Fears the government could privatise Network Rail have been heightened after a report from an influential thinktank called for its abolition and endorsed closing lines and deregulating fares.

The free-market Institute of Economic Affairs said full privatisation of the UK’s railways would improve services and ease the burden on the taxpayer. It claims that strict regulation, price controls on fares and the structure separating train and track have made the railways inefficient, while the industry still cost taxpayers almost £5bn in 2014/15 – equivalent to £180 per household.

Labour and transport campaigners called on ministers to reject the report.

The IEA’s study comes as the government is considering the future of Network Rail, with a review by Nicola Shaw, the chief executive of HS1, into its financing and structure due to be delivered before next month’s budget. Shaw has said a full privatisation and breakup of Network Rail is among the options on the table.

The IEA said rail firms should be allowed full control of fares and spending on safety, and subsidies should be removed. It argued that private railways should be free to cut costs by closing loss-making lines and services, introducing super-peak fares to tackle overcrowding, offering cut-price options such as standing-only carriages and determining an appropriate level of safety expenditure.

The report’s author, Dr Richard Wellings, head of transport at the IEA, said: “The renationalisation of rail infrastructure has proven to be wholly unsuccessful. We now have a hybrid model where despite part-privatisation, the sector has remained heavily dependent on taxpayers’ money, while Network Rail’s net debt has quadrupled since its creation.

“We need a successful privatisation model to wean the industry off state support.”

But Lilian Greenwood, shadow transport secretary, said: “This report makes it clear that breaking up Network Rail would be a recipe for higher fares, reduced spending on safety and even line closures.

“More fragmentation and more privatisation are the last things that passengers need, but the Tories are considering dragging us back to the dark days of Railtrack. Ministers must unequivocally reject this report and abandon plans to privatise Network Rail.”

The Campaign for Better Transport branded the report “completely out of step”. Spokesman Martin Abrams said: “Paving over Britain’s railways or cutting all public funding, both of which are suggested by this report, are recipes for chaos, congestion and pollution, especially in our cities and towns.

“While there is certainly room for improvement within Network Rail, no one should forget the disaster that was Railtrack and the appalling number of fatalities on Britain’s railways during that time.

“Rather than repeating the mistakes of the past, and give any credence to this outdated anti-rail report, the government should support a strong, accountable national body to manage the network and allow more devolved decision-making to link rail with strategic land-use planning and the needs of passengers and communities.”

Full renationalisation of rail is more popular with the public. A recent poll by Survation showed 59% oppose privatising Network Rail.

The government commissioned the Shaw review in the wake of cost overruns in Network Rail’s five-year plan, which led to the shelving of major upgrade projects, and growing concerns over its £38bn debt.