Stay On Track

Sheila Gilmore, MP for Edinburgh East, writes:

In an interview with Progress last year, Labour’s shadow transport secretary Maria Eagle called for East Coast trains to remain in the public sector in the long term. At the time this represented a shift in the party’s policy. When the previous operator National Express collapsed in 2009 and the government took responsibility for running services, this was viewed as a temporary measure.

No doubt this has been welcomed by those on the left who believe in public ownership in principle. But it should also be greeted by those in the centre who take a more pragmatic view. There is a strong argument that keeping East Coast public will save money, and the new approach that this signals could reduce costs across the industry and boost Labour’s own fiscal credibility.

To explain this it’s necessary to give a brief overview of how the privatised railway was meant to work. Crudely, the competition in the system is meant to occur when various private companies bid for the right to run services on a particular line for a fixed period of time. These franchises will generally be awarded to the bidder that asks for the least subsidy, in the case of loss-making parts of the network, or offers the government the most premium payments, where services are profitable. Bidders will set premium payments at such a level that they can also afford to hive off some profits as dividends to shareholders. While proponents of privatisation accept that some money will leak out of the system, they contend that this is more than compensated for by the efficiency and innovation of the private operators.

Unfortunately experience suggests that this isn’t the case.

In fact recent experience of East Coast has shown that a public operator can be as successful – if not more so – than a private one. New faster services, improved punctuality, high customer satisfaction, and a concerted effort to attract business customers have all been delivered. And this has been achieved without any shareholders to pay, allowing all £640m of profits from the last four years to be returned to the Treasury.

Tory ministers, embarrassed about the success of a publicly operated railway, are attempting to undermine Labour’s plans to keep East Coast public. Following the West Coast debacle, their new franchising timetable sees the reprivatisation of East Coast brought forward to February 2015 – three months before the next general election. I’ve started a campaign against the plans, and hope to secure a debate in the new parliamentary session.

But I would argue that a future Labour government should go further than just preserving East Coast as a public operator. As the well-researched Rebuilding Rail report sets out, the remaining private franchises could be allowed to run their course. Major intercity routes could be transferred to East Coast’s parent company Directly Operated Railways. Regional franchises could be devolved to groups of local authorities, as is suggested in Labour’s policy review. These public operators could then work closely with infrastructure provider Network Rail – also publicly owned – to reduce costs, which the McNulty report concluded were 40 per cent higher in Britain compared to publicly operated railways on the continent.

So ensuring East Coast remains public should be the first priority. But Labour should look seriously at expanding public involvement in the railway in the future, not because public is best in principle, but because it offers the best prospect of reducing costs across the industry. This could, in turn, boost Labour’s own fiscal credibility in the eyes of the electorate.