The lesson of the railways: private is not always best

In my Indy column today I mention that the public subsidy to the railways has increased in real terms since the days of British Rail. For those who are interested, this chart from Sir Roy McNulty’s report on the railways from last year  shows in greater detail how the public cost has exploded:

The orange bars are the subsidy.

As the McNulty report points out, one of the main objectives of rail privatisation in 1993 under John Major’s government was to reduce the level of public subsidy. That particular train is not just late, it’s heading in the wrong direction.

What we have here is a lesson for those tempted to assume that wholesale privatisation of public services always produces greater efficiency and reduces public expenditure. McNulty says the British railway system is around 30 per cent less efficient than publicly controlled European peers.

And why are our railways so inefficient?

This passage from McNulty (p28) suggests an explanation:

“Differences in performance gains between Great Britain and these European examples may result from differences in the approach taken to franchising. While Great Britain has franchised all services, franchising in Europe has tended to focus largely on subsidised regional services, with main-line services continuing to be operated by the former state monopoly. This has allowed new franchised operators some flexibility over staffing, with staff given the opportunity to transfer to the new operators or remain with the state incumbent…It has allowed new operators to improve labour productivity and therefore reduce  overall costs.”

In  other words, while a modicum of privatisation can be a public benefit, there can also be large public benefits from keeping key services in the hands of the state.

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