Off the Rails

Mrs Thatcher stumbled on privatisation as a way of boosting the government’s coffers which happened also to encapsulate the Conservative Party’s free market agenda and it quickly became the emblematic policy of her governments. Telecoms, gas, electricity, water and millions of council homes were disposed of, radically transforming the nature not only of government but of our society itself.

But the wily old bird eschewed selling off the railways, knowing that this other British invention would fit badly into the privatised mould, not least because they were loss making and that shutting swathes of lines would be deeply unpopular. But her successor, John Major, was less canny and embarked on what became the most controversial and least successful (with British Energy a close second) privatisation.

The sale of the railways has created a fragmented, expensive and poorly-run system which shows none of the supposed advantages of private management such as better customer care and focus. The main reason for the failure is that rail privatisation was based on the fallacious idea that a loss-making industry, requiring subsidy of £1-2 billion per year depending on the state of the economy, could be broken up into 100 profitable parts. Moreover, the model chosen was based on the idea that there should be competition between different rail operators, an unrealistic concept for railways given the obvious physical limits to capacity, not least the fact that overtaking is a rather different proposition than on a motorway. Ironically, the idea of on-rail competition was shelved even before the sales process got underway, creating the ridiculous situation whereby the railways were being sold for a purpose that was already recognised as unachievable.

Selling the Tube

Yet, despite the all too apparent failure of rail privatisation, the Labour government has continued its predecessor’s privatisation programme on transport, selling off both national air traffic services (NATS) and the infrastructure of the London Underground. NATS quickly had to be rescued following the 9/11 outrage and remains inherently unstable. The Tube Public Private Partnership (PPP) is a particularly innovative but controversial idea, as it not only breaks up a system which naturally requires a high level of integration and co-ordination but is based on contracts of such extraordinary complexity, running to 2,800 pages and two million words, that not even the contractors fully understand them.

On the Underground, too, the model chosen to sell the system had already been discredited long before the final contracts were signed. Originally, the plan had been that the private sector would fully finance the investment needed to upgrade the system, such an attractive proposition that it won over Labour MPs when the scheme was launched in 1998. The only problem is that it was a pipedream. In fact, the PPP requires subsidy of £1 billion per year, much more than the Underground ever received when it was in state ownership. Moreover, the amount of money being invested by the private sector represents a mere 25 per cent of the total, hardly worth the trouble given that the contracts cost a massive £500 million to draw up.

Welfare State Legacy

The interesting question, therefore, is why Labour, which, of course, had tried to stop the privatisations while in opposition, has become so wedded to the concept and, indeed, continued to develop the policy despite the obvious limitations which it seems to have reached. Indeed, the Tories’ Private Finance Initiative has been harnessed to become the principal vehicle for the delivery of investment in public services.

It is such a radical turnaround that it is hard to come up with a rational explanation. When challenged, the Labour politicians themselves talk in vague terms of using ‘whatever method works’ to deliver better state services, irrespective of whether it is delivered by the public or private sectors.

But that is a fudge. So is the argument that there is not enough public money for investment. A bit of tinkering with the Treasury rules could ensure that the UK did not breach the rules set by the European Union on public spending. The truth is that Labour is anxious to move away from the legacy of the welfare state it created, epitomised by the swathes of run down council estates created in the post war housing boom.

New Labour has to be seen to be modern and anything which smacks of state involvement is perceived to be old fashioned. This is why it has been so difficult for Labour to develop a coherent strategy once the privatisation of the railways so publicly failed with the collapse of Railtrack. A return to British Rail, or anything like it, would be seen as sending out the wrong image, even though all opinion polls suggest that passengers would be delighted to have the old bird back. Ministers have been desperate to present the creation of Network Rail, the not-for-dividend company that has no owners, as a private company when, in fact, it is under state control.


All this is viewed with bemusement from Europe. While many countries in Europe are equally eager to break up the old state railways and are embarking on initiatives to attract private investment into the railways, they are going about it much more cautiously and, since the collapse of Railtrack, very warily. On the whole, there is not the same obsession with the private/public distinction in Europe. Traditionally, there has been more private sector involvement in transport, but there has also been a much greater recognition that the transport system is a vital component of a successful economy that requires state involvement and aid. In Britain, in contrast, governments are still not convinced of the importance of good transport infrastructure.

All this has made Britain world leaders in the privatisation of transport. But do we want to be?