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Please explain the economic thinking behind this

(16 Posts)
YoullNeverWeeAlone Thu 11-May-17 22:51:01

Listening to a Tory MEP who in a past life was architect of rail franchise system explain that, if we don't have franchises we'll have no investment in railways and will lose all that money.

But surely franchisees only do it to make money? They're not bidding so they can give the UK railway all their cash are they. I assume they expect a profit. So why couldn't a state owned franchise do the same?

contortionist Thu 11-May-17 22:56:58

Accounting rather than economics, but if a state-owned franchise borrows money to invest in railways, that adds to the national debt. Whereas if a privately-owned company borrows money to invest, it doesn't.

This is of course nonsensical, since the government would in practice step in if a private franchise did fail. But as it is, the private option looks better in the national accounts.

YoullNeverWeeAlone Fri 12-May-17 08:37:44

Thank you. But presumably franchises are only attractive as there is money to be made. So we are losing that money, often to foreign companies who are running our railways.

He also said that nationalised rail services worked for passengers but not tax payers due to subsidies required, so how do franchises make money?

Also rail passengers and tax payers aren't two distinct groups, would imagine overlap is considerable. And even tax payers who don't use the railway benefit from cheap, effecient, reliable services which allow people to get to work on time, travel further to more jobs etc.

I've never really thought about this before but had all these thoughts yesterday and no one on the radio pointed any of this out, just let him say how terrible it would be.

Anon213 Fri 12-May-17 14:06:59

Surely the idea behind it is that the private companies only get the franchise if they promise investment and then only generate profits if they make their service efficient and cost effective.
The thinking is that governments usually cant do this because for example: a private company might bring in new technology so a driver can press a button to close the doors, service gets more efficient and long term increase in profits. But a state companies response is to hire more staff to close the doors, which increases costs and lowers profits.

YoullNeverWeeAlone Fri 12-May-17 17:18:18

True. But are Southern rail effecient? Strikes over moves to become more cost effective aside, the service is shit. But customers are trapped as need to travel those routes. If there was consumer choice, I get how this would work but I can't choose which rail provider I use to reach London, or Birmingham, so over priced, unreliable, over crowded, dirty etc, the franchise still gets my money. Why invest/improve if passengers have to use you anyway?

Chaotica Fri 12-May-17 17:22:22

I was going to say the same as Youll Whatever the arguments for private franchises, they all fail with core services where users are trapped into using them as they have no alternative. The obvious way would be by offering competition, but that doesn't work on the railways because you can't easily have different companies competing to use the same bit of track for exactly the same routes.

Renationalisation is a good idea.

YoullNeverWeeAlone Fri 12-May-17 17:44:58

See, I think, growing up under Thatcher, I just accepted the private is better mantra. But I can't square it with the railways, especially as (I think) the track infrastructure is nationalised, or at least subsidised, so we still pay for investment which seems to go out as profit for private companies running franchises.

Essentially, I struggle to see, without genuine consumer choice, how private will = better and/or cheaper than not for profit as it always needs to take money out somehow for shareholders, so less investment or cost cutting on services or higher prices seem inevitable.

Too often private sector "effeciency" seems to mean cutting a service to its minimum, charging the max possible and pocketing the difference.

cdtaylornats Fri 12-May-17 20:47:54

Do you remember when if you asked for a phone line and if you were deemed lucky enough to deserve one it took 6 months to get a party line?

annandale Fri 12-May-17 21:01:04

Well, no cdtaylornats. I do remember British Rail before they were fattened up for privatisation, which meant that from about 1987 they were rather good until the blow fell. I do remember the awful old rolling stock, the sheer filthiness of the railway back when you could smoke on trains, the murder of Debbie Lindsey in one of the 'dog kennel' carriages on the Kent line. I also sadly remember that travelling by train used to be really comfortable because there was loads of space, as passenger numbers were falling. Was it safer? It felt it but I really only started rail commuting after privatisation so I was more aware of accidents after that. I'm not sure nationalisation is the answer, really, but I wish it were [gloom]

OCSockOrphanage Tue 16-May-17 14:34:30

I worked for Railtrack for three years and remember BR when it was a nationalised industry. BR "managed" by increasing fares to force passenger numbers down, so they could claim there was no demand for the service. The network was shrinking fast, apart from the commuter services. The sell-off at privatisation created three rolling stock companies, which were massively undervalued and so snapped up by investors and caused a feeding frenzy, Railtrack to own the infrastructure, plus the 10 or so regional operating companies, and the freight operation (about which I know little). The regional operators had to get people used to travelling by rail again, which they have done with such success that passenger numbers have climbed steadily and are now just about as high as they have ever been since the 1920s. They achieved this through selling discounted off-peak advance fares. Catering is better now too, I kid you not, apart from the loss of the old fashioned cooked breakfast on the InterCity first class dining cars.

Gentlygrowingoldermale Tue 16-May-17 19:57:12

50% of our railways are owned by foreign state railways. They have no problem investing in our system and use the profits to subsidise their own.

Clever, eh?

nursy1 Wed 17-May-17 05:12:03

The railways and Network Rail get public subsidy anyway. It's about 4 billion I think.

Jellytussle Thu 18-May-17 08:54:52

I think a lot of people feel the franchising system as it stands is bonkers and doesn't really encourage long-term private investment in the railways. Typically, franchises are only let for seven years or so, but the more basic problem is that most of them are not 'vertically integrated'. Most franchisees don't own the actual trains, nor do they have any control over the tracks and other infrastructure apart from station buildings, so the scope for change and innovation is quite limited. Major train orders and infrastructure projects are ordered, paid for and specified (often badly) by the government.

There are a few exceptions which are usually held up (at least in the railway press) as examples of how things could be done better. The one that's usually quoted is Chiltern Railways, which runs all services out of London Marylebone and has a much more comprehensive remit than most franchises. They have invested in new trains and track building so as to greatly improve services to Oxford for instance.

You could argue that a single nationalised institution such as BR represents the ultimate 'vertically integrated' system, but that brings its own problems. For one thing, the only major part of the railways that is currently nationalised is Network Rail, an inefficient and risk-averse organisation that has completely ballsed up all the recent major electrification programmes. Minor infrastructure projects such as building new platforms or bridges have to be done through NR and they work out incredibly expensive. There would be no benefit in making the rest of the railways more like NR, if that's what nationalisation means.

Another potential issue with renationalisation is that we are now an entire generation on from BR days. There are no longer many people around with the experience of running an integrated national rail network, which obviously is a hugely complex business. There's also the fact that, bizarrely, some aspects of UK rail privatisation have been taken as a model for EU legislation. It would actually be illegal to renationalise the UK railways along BR lines while we remain in the EU.

So although it might well have been a privatisation too far in the first place, and the franchising model is broken, the question of how you replace or fix it is not so easily answered.

Gentlygrowingoldermale Thu 18-May-17 09:38:09

I think Chiltern are the only ones that use that line, which makes things easier.

JamieXeed74 Thu 18-May-17 14:19:41

I think there is a case for Privatisation, but only if it was the Conservatives that did it.

If Corbyn got his hands on the railways he would lower ticket prices (sounds good) the Unions would demand and get higher wages, so costs would rise, profits would drop. Then investment would start being reduced because there was no profits, ticket prices would rise. Unions would then start striking for not getting even higher wages, services decline and people just stop using the trains. British rail all over again.

So if the Conservatives run it as a profit making company then yes, But no if Labour was in power.

cdtaylornats Thu 18-May-17 14:57:52

The problem with nationalising a business is it gets like schools and the NHS and is used as an ideological football lurching from one concept to another every 5 years. With Cameron and Miliband - not so bad because they weren't that far apart - with May and Corbyn disastrous. One would be all for passengers, the other all for the workers.

Imagine it with Corbyn in thrall to the unions - a guard in every carriage, a driver and co-driver. Every station manned by a porter, ticket-collector, ticket-issuer, cleaner and electrician. No train running unless fully staffed. Actual train usage not relevant to the timetable.

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