Exploiting development value is key to rail profits

One of the reasons that the railways, even in their heyday, struggled to make ends meet was that they were never allowed to profit from the enormous value they create in the wider economy. Railways have always been a driver of economic growth, as demonstrated by the fact that they engender enormous increase in land value but that profit has gone elsewhere, to lucky or canny landowners who happen to be in the right place at the right time.

The American transcontinental railways were partly financed on that basis but on this side of the pond,  with the notable exception of the Metropolitan Railway, which was allowed to profit from the developments activities of its own property subsidiary, railway companies have been specifically barred from profiting from the wider economic growth they stimulate. Normally, therefore, it has been the state which has stepped in either to subsidise their construction or their operations when, in fact, were the transport element counted as part of a wider ‘development’ business, then the enterprise would not need state involvement.

Change is afoot. The Lyons report confirms that Crossrail may be partly funded through capturing these wider benefits but, on a smaller scale and more immediately, a new entrant into the railway business, Kilbride Community Rail, has just launched an initiative to reopen railway lines by profiting from the development value they create. The idea is so simple that one wonders why no one has come up with it before. Kilbride, a joint venture between Kilmartin and Bride Parks, two development companies, will fund the reopening of lines by developing surrounding areas and being allowed to charge a tax of say £10,000 per new home in the area to pay for the new transport link.

The launch – which I hosted– received the blessing of rail minister Tom Harris who spoke approvingly of the idea. Indeed, he even went beyond the cautious ‘noting’ brief given by his civil servants and made lots of encouraging noises. Ian McAllister, the chairman of Network Rail was there, too, which suggests that the idea is a potential runner.

Already, the idea has borne fruit with extra money coming into the railway, not, as with Network Rail, public money being disguised as private. Kilmartin have managed to persuade Legal & General to provide a fund of £150m to support schemes and several have been worked up, including one in Northern Ireland, to the stage where discussions with ‘stakeholders’ are taking place. One of the most advanced is the idea of reopening the Lewes to Uckfield line, which would not only serve a growing community but also offer a diversionary route to the frequently closed Brighton main line. Another is the extending the Tamar Valley line between Bere Alston and Tavistock in the south west and both these are typical in that they were shut in the 1960s following the Beeching report.

The most ambitious is perhaps the reopening of the Oxford to Cambridge route, one of the worst mistakes made in the aftermath of the Beeching report – and interestingly one that Beeching himself did not recommend and a fourth one is Buxton to Matlock in the Peak District, to reduce the number of tourists arriving by car.

What I like about this scheme is that it represents real capitalism with entrepreneurs taking a risk to support the railway whereas so much of what passes for private investment in the rail industry is little more than alternative form of financing with the risk remaining with the public sector.

The path to laying down tracks will undoubtedly be a fraught one. The vast number of stakeholders involved, the ease with which Nimby attitudes can prevail and the difficulties of the planning process are just some of the obstacles.  Nevertheless, with such widespread support and interest, and with serious money behind it, this venture may open the way to reopen several lines and, indeed, this model could also be adapted to revitalise services on little used lines.

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