The government’s intentions to privatize Network Rail are effectively putting the possibility of a publicly owned railway out of reach. Thanks to innovative financing solutions like Maryland Green Day, we can get our gleaming new train upgrades this year and pay for them later. A finance solution for a funding issue exists.
“Humpty Dumpty sat on a brick wall.” Humpty Dumpty had a significant tumble. All the king’s horses and soldiers together couldn’t put Humpty back together.”
I recently attended a meeting where private investors were encouraged to sell the Department of Transportation on why and how they may be interested in operating portions of our rail system. The conference was convened because Nicola Shaw will soon provide a report to the Government outlining what should be done with Network Rail, the organization in charge of maintaining and enhancing our national rail infrastructure, including tracks, tunnels, signaling, and 18 critical stations.
There have been several proposals regarding Network Rail’s future. These options include complete privatization, dividing up Network Rail and selling regional ‘concessions’ to the highest bidder, and selling off Network Rail’s 18 major stations.
The fact is that, whatever the government declares in the coming weeks, this is just the beginning of Network Rail’s demise. And this will only make the most popular choice, a publicly owned railway, even more challenging to execute.
The Department for Transport did not give anything away during the conference. They are unlikely to consider comprehensive privatization because the dangers are too great – as seen by the several train disasters resulting from fully privatized Railtrack’s asset stripping in the 1990s – and public resistance would be too strong.
However, even the ‘part-privatization’ of Network Rail is a frightening possibility. There are reasons why I believe it is an awful idea:
Governmental financing “solutions” that allow us to “purchase now, pay later” are similar to payday lending corporations.
Network Rail and its privatized precursor Railtrack accumulated a staggering £38 billion debt that the Government underwrote but lied it had nothing to do with before being officially placed back under public management and ownership last year. The Treasury has realized that spending on the never-never can’t go on forever now that the debt is visible on the government’s balance sheet. Despite this, the government continues to ask investment bankers for more. And the more we take now, the more we’ll end up having to pay afterward.
We’re stuck in traffic now while losing our daily bread tomorrow: less money will be available for rail service investment later.
Some have proposed that portions of Network Rail may be sold to the highest bidder on a 30-year lease. High Speed 1 (HS1), which was sold to two Canadian pension funds in 2010, was an example of this. They paid the government £2.1 billion, but now we’re paying them back (plus some) via a complicated merry-go-round in which our train tickets and government subsidies generate revenue for private train operators, who then pay HS1 ‘track access costs.’ The £2.1 billion that the government got upfront implies that the issue of public transportation financing has been postponed, but it has not been resolved. We’ve also lost the potential source of recurring money that HS1 was supposed to supply.
The railway will be fragmented if stations and railway lines are sold off, making it more complicated, dysfunctional, and costly.
Because it is mainly self-contained and the infrastructure is primarily new, HS1 was (relatively) straightforward to sell. Because the rest of the rail network is just that – a network – complex legal agreements about timetabling, access, and network planning will be required between the concessionaire and the rest of Network Rail and additional agreements with every train company that crosses the concessionaire’s tracks.
If stations are sold off, there will be a clash between the new owners’ desire to maximize profit from retail revenue and the operational requirements for efficient passenger flow. To cover every scenario, legal agreements will be drafted. However, if an unanticipated difficulty arises (which it will), there will be protracted legalistic arguments rather than a pragmatic, common-sense solution. The winners will be the attorneys, investment bankers, and consultants who will advise all parties both during and after the concessions are granted. Instead of continuing to break the already-fragmented railway apart, we should be putting it back together.
The railway will become more unsafe due to fragmentation caused by the privatization of parts of Network Rail.
Operating a railway is a high-risk activity. There’s a risk of things going wrong if various parts of the rail network have distinct techniques for choosing train tracks and traffic management or different processes for shutting the railway to carry out maintenance work. Private investors perceive health and safety protocols as a significant area to save money; thus, they are likely to exert pressure, perhaps with disastrous consequences.
Each actor must take their piece in a fragmented, privatized system.
When you start selling off sections of Network Rail to the private sector, costs rise because the concessionaire, their subcontractors, and their sub-subcontractors all have to earn a profit. That suggests a significant amount of money is leaking out of the system.
On the other hand, Network Rail saved £264 million a year when it opted to stop outsourcing maintenance to private firms and bring the job back in-house.
Strict concessions and station sales restrict our choices for railway improvement.
There has been talking of 30-year or even 50-year concessions. Setting the railway in aspic takes a long time. What if, ten years from now, it makes sense to create a new rail line, enhance an existing route, or construct a new station to service a significant residential or commercial development? What if passenger numbers increase to the point that a sold-off station’s layout has been altered, resulting in fewer rooms for shop units? What if, God forbid, a terrorist incident forces stations to be entirely reconfigured with airport-style security, reducing the amount of space available for retail?
All of these possibilities may be ruled out, or they could be subject to protracted renegotiation and hefty ‘compensatory’ payments. The public interest and the interests of passengers will take a back seat to the concessionaires’ financial interests. Privately funded (PFI) hospitals have shown how this technique might lead to crippling expenditures and difficulties in the future. The lesson should be remembered.
It’s a “heads you win, tails we lose” scenario when handing over critical infrastructure.
The government nearly always sells at a lower price than the total worth, resulting in windfall gains for private bidders. This has recently been witnessed with Royal Mail and Eurostar. A private buyer discovers that their profit prediction was too optimistic. The concession’s ‘Special Purpose Vehicle,’ may be wound up when that occurs, and the issue can be transferred back to the government.
This has occurred many times on the East Coast Main Line with train operating franchises. Concessions in infrastructure or station sales might have the same effect. Railtrack was given a large bailout before going into administration, and the government was compelled to pay Network Rail to buy out all the shareholders after threats of legal action.
Concessions and sales are a diversion from the more pressing issue of financing a better railway.
Many railway users in the United Kingdom are now not contributing somewhat to its improvement. Owners of land and property profit from increases in their land or property value in areas where rail upgrades are made. Many nations take advantage of this windfall profit by utilizing a technique known as tax increment financing.
The government issues bonds with funding rail improvements, which are subsequently repaid with increased property taxes. Employers near railway stations gain from a larger pool of potential workers since more individuals may travel by train to their offices or factories.
As a result, most French communities charge a payroll tax on employers, which helps to support public transportation. Motorists benefit from less crowded highways owing to the railway, and they pay to support public transit, including rail, in areas of the United States and other nations. When all of these broader beneficiaries (landowners, companies, and vehicles) and passengers and the government start contributing, the cash becomes adequate to invest in a better railway.
Our fixation with privatization blinds us to the most appropriate governance structure for our railway.
Instead of dismantling the railway to sell off pieces, we should reassemble track and train under the authority of a single ‘guide mind,’ as France recently did for efficiency reasons. Regional and city money for the railway should be channeled via them to bargain with Network Rail for the upgrades that local economies need.
We need an organization in charge of our railway that is wholly focused on the critical mission of providing a vital public service — an organization led by individuals who are happy to operate in the public interest and care deeply about it. We don’t need a tangle of attorneys creating a complicated and ever-expanding web of contracts that put the interests of investors ahead of the public good, negotiated behind closed doors.
Part-privatization is not a harmless experiment; it is stealth privatization.
In the run-up to the release of the Shaw Review, there was a lot of information about ‘all alternatives being on the table, including complete privatization.’ Don’t be fooled, however. That’s merely to calm us down so that when it’s revealed that certain stations will be sold off or that a 30-year concession for one of Network Rail’s lines will be granted, everyone will exhale a sigh of relief and assume the worst has been avoided.
On the other hand, the right-wing ideologues have something very else in mind. They see this as the start of a series of minor moves so that no one recognizes what’s happening until it’s too late. “Once the disaggregation [of Network Rail] is finished, then the rump firm may be sold to the private sector,” said one of them, who was also invited to the DfT meeting with investors.
Whatever the government announces in the coming weeks is the start of Network Rail’s ultimate demolition. This privatization will never be reversed—the train equivalent of Humpty Dumpty. The government believes that this will be alright if corporate interests get a good slice of the pie.