Jeremy Corbyn’s now-infamous train floor stunt sparked interesting discussion around the potential benefits of rail re-nationalisation. What would this mean for contractors?
Whatever the truth behind it, last month’s image of Jeremy Corbyn sitting on the hard floor of a commuter train resonated with train passengers across the country.
As he sat, he held forth on the problems affecting train travel in the UK: overcrowding and decreasing investment; the unpunctuality of trains; and the inevitable punctuality of fare increases. Mr Corbyn blamed these woes on the privatisation of British Rail in the 1990s and the current franchise system it spawned. The solution he proposed was re-nationalisation of passenger operations.
So what could re-nationalisation achieve for UK train travel, what would be the practicalities and what impact would such a move have on contractors?
The potential advantages
One of the central arguments raised in favour of re-nationalisation is that it would lead to much-needed investment in new rolling stock, reducing overcrowding and improving travelling conditions for passengers.
The UK currently has some of the oldest rolling stock in Europe, seemingly demonstrating private operating companies’ reluctance and failure to invest in new trains.
Commentators also suggest that nationalisation would result in immediate cost savings, which could be used to lower the price of fares. For example, nationalisation would mean an end to the government subsidies currently paid to private train operators, as well as expensive franchise competitions. In addition, savings could be made from de-duplicating the administration and management associated with multiple operating companies.
“It is likely in the long term that nationalisation would lead to a more integrated, organised and transparent service”
Despite such perceived benefits, it is unlikely that nationalisation will achieve these goals, at least not in the short term.
First, the government is unlikely to be in a position to finance the level of investment required to procure new rolling stock, considering the initial costs of establishing a nationalised rail service.
Secondly, there is no guarantee that the government would invest in new trains – or that any such investment would be cost-effective –- or redirect any cost savings into the rail network, given that rail expenditure would be in competition with other important public services.
Nonetheless, it is likely in the long term that nationalisation would lead to a more integrated, organised and transparent service. A single publicly owned train operator would eliminate the multiplicity of complex ticketing in place and central planning of routes would arguably result in a more co-ordinated service.
What impact would re-nationalisation have on contractors?
Most debates around nationalisation of the rail network fail to make clear that the proposed re-nationalisation relates to passenger operations; the majority of the UK’s track and infrastructure is owned by Network Rail, a non-departmental public body of the Department for Transport.
Contractors have collaborated with Network Rail since its inception in 2003 and are experienced in negotiating its suite of contracts, which are largely seen as fair and balanced and follow transparent public procurement rules.
These contracts and their terms would be unlikely to change following re-nationalisation. Indeed, given the expertise within Network Rail and its successes over the last decade, it is unlikely that procurement methods would be affected, even if Network Rail’s functions were merged with the re-nationalised passenger operations.
How could re-nationalisation be implemented?
Jeremy Corbyn has suggested an incremental approach to re-nationalisation whereby the government takes over franchises as they expire or fail. The franchises would then be permanently transferred to a government-owned train operator. Such an approach would take decades to re-nationalise the entire network, and it necessitates a commitment to the project by successive governments.
Alternatively, to shorten this process, the government would need to buy out private operators mid-contract. Bearing in mind the high costs involved, this is unlikely to be an attractive option.
“Purchasing new trains could support UK train manufacturers and it is argued that the government would be able to benefit from lower interest rates on its loans than private operators”
Following the takeover of the franchises, the government would need to decide whether to continue leasing rolling stock, as is the current practice, or purchase trains outright. This would depend on the government’s view of the short and long-term costs and benefits involved.
For example, purchasing new trains could support UK train manufacturers and it is argued that the government would be able to benefit from lower interest rates on its loans than private operators.
These benefits would need to be balanced against the huge initial outlay and escalating cost of maintaining trains as they age.
Robert Meakin is a partner and Lois Putnam is a legal assistant at Clyde & Co