convert

British rail privatisation has failed. I think that’s pretty safe to
say. But I am a free-marketeer, a libertarian. I believe that
the world would be a better place if we privatised schools,
hospitals and even the police. I cannot at one and the same
time claim that privatisation is a good thing and a bad thing.
I have some explaining to do.

But before I do, I want to make some comments and dis-
claimers. I am not a railway expert. I am not an authority on
all the details of trains, timetabling, signalling or the finer
points of the 1993 Railway Act. Railway enthusiasts are a
passionate and informed bunch. The amount of information
available is enormous. My previous specialisation was North-
ern Ireland. By comparison Northern Ireland is a simple and
straightforward subject. I suppose what I am say-ing is that I
could be wrong.

AN UNPLEASANT FEATURE OF MODERN LIFE

Rail is a fragile industry. It doesn’t take much to cause chaos.
A crash, a guards’ strike, some bad weather or a person under

a train will grind operations to a halt instantly.  It is also
hugely capital intensive.  Trains, signalling, stations all cost
huge sums of money.  You have got to be pretty sure of your
return if you are going to invest. Although roads can be just
as expensive they are not nearly as prone to disruption.  Or at
least not until the Fuel Protests of August last year.

Travel is crap.  Whoever said it is better to travel than to ar-
rive needs a good kicking. It takes time, it is tiring, you are
subjected to people you don’t know, you are often cramped, it
is uncertain, it is dangerous.  And that goes for all modern
forms of transport be it rail, air or road.  It is an essential, if
unpleasant feature of modern life so people will always find
reasons to complain.

FANTASTIC — THEN A LONG PERIOD OF DECLINE

A little history. The railway in the UK was pioneered by the
private sector. State interference was pretty minimal. The
state pushed through the Acts which allowed the railway to be
built, they interfered a bit with 3rd class ticketing, they set up
safety legislation but by and large the State kept out of the
way of the running of the railway.  The result was fantastic.
Revolutionary even. Until, that was, the Second World War.
The State took control of the railway as a wartime measure
but didn’t nearly compensate the railway enough for the loss
of fares and for wartime damage.  The railway didn’t quite go
bust but it had no money for investment and in the spirit of
the time was duly nationalised.  There then followed a long
period of decline.  Privatisation began with the 1993 Railway
Act and the first privatised train ran on 4 February 1996.

It would be wrong to say that BR was all bad though. While
customer service might have been lousy (remember the jokes
about the BR sandwich), its engineering was quite good. The
High Speed Train (HST) is still the fastest diesel in the world
and the Advanced Passenger Train, though a failure, incorpor-

Economic Notes No. 91

ISSN 0267-7164 ISBN 1 85637 517 X

An occasional publication of the Libertarian Alliance,

25 Chapter Chambers, Esterbrooke Street, London SW1P 4NN

www.libertarian.co.uk email: admin@libertarian.co.uk

Patrick Crozier works in computers.

This piece started out as a talk given at Brian Micklethwait’s

last-Friday-of-the-month meeting on May 25th 2001.

The views expressed in this publication are those of its author, and not

necessarily those of the Libertarian Alliance, its Committee, Advisory

Council or subscribers.

Director: Dr Chris R. Tame

Editorial Director: Brian Micklethwait Webmaster: Dr Sean Gabb

FOR LIFE, LIBERTY AND PROPERTY

WHY BRITISH RAIL

PRIVATISATION

HAS FAILED

PATRICK CROZIER

ated technology which is transforming railways around the
world.

Let us be in no doubt that privatisation has failed but let us at
least flesh that out a bit. To do so I think it is best to divide
the picture into pre and post-Hatfield sections. We all know
about the situation subsequent to the Hatfield crash in October
2000. A rail snapped underneath a GNER express travelling
at 115 mph and four people died. The cause was found to be
gauge corner cracking, a rare and little understood phenome-
non. Railtrack went about looking for similar examples and
placed speed restrictions on likely sites. It began a re-railing
scheme. The result was the delays, overcrowding and mass
desertion of the system which dominated the headlines in the
last few months of last year. It was probably the worst period
in the whole 175 year history of the railway.

THE FULL TRAIN EXPERIENCE

But what about the picture before Hatfield? A more normal
time. Was that any better? If we assume for the sake of argu-
ment that Hatfield was a freak event, a one-off, is there any
good news in the picture beforehand?

Sir George Young, when Secretary of State for Transport,
claimed that privatisation would be “a good deal for pas-
sengers and a good deal for taxpayers”. Was he right?

From the point of view of the taxpayer the situation is con-
fused.  According to the Railway Forum, comparing the three
years immediately before and immediately after privatisation,
net government expenditure increased by about 10%.  The fig-
ure would have improved over the next few years as subsidies
declined.  However, we now have the Strategic Rail Authority,
or SRA, which is supposed to be disbursing £2bn a year on
infrastructure improvements.  So, the taxpayer loses out.

So what about the passenger? That of course is a tricky ques-
tion. All customers are different. There are some statistics.
Punctuality declined from 92.78% in May 1997 to 91.57% in
August 2000.  Prices for peak tickets and savers are lower in
real terms.  Overcrowding is a lot worse. On SWT crime has
been halved. The National Rail Enquiry Service now answers
over 90% of calls.  (BR did well to answer 50%.) But these
statistics only tell part of the story and neglect the full train
experience.

When I embark upon a train journey these are the sorts of
question I ask:  How far away is the station?  Will it be clean?
Will the train be on time? How long will I have to wait?
Will the train be clean?  Will I get a seat?  Will my travelling
companions be objectionable?  How much graffiti will I have
to put up with? How long will the journey take?  How much
will it cost?  Will I get mugged? Will the train be nice? Will
I be able to while away my time?

From my own personal experience cleanliness varies enor-
mously.  SWT, Chiltern and FGE all make the effort.  Silver-
link and Thames Trains do not.  To my knowledge only FGE
and WAGN have made an effort on the decor.  There are
some new trains but not many.  Around London only GatEx
and Midland Mainline had new trains in regular service as of
May 2001. Grafitti seems to have got a lot worse.

On stations the picture is patchy. Local stations seem slightly
cleaner. Main line stations are infinitely nicer places to be.
Liverpool Street and Paddington are my personal favourites.

With internet technology it is easy to look up both times and
prices without having to deal with some pushy telesales per-
son. With greater advertising I am fractionally more likely to

know about services, and there have been other minor im-
provements in customer service.

One area where the industry has failed miserably is in the area
of liveries. Most of us must have tired of BR’s rather drab
attempts but privatisation does not seem to have improved
matters.

The industry often claims that you can tell that it is doing a
good job because ridership has increased by 30%. Big deal.
This helps me neither as a passenger nor as a tax payer. Any-
way, a lot of this has to do with a booming economy, price
control, the appalling situation on the roads and double count-
ing — i.e. nothing to do with privatisation.

THE STRATEGIC RAIL AUTHORITY HAS NO
STRATEGY

So much of the present. What of the future?  Is there light at
the end of the tunnel, so to speak?  Well, there are going to be
a lot of new trains.  Current orders stand at about £3bn.

They include 140 mph tilting trains for the West Coast and a
complete replacement of slam door stock.

Unfortunately, there have been all sorts of problems in getting
these new trains into service. Safety procedures are long-
winded and even when they are completed many of the new
trains have proved fault prone.

There is trouble ahead on the franchises. Most franchises
have a sharply declining subsidy profile. This is OK if you
have a good revenue stream. It is not if you are one of the
many regional operators for whom the subsidy is a lifeline.
For instance, last year Merseyrail almost went bust and had to
be taken over. The new owners were able to negotiate a sub-
stantial improvement in their subsidy from the SRA. In early
2001 Virgin started talking about “handing in the keys”. This
was shortly afterwards followed by a £100m payment from
Railtrack.

Perhaps the much vaunted Strategic Rail Authority will pull
the industry together? Well, no. It has just issued its policy
document (a year late), a document remarkable for one thing
— it has no strategy. It is little more than a pick and mix
wish list. As the rail journalist Christian Wolmar pointed out,
the SRA still (this is two years since it came into existence)
has no idea whether the aim is TGV operations or tunnels
under London or new commuter routes.

The SRA is also responsible for franchising. Of the five fran-
chises currently being bid for or renogotiated, not one has
been signed. Two have been suspended. The best known of
these is the East Cost Mainline refranchising. The rumour on
the street is that GNER were given the job but the govern-
ment did not want to annoy Mr Branson so it was suspended
and everyone blamed Railtrack.

And there is another worry about the future. Every single edi-
tion of a railway publication has some sort of call for a major
restructuring of the industry.  And this is not just statist fanta-
sisers.  Long-term correspondents and senior industry figures
echo demands for wholesale changes.  This is not a happy
industry.

Furthermore, following the publication of the Uff/Cullen re-
port the industry is committed to introducing a hugely expens-
ive safety system.

All this paints a rather patchy picture. When BT was pri-
vatised there was a step change in price and quality of service.
Ex-council houses are far better looked after than their state-
owned equivalent. Car and coal privatisation/liquidation have

saved the taxpayer a fortune. But trains? Who can say? It’s
a case of six to one half dozen the other. And that in itself is
failure.

THE FREE MARKET WORKED HERE — AND STILL
WORKS IN JAPAN

So what went wrong? Is private enterprise inherently wrong?
Should I start dishing out Communist Party membership
cards? Well, private enterprise worked on the railways in this
country for 125 years or so. The railway — the track, the
trains, the embankments, the cuttings, the tunnels, the via-
ducts, the stations, the vocabulary, the culture — was a pri-
vate sector invention. It transformed the country. It made
most of London possible, enforced standard time and was a
vital motor of the industrial revolution.

I recently came across a statement from the British Railways
Board dated 1943. In it they claimed that the British railway
was the best in the world. I do not know what the truth is.
But what I do know is that no one would make the claim
today.

The free market still works. And it works on rail.  We only
have to look at Japan, which has the busiest railway in the
world.  Parts of the network have never been in state hands
and work with military precision. Since 1987 the whole net-
work has been in private hands.  Although there is subsidy for
outlying regions, there is no vertical fragmentation, no fran-
chising. And it works like a dream with a third of all the
world’s train journeys being taken there. And it still has the
fastest scheduled service.  TGV eat your heart out.

NOT A TRUE FREE MARKET

What happened at privatisation?  Railtrack was given the
track, signalling and stations and then floated in 1996.  The
Roscos  — Rolling Stock Companies — were sold the trains.
That would seem simple enough but then the state put its oar
in.  Railtrack might own the track but others would maintain
it.  It was certainly not Railtrack’s choice to do things this
way.  Train operating companies (TOCs) were to operate the
trains.  They would bid for fixed-length franchises. In these
agreements the government would set the price of the main
fares (to below inflation increases), set punctuality and relia-
bility targets and the length of the contract and the price at
which the TOCs would buy track services from Railtrack
(these are known as Track Access Charges). The TOCs would
state how much they needed in subsidy (or in some cases how
much they were prepared to pay) and the lowest bid won.
Railtrack leased most of the stations to the TOCs with the
exception of the main termini.

This is all rather weird.  The whole point of private enterprise
is that the state is not involved.  But just look at where the
state interferes: it controls the prices that operators charge cus-
tomers, it controls the prices that Railtrack charge operators, it
provides subsidy, it controls the length of the contract between
operators and Railtrack, it effectively prevents operators from
owning track and track owners from operating trains.  It splits
the train owner from operator, operator from track owner,
track ownership from track maintenance.

And the result? Well, it’s no great surprise that with prices
held below inflation, commuter trains are now massively
overcrowded.  With such short franchise terms the TOCs are
reluctant either to spruce up or rebuild stations.  With the bi-
zarre track access agreements Railtrack has an incentive to
reduce traffic on its railway, even to sacrifice safety on the
altar of punctuality.  And with every deal having to go

through Railtrack, the TOC and the Regulator it is no surprise
that the West Coast Route Modernisation is a fiasco.

I have also heard some truly bizarre stories.  For instance, in
Birmingham, operators would miss out stations if the train
was late.  Why? Because they feared that they would miss
their punctuality targets. I cannot imagine that happening in a
truly free market.  Similarly, I learned from TV of a situation
at Cambridge.  A connecting train was late.  The station man-
ager held the train it was connecting with so that passengers
could transfer.  Good man, you might think.  Far from it. In
the crazy world of the new railway the operator risked mis-
sing his punctuality figures and could have faced a fine.

THE EU AND SEPARATION

And by the way this has nothing to do with the EU. I would
be the first to assert that the European Union is the origin of
all evil — but not on this occasion. All that directive 91/440
demands is separate accounting between infrastructure and
operations. This is the relevant article (now abolished):

The aim of this Directive is to facilitate the adoption of
the Community railways to the needs of the Single Mar-
ket and to increase their efficiency;
— by ensuring the management independence of railway
undertakings;
— by separating the management of railway operation
and infrastructure from the provision of railway transport
services, separation of accounts being compulsory and or-
ganisational or institutional separation being optional ...

The aim is/was to make cross-border operations easier. The
French approach has been to create an infrastructure owner
(RFF) whose infrastructure is entirely run by the operator
SNCF. I do not see any reason why a government would
have to go even that far. All it would have to do would be to
split the railway into two companies that are part of the same
group but have separate accounts in much, the same way as
Microsoft has Microsoft(UK) and Microsoft(US).

The railway can’t take fragmentation.  But it seems to work in
the air. The airports, the traffic controllers and the airlines are
all different entities. Why not on rail? I think the reason is
that trains are in constant contact with the track.  For instance,
what if you want to operate a faster service?  In the air it is
simple  — buy a faster plane.  OK, there may be questions
about noise but that’s about it.  But on rail you have to get the
signalling and the track to go with the faster train.  What if
you want to increase capacity?  An airline just buys a bigger
plane. On the rails you can run longer trains but only if the
platforms are long enough. You could run double-deck trains
but many of the bridges and tunnels on the route will have to
be rebuilt. And what if you want to operate more services?
All an airline has to do is to buy more slots. But on the rail-
way, with complicated paths dictated by the characteristics of
preceding and following services, this can get extremely com-
plicated.

CRASHES COST MONEY

And then there is safety. The public for some reason trust the
state to run a safe railway but not the private sector. The
disasters at Clapham Junction, King’s Cross, Moorgate and
Hither Green are put down to bad luck or “the Tories”, Hat-
field and Ladbroke Grove to corporate greed. What we saw
after Ladbroke Grove was a hysteria whipped up by the press
and politicians, which became a whirlwind after Hatfield.

I do not know whether the railway has become more or less
dangerous and frankly, I don’t care. The railway would have

to be extraordinarily dangerous for safety to become a factor
in my own personal calculations. People did not desert the
railway because they thought it was dangerous. They deserted
it because the trains weren’t running. Do I think “I will we be
involved in a terrible accident and have my face seared off”?
Well not really. There are arguments for and against expect-
ing such catastrophes, but the truth is I don’t know.

What I do know is that crashes cost money. The train is badly
damaged or destroyed. Ditto the track. The track is blocked
for days so passenger revenue takes a nosedive. (The Hatfield
disaster cost about £30m.) Some of this may indeed be
covered by insurance payouts — but where does the money
for them come from? No, a train company operating in a free
market has every reason to run a safe railway. Again, just
look at Japan.

The recently published Uff/Cullen report takes the biscuit.
Take two fairly well balanced and reasonable men.  Put them
in a room with umpteen lawyers and one train crash, and then
add some media-manipulated public hysteria and what do you
get?  A report that commits the Government to introducing a
system which will cost £30m for every life saved. By com-
parison, local authorities spend £50,000 per life saved.  The
ten people who died at Heck would be alive today, for the
outlay of some £800,000 or so each.

DIFFICULT TO WORK OUT WHO IS IN CHARGE

This system of private ownership and state control has pro-
found political significance. Statist politicians got tired of the
results of their day-to-day running of the economy via state-
owned industry. But they did not tire of power. The rail
model seemed to offer them the ideal situation: power without
responsibility. They could meddle all they liked and never
shoulder the blame. Or at least that is what they thought.

Unfortunately, the wheels are coming off the dream.  Labour’s
hope was that they could meddle, but that ultimately the in-
vestment that they wanted would materialise as a consequence
of the strong balance sheets of Railtrack, the TOCs and the
Roscos.  The problem is that their meddling has undermined
those very balance sheets. Had the government not bunged
Railtrack £1.5bn in April 2001, Railtrack would have gone
bust. No investment there.  Virgin is, as I say, talking about
giving up.  Its £50m subsidy this year turns into a £50m pay-
ment in two years time.  That was dependent on the WCRM
meeting ambitious targets, which isn’t going to happen.
Moreover, Virgin, via its Rosco, has invested massively in
new rolling stock (£1bn).  The £100m that Railtrack gave
them will keep them quiet for a while but not forever.  Just
wait for the howls.

There is another point I would make about this pseudo-pri-
vatisation and that is that it is terribly difficult to work out
who is in charge. Just the same is true of things like the
Dome and Wembley Stadium, and I guess will be true of Lon-
don Underground and Scotland. Kafka would understand.

Coming back to that £1.5bn given to Railtrack the other
month.  If Railtrack hadn’t received that money it would have
gone bust.  But isn’t the prospect of bankruptcy one of the
great disciplines of the private sector? Not any more, it
would seem.  This system has failed.  It is called privatisation
but private companies are no longer in charge.  The challenge
for libertarians is to describe this system, and any others that
the state will doubtless try to conjure up.  We have been hoist
by our own petard. We have talked about privatisation as if it
were the answer to everything, while forgetting that it must be

allied to freedom. Take the freedom out and this is what you
get.

FREE THE INDUSTRY

And this is about freedom. By and large where the industry
has had some freedom, improvements have been made. For
instance: crime. Or mainline stations. Or uniforms. Freedom
has not yielded perfect results, as those liveries demonstrate,
but the point is not that free enterprise is perfect, merely that
it is less imperfect.

So where should we go from here? Statism in the form of
state-ownership or state-control has failed. The less state the
better.

In recent weeks and months there have been calls for re-na-
tionalisation. I am not necessarily against this. Not because I
have abandoned my libertarianism or am having a crisis of
faith, but simply because bizarrely the industry would have
greater freedom if state-owned that it does when state-control-
led.

But I would prefer to see no state involvement at all. Free the
industry of price controls, franchising, fragmentation, regula-
tion, safety regulation and subsidy, and see what happens.

But wouldn’t large parts of the industry go bust? Probably.
The railway is effectively three businesses — in fact the same
three businesses that BR divided itself into: Network South-
East, InterCity and Regional Railways. Parts of Network
South East and InterCity did not receive a penny of subsidy
and most of the rest would need little encouragement to flee
the nest. Regional Railways make huge losses and would go
bust.

But wouldn’t fares rocket? Perhaps but I doubt it. Passengers
will put up with high fares for a while but over the course of
a year or so will move or change jobs. And when that has
happened, getting them back will prove nigh on impossible.
Fares were not ludicrously high when the railway was pre-
viously free to set them.

Integration would take place. I am not sure whether the natu-
ral state would be one gigantic operation covering overland
and underground operations or whether we would get a re-
gional separation on the basis of main termini. But what I am
absolutely sure about is that vertical fragmentation would dis-
appear. If you operate trains you need control over the track,
over punctuality, new train acceptance, high-speed operation,
stations, timetabling. All these things demand close integra-
tion, and in my opinion one organisation to make the deci-
sions.

I appreciate that these are not definite answers. But if you set
something free you cannot be sure quite what is going to hap-
pen. Freedom is scary.

I believe there is a future for rail. At very least London relies
on its railway and I doubt if ripping up the track and replacing
it with tarmac is anything more than a fantasy.  What the rail-
way needs is a new culture.  A culture of customer service, of
cleanliness, of maintenance, of punctuality, of discipline. And
culture needs stability. State ownership can never guarantee
stability.  Neither can our present system.  Only freedom can.

NOTES

1. http://www.rail.co.uk/atoc/public/levllbulletin_fs.htm
2. Rail, Issue Number 408, May 2nd-15th 2001.