it to foreign invtersis simply cloud cuckoo land. The infracstructure and the rolling stock (which is actually subsidised and paid for by the state) should be brought back under direct state ownership.

    If we are to franchise the train operating itself then it should be done as a single franchise nationwide which would allow for the railway to be run in an integrated way which for example would allow the possible re-instament of the only sleeper service that was financially viable .. The one that ran between Plymouth and Glasgow/Edinburgh. and would also allow for cross-country services to run as a truly national network that also serviced places such as liverpool and the westcoast main line north of Preston and perhaps also north wales. And allow the return of the useful Manchester to Dover and Brighton services.

  • Roshan, Leeds

    John B your idea is very good and I wish they'd do this rather than separating track and train operations. I am pro-nationalisation but at least scrapping Network Rail and making the TOCs responsible for their infrastructure will make things a lot more efficient. I'd prefer to see the railways nationalised and then track and train operations merged, getting rid of things like track access charges (obviously it would make no sense in charging yourself) and hopefully getting rid of the ROSCOs and instead getting some sort of leasing agreement directly from the manufacturers rather than going through a middle-man. The railways clearly need a lot of clearing up in the way they are run.

  • David Faircloth, Derby

    I think what really is interesting is that the Adam Smith Institute recognises that railways really need to be vertically integrated to work efficiently; if I remember correctly, this was argued by the BRB when our railways were privatised - its view was that structure was far more important than ownership.

    I'm not sure that it would be very difficult to redesign and introduce a vertically integrated railway, as claimed by the institute; something similar to London Overground could be introduced quite easily, with Network Rail - the infrastructure owner - awarding management contracts to operate train services if it was necessary for operation to remain in the private sector. This has the potential to significantly reduce the complexities of the present contractual structure needed to operate our railways, and in turn should reduce costs. The DfT would have a much changed role; it (and devolved governments in Scotland and Wales, city regions, etc) would be responsible for determining the funds available to subsidise services/invest, and also in specifying fares, service frequencies, service standards, etc.

    Solely returning ownership of TOCs to the public sector - as has been suggested in some circles - will not reduce costs overall, nor will it reduce the bureaucracy necessary to manage our railways; money would just be going round in circles between different state owned companies, and the return to the Treasury would be similar to the profit presently generated by train operators. This is what happened when East Coast was in the public sector.

    Of course, though, something like this is heresy to the Adam Smith Institute as there is a significant degree of central control! But how on earth you would introduce competition on something like Thameslink is beyond a pleb like me!

  • Peter Davidson, Alderley Edge, NW.England

    The contents of this report is hardly news?

    Look up the Institute's membership/leading lights and you'll find the same characters appearing in the roll call for the Institute of Economic Affairs and the Tax Payers Alliance - these organisations (if we can use that term) all hail from the same unfettered, free market school of socio-economic delusion, where the only state role considered worthwhile is no role at all?

    The Adam Smith Institute would have the UK build a raft of private toll road freeways as transport strategy, entirely privatise both the education and healthcare system and cast Britain back (socially) several decades to some kind of mythical la-la land reminiscent of Empire Day

    This report is fit for only one place; the dustbin!

    [It is news, because it has just been published. Whether the ideas it contains are novel is another matter,--Editor.]

  • david c smith, Bletchley

    For what it's worth, having lived over 70 years, my impression is that free market economies / societies are preferable to centrally controlled / planned ones, However, most markets seem to suffer from monopolism and from being too narrowly based and "incomplete"with "hidden" costs and benefits not represented, leading to perverse outcomes.

    Perhaps if Railtrack / NR and the rail industry generally had been constituted with such considerations in mind, the whole situation might have worked out better ?

  • Roshan, Leeds

    I really don't think a free-market institute should be listened to on this subject. They clearly are completely biased. There are possibly ways to implement privatisation well but for me nationalisation is the simpler option which can benefit the people in this country most. We've recently seen East Coast run cheaply, efficiently and for the benefit if the taxpayer when it was state-owned, so there's no reason why the railways as a whole can't work like this.

  • John B, London

    Network Rail should be scrapped by giving TOCs control over the assets which they manage. By reuniting infrastructure and operations under common ownership, we can have a better and more efficient railway.

    HS2 is no longer necessary after Brexit. Scrap it and move ahead with HS3 which is a more pressing priority.

  • bill jolly, Lancaster

    Don't take any notice of the Adam Smith Institute,it's run by fanatical bunch of free market clowns who are good at telling people how to do the job but who live in cloud cuckoo land actually

  • Melvyn Windebank, Canvey Island, Essex

    Adam Smith Institute the ones who claim HS2 will cost £80 billion but fail to mention cost of non HS2 projects like Crossrail 2 and even road and rail projects not even funded are included to get this amount ...

    Worth remembering it was private Railtrack who failed to maintain rail network which putting champagne for shareholder meetings first !

    However, the reclassification of Network Rail by the present government as a public body means that NR no longer has free access to lend money as it did under system put in place when it was set up.

    The problem actually goes beyond railways and includes roads and other major infrastructure projects and a way for obtaining funding for major infrastructure projects needs to be found even if we simply start by bringing back the government bonds organisations like London Transport used before WWII to fund tube extenstions .

    While leaving the EU will mean we won't have the same access to European loans as used for funding DLR extensions and was planned for Valley lines electrification in South Wales .

  • Stuart, Plymouth

    Railtrack failed because it had absolutely no way of making a profit, other than property sales. The track access charges that the ORR allowed them to levy to the TOCs were not enough to pay for maintaining the existing network, let alone carry out any improvements. The only way any successor to Railtrack could fare any better financially, would be if they were allowed the freedom to negotiate track access charges on an open market basis, or if the government came clean and paid them a subsidy so that they could lower their track access charges.

    In the first case, you would see massive price rises, probably driving off demand to the point where train services would be cut. As I don't think that this would be politically acceptable, you would be left with option two: the government subsidising a for-profit company. I fail to see why the latter option would be any better than Network Rail in its current form, unless you believe that the private sector can magically manage loss making businesses better than the not-for-profit sector.

    The Adam Smith Institute appear to be trying to expose the same hidden subsidies that the rail unions cite as a reason to renationalise. Leaving aside questions about both these parties' underlying motivations, it is clear that neither the government nor the rail industry want to admit that the present system is a mess. It suits the TOCs because they get to look like they are a profit making growth industry, and it suits the government because they can please voters with new trains, stations and lines, without admitting that they are (indirectly) subsidising "for profit" companies (the TOCs).

    Thus they are stuck in a Kafkaesque mutual delusion that we have found a way to run and invest in a growing rail network without increasing the bill to the taxpayer, when in reality we are burning public money to support a merry-go-round of compensation claims and hidden subsidies. We get neither the benefits of free market allocation of scarce resources, nor a proper centrally planned strategy.

  • Jackson Hall, Bucks

    Network Rail should be privatised, preferably to foreign investors overseas to stop Corbyn's mob taking it back, or Farage's mob doing something similar for "patriotic" reasons.

    Railtrack was bullied mercilessly by Blair's government, and was treated as a scapegoat, despite the rail crashes being the fault of incompetent traincrew and track gangs, not the bosses.

    Anything ASLEF says can be ignored out of hand. ASLEF want to endanger the public by opposing DOO, supported the insane Brexit and are financial backers to Jeremy Corbyn. They have an agenda and it is not for the benefit of our economy.