Britain - Rail renationalisation: for whom?

Winter 2015

Eighteen years after railway privatisation, the issue came has once more come to the fore, thanks to Jeremy Corbyn, who has promised renationalisation should Labour come back into office under his watch. Unquestionably this pledge played a role in creating the "radical" image which prompted a quarter-of-a-million people to vote for him as leader of the Labour Party this September.

Of course, being run by the state is not necessarily a guarantee that the railways will offer a good service to passengers. The vastly under-funded nationalised British Rail was never as wonderful as some would have us believe. Right from its inception, it was used as a means to indirectly subsidise the capitalist class. However, the fact that, today, the railways are run for profit by private companies has certainly allowed them to be used shamelessly by their shareholders, as a milch-cow, at the expense of both railway workers and passengers.

So, to what extent are Corbyn's renationalisation plans designed to challenge this shareholder parasitism?

Stinging fares

This profiteering is no secret. Passengers pay for it through exorbitant train fares - which is all the more ironical, because one of the two main official objectives of privatisation was to make the railways cheaper, by increasing "competition" and reducing costs!

According to figures released by the Department for Transport (DfT), the total income from rail fares netted by Train Operating Companies (TOCs) has increased by 30% over the past 5 years. Among these fares, half are "regulated" - mostly tickets bought in advance and season tickets - and the rest are not. However, calculations made by the Action for Rail campaign show that "regulated" rail fares increased by 25% over the same period, while "unregulated" fares increased by an average 125% - and up to 225% in the case of Virgin Trains!

Unsurprisingly, workers are spending a significant proportion of their wages on getting to and from work. Over these 5 years this proportion has increased by between 14% and 20% on average - and by a lot more for those whose income has fallen.

In theory, the government caps annual increases in "regulated" fares. In most years, this cap has been higher than the RPI index of inflation, so that fares went up more. As if inflation was somehow higher for the TOCs than for the travelling public! Nevertheless, the companies still manage to use all sorts of tricks to blur the boundary between "regulated" and "unregulated" fares to increase their revenues. For instance, they may restrict the definition of an "advance" fare, so as to widen the scope of "unregulated" fares. And, of course, they make the best of their "freedom" by slapping extortionate increases on "unregulated" fares, thereby overcompensating themselves for the timid constraints of regulation.

The result, of course, is that Britain's railways are now the most expensive in western Europe, without offering nearly as many high-speed trains or low-pollution electrified lines, for instance..

The state subsidies' black hole

While rail fares certainly constitute one big part of the TOCs' profits - and, therefore, of their shareholders' dividends, the rest comes from government subsidies. And this is another major irony of privatisation, since its second main official justification was to cut the cost of the railways to the state.

However, according to figures published by the DfT, last year's sum total of state subsidies to the railways - which come in two flavours, "direct" and "indirect" - was 5 times higher than it was just before privatisation!

As regards direct subsidies, until 2011 they were granted to the TOCs in the form of a "risk-sharing mechanism" whereby the government compensated the companies for any shortfall in expected revenue. In 2011, when a number of franchises came up for renewal, this was tweaked: while initially this mechanism kicked in from the 4th year of the average 7-year franchise, the new system offered state guarantees from day one of a franchise, which could now extend as long as 22 years.

In all, government subsidies totalled £1.97bn over the past year. This is obviously designed to be a win-win situation for the private TOCs, but a "heads they win and tails we lose" one for the taxpayer.

The profits that these companies make are not reinvested in the railways, but find their way straight into the pockets of the shareholders. For instance, between 2007 and 2011, 31.3% of the £167m in profits made by First Group's TransPennine Express came from direct subsidies alone - of which 83.6%, or £140m, was spent on dividends. In this, First TransPennine was not alone. During that same period, Arriva Trains Wales spent 99.4% of its profits on dividends and Northern Rail even managed to pay more in dividends than it earned in profits (105.9%, or £117m on a £110m profit!!). With pay-outs to shareholders eating up all their profits, it is little wonder that there's nothing left over for investment in order to maintain the railways, let alone improve them!

As to the state's indirect subsidies to the TOCs, they are channelled via the public company, Network Rail since it was "re-nationalised" in 2002, following a series of damning failures of its private predecessor, Railtrack.

Network Rail, which owns, maintains and renovates stations, tracks and signalling, "rents out" these facilities to the TOCs at an artificially low price. But, at the same time, it is parasitised by a galaxy of private subcontractors which are paid through the nose to carry out the actual maintenance and renovation work - which doesn't prevent many of these contractors from using life-threatening, cost-cutting tricks, at the expense of their workers and ultimately, passengers and on-board crews. As a result, despite the annual subsidy it gets from the state, Network Rail is heavily indebted - to the tune of £30bn today - so that it now spends more on servicing its debt than on maintenance work!

How much the TOCs really get in indirect subsidies is deliberately hidden behind the veil of an opaque accounting system. No-one can say what the TOCs get out of Network Rail's £3.4bn subsidy, or out of the special support that the company gets for what are officially called "major projects", let alone out of the massive funds that the company borrows. But there is no doubt that, without these indirect subsidies, the private TOCs and Network Rail's galaxy of private subcontractors would be limping straight into bankruptcy.

In short, the only result of railway privatisation has been to increase the railway bill paid by the working population, whether through passenger fares or through taxation - for the benefit of private shareholders. But, at the same time, by allowing a whole number of companies to make profits out of the railways without having to risk a penny in investment themselves, it has given birth to a whole new private industry, whose main "activity" is to enjoy a parasitic life thanks to state subsidies.

The privatisation bill for railway workers

There is another way in which railway companies squeeze profits out of the working population: by driving their own workers harder and by cutting jobs and wages.

This began under British Rail, in the run-up to privatisation with the aim of turning the future private companies into profitable businesses which would be more attractive for potential private investors. Between the announcement of privatisation in 1993 and its finalisation, in 1997, there was a flurry of job cuts. On Regional Railways North East, for instance, half of the 4,700 jobs based in York were cut.

Job cuts carried on after privatisation, of course, as the TOCs used every possible trick to cut costs. Between 1996 and 1998 alone, 10,000 jobs were cut across train operating companies. The companies then realised that they could no longer run a half- decent service and were forced to hire 2,000 workers over the next 2 years - but, of course, on less favourable terms than they would have had in BR days!

Over the next 16 years, however, staff numbers increased by 28%, from 39,721 in 1998 to 50,782 in 2014. But this wasn't out of the kindness of the TOCs' hearts: the deterioration of the road system, the high cost of petrol and growing concentration of jobs in the urban conurbations contributed to a sharp increase in the number of rail passengers. The TOCs had to increase the number of services if they wanted to cash in on this increase. And this was always done on a shoe-string. Staff shortages remained a permanent problem for workers, while services could only be run due to the massive overtime worked by a grossly underpaid workforce.

Since 2011, the attacks on workers' conditions have been based on the findings of a report which had originally been commissioned by Gordon Brown to make the railways "better value for money", before being wholeheartedly endorsed by the new ConDem government. The McNulty report, after its author,, proposed a series of "efficiencies", 35% of which would be achieved by cutting "staff costs": in other words, by cutting jobs, wages and conditions. At the time, the rail unions estimated that this would result in more than 20,000 job losses by 2019.

Among the targeted jobs were those of the remaining guards on long-distance trains. The report defined "Driver Only Operation" as "a safe method" adding that this should be "the default position...with a second member of train crew only being provided where there is a commercial, technical or other imperative". Taking their cue from this, companies operating long-distance trains, like First Great Western (which runs trains from London to Cornwall and Hampshire in the south and Swansea and Hereford in the West), are trying to get rid of the guards, so that the driver will have to drive, operate doors, look after safety, etc.

Ticket office workers are next in line for the axe, with the report recommending the halving of the number of ticket offices across the entire rail network, which would mean the closure of over 650 ticket offices.

The race to cut jobs even extends to areas which are officially deemed "safety critical", like maintenance, in accordance with the McNulty report's recommendation: "A move away from calendar-based maintenance and renewals can avoid the cost of unnecessary work. Non-critical assets will be fixed when they fail, and critical assets fixed when their condition begins to deteriorate. (...) This could reduce inspections and the amount of maintenance done, reducing maintenance staff, equipment and contract effort." In the TOCs' calculations to boost profits and dividends, the potential cost to lives does not figure!

With jobs cuts come the attacks on conditions, following the McNulty report's recommendation to review, for instance, "the timing, length and payment for meal and refreshment breaks", "the time that staff require to rest between shifts", "the maximum time that a person can work in a day", etc.

Finally, there are the attacks on pay, following the report's provocative statement that, "the expectation that salaries (...) will increase ahead of inflation has to end. Indeed, with many passengers and taxpayers having their salaries frozen at present, even the granting of inflation-level increases must be questioned." This was precisely the argument used by Network Rail management in this year's pay negotiations, to back up its initial "offer" of a 0% pay increase!

When nationalisation served British capital

So what is Corbyn's solution to the parasitism of the companies? He wants to go back to an old-style British Rail, by "renationalising" the routes operated by the private TOCs. But, because he thinks these companies should be owed compensation, which the state cannot afford to pay, a future Labour government will wait for their franchises to run their full term, before taking them back into public ownership. This means that if Corbyn becomes Prime Minister in 2020, only a third of today's private TOCs would be state-run by 2025 - and this is assuming that Cameron doesn't renew their franchises early, before the next election, in order to delay their "natural" expiry dates.

But why should the TOCs be compensated at all, after having been fattened for nearly two decades on government subsidies and extortionate fares? Haven't they made enough profits as it is, thanks to an infrastructure which had been built by over half-a-century of public funding, and for which they paid nothing? In fact, many TOCs continue to use rolling stock dating back from the pre-privatisation days. For instance, First Great Western still uses Class 317 locomotives which were built by BREL, the engineering arm of British rail, between 1981 and 1987, as well as the Intercity 125s which were built in 1976! As to investment in new trains since privatisation, it has also been funded by the state. For instance, the DfT is paying (£5.7bn!) for the new Hitachi trains which will be used by Virgin Trains East Coast and First Great Western and it will pay for their maintenance for 30 years!

So, if anything, the TOCs and their shareholders should consider themselves lucky not to have to pay back the undue profits they've made at the expense of the working population!

Yet, timid as they may be, Corbyn's proposals have been met with righteous indignation by the capitalist class and their media. But would these plans really harm their interests?

After all, Corbyn is only proposing a return to the railways as they were between 1948 and 1997. And, in 1948, when the "Big Four" private rail companies of the time where nationalised and merged into British Rail, it did not cause a furore. Of course, the owners were compensated for the past investment they had made - unlike today's TOCs which are merely operating a railway network which has been built on state funds. But the main reason why this nationalisation was welcomed by big business at the time, was that it relieved the capitalist class of the burden of running an antiquated and unprofitable railway system, while handing them capital to invest in other, more profitable spheres of the economy.

Once in government hands, the railways underwent a much-needed process of modernisation, which the private companies had not been willing to invest in. This nationalised railway system was effectively a subsidy to the capitalist class as a whole, as it allowed for the cheap movement of goods and workers. The low cost of travel for the workforce also meant that the bosses could pay lower wages - in the same way as the welfare state and social housing did. In other words, the nationalised railways provided the capitalist class with another mechanism to boost its profits at the expense of the working class.

The fact that the railways were state-run did not prevent the workforce from being made to pay much of the bill for providing the cheap services that the bosses needed.

And when it was considered that this was no longer quite so vital, workers paid again: The biggest single wave of job cuts was launched as early as 1963, with 100,000 redundancies in the wake of Beeching's line closures. Between 1969 and 1973, another 41,000 jobs were cut. By 1974, a workforce which had started at 600,000 in 1948 had shrunk to 256,000. In 1975, a report recommended making more cuts - including shedding another 67,000 jobs, particularly train crew (drivers, second and assistant drivers, guards) - which BR carried out. Overall, over the 48 years between its nationalisation and its privatisation, British Rail cut 500,000 jobs.

It was also under British Rail that working conditions came under attack. For instance, in 1982, "flexible rostering" was introduced for drivers, which meant giving up the 8-hour working-day. This, combined with the axing of the second driver reduced the number of drivers by 30%. Next to come under the axe were the guards, with the introduction of "Driver Only Operation" on inner suburban routes.

In short, the nationalised British Rail's service and workforce had been under attack almost constantly for 35 years, before privatisation. It is hard to identify the "good old days" that Corbyn and his supporters might refer to.

Of course, the idea that the railways - or any public service for that matter - should be profitable is ludicrous, both from the point of view of the travelling public and the railway workforce. But Corbyn's "plan" would still result in a railway system tailor-made for the needs of the capitalist class - not for the working class. It would merely be a cheap way for companies to carry their goods around and bring workers to be exploited in their factories and offices every morning, while the state would take responsibility for all investment.

Of course, this needn't be the case with a nationalised railway. The capitalists could be made to pay for what they really get out of the system, both by paying the real cost of freight transport and by paying for the season tickets of their workforces, as they have been forced to do in some other countries, like France. But since challenging the domination of the capitalist class over the economy is not on Corbyn's "old Labour" agenda, his nationalised railways will continue to serve the same social interests. If privatisation was robbery in plain sight, under this system (re)nationalisation can only be robbery behind-the-scenes. And this is how things will remain as long as the capitalist class remains in the driving seat.

22 November 2015