General Election 2024

The cure for Britain’s railways

None of the major parties seems to understand what’s ailing the UK’s transport networks

June 19, 2024
A boring machine breaks through after digging the longest tunnel in the HS2 project. Images: PA Images / Alamy.
A boring machine breaks through after digging the longest tunnel in the HS2 project. Images: PA Images / Alamy.

The  2024 election manifestos of the major parties all promise to fully re-nationalise the railways or to create a new, central agency to run them—Labour and the Conservatives call it “Great British Railways”—or both. They also variously promise more rail electrification, new infrastructure in the Midlands and north of England and the reopening of closed lines. But these proposals miss the real problems that the next government will have to deal with.

The UK’s rail networks face myriad issues. How can the government ensure sufficient taxpayer funding when the public purse will be so tight? How can rail have truly accountable governance? But most of all, Britain’s railways lack coherent and strategic transport policy, especially in relation to taxation and climate change. How can the next government shift the paradigm?

Railways policy is always a struggle, and governments often hope that reform will provide a fix. There is a long line of examples, from the 1947 nationalisation of the “Big Four” railway companies, to the 1963 “reshaping” of the network by Richard Beeching, to privatisation in 1993 and subsequent re-nationalisation of Network Rail in 2013. Throughout, the greatest concern has been the burden on the taxpayer. While various transport secretaries have promoted a bigger and better railway, chancellors have baulked at the cost of a mode that carries only about one tenth of passenger and freight volumes. Over the last few years the funding problem has only escalated. Figures from the Office of Rail and Road (ORR) show that, in the 1990s, government support was consistently below £4bn a year (at 2022 prices). Between 2009 and 2019 it rose from £7bn to £13bn a year, however, as the government started to pay for new enhancements, including the Elizabeth Line and HS2.

Operational support ballooned during the Covid-19 pandemic, in order to keep the railways running in spite of a collapse in revenues. Even though patronage has largely recovered now, the cost of rail to the taxpayer is still running in the high teens of billions of pounds a year (including an extraordinary £7bn a year for building HS2). That is more than £600 a year for every household in the UK. In the current fiscal climate, it will be difficult for the Treasury to sustain this rate.

The 2018 Williams Review was the genesis of this year’s manifesto proposals to create a monolithic Great British Railways, or some-such. One of the terms of reference for that exercise was that the recommendations “should avoid negative impacts on the public sector balance sheet and/or creating additional Government expenditure beyond reasonable transition costs”. Doubtless this reflected pressure from the Treasury. However, the public has been led to expect that reform will accompany more affordable fares and more reliable rail services. It will be extremely difficult to achieve either without even more financial support. 

Before the election was called, the Treasury was working to contain spending on the railways. Network Rail is delivering reductions in its costs required by the ORR for the five-year period just ending, and the ORR has agreed similar efficiencies for the next five years. Past comprehensive investigations have identified more ambitious opportunities to reduce budgets but they have proven impossible to deliver in practice.  

Official ORR analysis suggests that in 2018 the average taxpayer subsidy for rail was 11.5 pence per passenger mile. But to a passenger on the Northern rail franchise it was as much as 47 pence per passenger mile; on the Great Western it was 17.3 pence; and on Greater Anglia it was 1.8 pence. So, on average, a Northern passenger was being subsidised at a rate 26 times higher than a Greater Anglia passenger. It is not easy to find a systematic justification for these large subsidies, which is not to say that there may not be one.  We do know that the beneficiaries are extremely varied. Are these wide variations simply accidents of history? Understanding them will ultimately help to target subsidies more objectively, providing better value for the taxpayer. 

In May 2018, badly handled changes to the railway timetable caused chaos across the country.  The Williams Review was then transport secretary Chris Grayling’s response to the mess. Grayling asked the ORR to carry out an inquiry, which I chaired. The main problem, it emerged, was that the train operators and the government had ceased to observe set procedures for agreeing changes well in advance. The “system operator” function within Network Rail has to settle a timetable that will work reliably given the availability of track capacity, trains, crew and a variety of working agreements with local labour forces. Designing changes takes time, negotiation, discipline and firm adjudication of conflicts by the system operator. The agreed process had come to be neglected and the train operators, occasionally with the encouragement of the government—which specifies the levels of passenger service it requires—were late in asking for changes. They were also over-optimistic about the capacity they could extract from the track, signalling, trains and trained staff available to deliver timetable changes. Ultimately, the system operator had failed to exercise its powers to refuse late or infeasible requests.

The remedies put forward in response to the Williams Review included for Network Rail to put substantially more resources into system operation and to rigorously re-instate the procedures for managing timetable changes. Network Rail did these and the problem of no one body being in charge of the timetable was resolved. As such, one of the systemic problems with railway governance has already been solved. It is not an urgent matter for whoever forms the next government.

But a second problem that will be of urgency is the industrial relations situation. Complicated working agreements, such as a reliance on rest-day working, and a neverending series of strikes are leading to unreliable services and corroding the public’s willingness to travel by train. Like the current government, any future government will have to resolve this without unduly inflating the cost base of what is a labour-intensive industry. It is unclear how creating a single, nationalised employer rather than the current mix will help. 

The third problem facing a new government is the specification, procurement and operation of passenger train services. In 1993, this function was given to an arms-length body, the Office of Passenger Rail Franchising, which set up competitive tendering for commercial contracts. That was absorbed into the new Strategic Rail Authority (SRA) in 2001 and the function fell back into the hands of the Department for Transport (DfT) when the SRA was abolished after six years of existence. There is general agreement that this has not worked well. Part of the problem has been a temptation to disguise the true cost of procurements by setting inadequate penalties on companies that fail to fulfil their contracts and then accepting unrealistically attractive bids. But the history of public procurement of services does not support the proposition that in-house provision necessarily delivers better quality services to the public, nor better value for money to the taxpayer.

Those suggesting a new, monolithic rail operator certainly need to ensure that they are aware of the failure of the SRA. The issues then were strikingly similar to those of today and the authority was created in response. The leaders of the SRA felt that they had been appointed to promote a unified, updated and expanding railway. But DfT and the Treasury were unwilling to cede control over matters of major policy and (particularly) the public expenditure budget. The SRA did not survive.

The notion of having a single authority to run the railway, as mooted in this year’s manifestos, is superficially attractive but, as the history of the SRA shows, success has proved elusive. There is risk attached to creating a large, monolithic enterprise with financial support from the state, as experiences with most of the nationalised enterprises and, later, the SRA have demonstrated. It is unclear in the major parties’ manifesto proposals if, or how, such an enterprise would be held accountable to parliament for the public funding it receives.

On inspection, the idea of a single entity in charge of running the railway is probably not what Labour or the Conservatives actually want. Comprehensive, overriding powers may be reserved for the secretary of state for transport. The chancellor will inevitably retain high-level control of budgets, as with any nationalised industry. Mayors of the city regions and other devolved transport bodies (in addition to Scotland, Wales and London) are likely to be given powers over their local services.

What are railways for? It is hard to develop a coherent policy without answering this central question. English transport strategy finally collapsed in October 2023 with the government’s decision to amputate the northern limbs of HS2. The premise that the complete HS2 scheme would be built had been the backbone of every transport strategy document for the past 13 years of Conservative government, including Boris Johnson’s national infrastructure strategy. Uncertainty about the status of policies on reducing carbon dioxide emissions, which have important implications for transport, has been an added complication in more recent years.

Railway projects as large as HS2 went out of favour with the Sunak government, as indicated in the prime minister’s preface to DfT’s 2023 policy paper, “Network North”: “We need to improve the everyday local transport people want and use the most. Buses are the most popular form of public transport, yet we spend three times as much on trains. Outside London, many rely on cars, yet our local roads are congested and poorly maintained. These problems have been well known for decades,” it said. However, the manifestos are still promising substantial new rail investments such as electrification and improved rail connectivity in the Midlands and the north, as well as improved bus services and better local road maintenance.

Last October, the government also published “The Plan for Drivers”. But that document was not embedded in a strategy. It barely paid lip-service to important questions about what has to happen to the volume of road use to meet the UK’s net zero strategy (first published in 2021) and there was little reference to the relationships between the choices people make in their own interests and the demands on road infrastructures. The net zero strategy put central government at odds with local authorities that are continuing to promote Low Traffic Neighbourhoods and local policies on parking and speed limits.

Helpfully,  the ORR’s periodic review of Network Rail’s funding for 2024 to 2029 is complete. This independently audited and legally binding commitment is one of the few elements of stability for transport policy. Whoever forms the next government will need to respect it. The corresponding process for the strategic road network (England’s motorways and some A roads) is unfinished, so levels of investment in renewals and enhancements are undecided. Add this to the list of matters to be resolved after the election.

It will be for a future government to attempt to put national transport strategy back together again. At least three essential ingredients are essential for a coherent and effective approach. First, there needs to be a better system in place to deliver the strategy—otherwise, as now, it is no more than sheets of paper, stating ever-changing aspirations. The Scottish, Welsh and London governments offer examples of how to do this well. New institutions are probably not what is required. We either need Whitehall to do the job consistently or to devolve genuine, full control over the resources to London, the regional governments and other sub-national transport bodies.

Second, a meaningful strategy has to be produced within a realistic assessment of the resources available. It is easy to make lists, but choices have to be made to fit what’s possible. A fatal flaw of Johnson’s national infrastructure strategy was that it was an expansive list without a realistic budget. Before long, promised transport improvements had to be pared back in an ad-hoc manner under the ever-present realities of “affordability”. In addition to railways and strategic roads there are large demands for funding for bus services and a backlog of local road maintenance.

The third requirement is a view on the range of future needs to be met, including how Britain’s demography, industrial structure and locations of activity may change. We also need an analysis of how the consequential demands on the system might be managed in response to things like climate change policy, system capacity, crowding and congestion. 

Slavishly providing the infrastructure to meet whatever demands might be predicted to come along—also known as “predict and provide”—is a policy approach that has been questioned for years (though this is exactly what HS2 was). But it is simplistic to argue, as some do, that because policies such as the shift to a net zero economy may imply that we cannot allow the full predicted growth in road traffic to take place, that we must not provide any extra capacity. This would be a recipe for the worsening of crowding and congestion. Propositions about the need to reduce traffic growth and for people and industry to change their mode of travel are plentiful, but realistic discussions of how that is going to be achieved are a rarity. Improving bus and rail services is an important part of this, but the reality is that, at a feasible cost to the public purse, their contribution can only be very limited. If it is not to be by some form of physical rationing (poor service, crowding, congestion: always second-best mechanisms) it must be by substantial increases in fuel duty or other charges to use the road. 

Changes in policy on pricing and taxation should be at the heart of transport strategy, but they are rarely discussed. Ministers are reluctant to engage, ducking the matter on the grounds that it is subject to Treasury fiscal policy. Government as a whole finds the topic all too difficult and sets national train fares and road fossil-fuel duties in ways that are politically convenient. The determination of demand to be served, pricing, taxation, revenues and funding, and the infrastructure capacity to be provided, should all be discussed as one piece—but they never are. A future national government will have to take a position on transport taxation and pricing in the context of the general fiscal situation, not least because the national policy of electrifying road transport implies a loss of £10 to £15bn per year of fuel duty revenues by 2035. 

Clarity on overall transport strategy is more urgent than rail reform. Whatever the next government decides, the present system will have to be made to work as well as possible. Indeed, there is a risk that struggling for years with ill-defined rail reform is distracting everybody’s attention from the real problems that railway policy will continue to face. In the meantime, most rail passengers will loyally continue to try to reach their destinations in spite of the quality of service being poorer than they, and the taxpayer, have a right to expect.