A system in which operators make huge profits without risk while travellers pick up the tab just doesn’t add up

It is time to end the 20-year system of franchised train operations that successive governments and the Department for Transport keep going because they can’t admit privatisation has failed.

Public ownership, as franchises lapse, should not mean back to British Rail but would allow us to address longstanding issues about accountability, service and investment. Profit is justified when operators put in money and take risk, but there is little risk for rail operators and investment is backed or funded by the state.

On the West Coast mainline, an initial investment of £20m in 1997 led to profits and dividends of nearly £500m by 2012 for Virgin and Stagecoach; if passenger revenue disappoints, the operator can always walk away without serious financial penalty, as successive operators have done on the East Coast mainline.

The state acts like a landlord who improves a flat and then lowers the rent: renewing West Coast track and signalling cost the public purse nearly £10bn, while Virgin’s track access charges were lowered.

Dividends of £200m a year are paid out on the privatised railways. Then there are the costs when separate companies are responsible for train operation and infrastructure. Public ownership is economically sensible, and also a political opportunity to do things differently. Before and after privatisation in the 1990s, decision-making on the railways has been centralised, top down and arbitrary. All depends on Westminster’s rail investment promises (which are often not delivered outside London), and on Whitehall targets for recovering rail operating costs from fares (which push up the fares every year).

Under public ownership we can have more accountable railways that fit with devolved government for the 2020s. We can let regional authorities with wider responsibilities decide rail service schedules, fares and investment priorities. We can also begin a serious national conversation about rail funding.

There has never been enough in the fare box to cover operating costs and investment, so we need to look at how we can firm up commitment to strategic regional projects and at what level of operating subsidy makes sense.



Karel Williams is professor of accounting and political economy at Manchester Business School