Unpacking Britain’s privatisation of rail and water gone awry
In a tale of privatisation gone awry, Britain's railways and water industries stand as stark examples of what happens when state monopolies are dismantled. While Labour vows to reclaim railways, the Williams-Shapps review exposes systemic flaws, advocating for a unified Great British Railways. Privatization aimed to spur efficiency, yet the fragmented rail system breeds confusion and blame culture. Conversely, water's woes stem from regulatory failure, prompting debate over public ownership's merits amidst mounting debts.
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By Matthew Brooker
All successful privatizations are alike; each unsuccessful privatization is unsuccessful in its own way. The opposition Labour Party's promise to bring Britain's railways back into public ownership has drawn attention to the absence of such a commitment for the water industry. The contrast between the two helps illustrate how former state monopolies can, like Anna Karenina's unhappy families, go wrong in different ways — and why a return to government control isn't necessarily the answer.
It should be beyond debate that both cases show severe flaws in the privatization model. In the case of trains, that isn't just the opinion of politicians with a bias toward state dirigisme — it's the judgment of the party that broke up and sold the former British Rail in the first place. In 2018, the Conservative Party government commissioned Keith Williams, a former British Airways chief executive officer, to conduct a review of the rail industry's structure and services. The resulting 116-page document, published in 2021 and co-named after then-Transport Secretary Grant Shapps, is damning.
At the start, the Williams-Shapps Plan for Rail pays some lip service to privatization. In many ways, the railways "improved dramatically" after leaving public ownership, it says, with daily services increasing by a third to an average of more than 21,000 by the eve of the pandemic and private investment running at about £1 billion ($1.3 billion) annually in recent years. After this pro forma preamble, the report goes on to tear down just about every aspect of how the system operates, from delays and spiraling costs to commercial failures, inadequate oversight and an adversarial "blame culture."
Many of these failings are far from matters simply of ineffective execution: They challenge the philosophical core of the case for privatization. In parts, this remarkable document reads like one long lament for the unintended consequences of that decision. Breaking British Rail into dozens of pieces was meant to foster competition, bringing greater efficiency and innovation. "Little of this has happened," the review says. Instead, fragmentation has made it more confusing for passengers, and more difficult and expensive to perform the "essentially collaborative" task of running trains on time.
The report has some colorful anecdotes to support its criticisms. A favorite of this writer is the "train delay attributors." Network Rail, which owns the infrastructure, and the train operating companies employ almost 400 of these full-time staff, whose job it is to argue with each other about whose fault a delay is. While this plays an important role in measuring performance, the report says, it is "symptomatic of a misaligned focus on blame, rather than solutions." Quite.
The Williams-Shapps review never brings itself to condemn privatization outright — unsurprising given what a shibboleth the policy pioneered by Margaret Thatcher in the 1980s remains for the Conservatives. But it is there in the substance of its findings about the current state of the railways. The clincher is the report's recommendation to end fragmentation by creating a unified new body called Great British Railways — a thinly disguised return to the old monopoly with "Great" and "-ways" added at either end. It would use the same logo.
As the review notes, the objective of denationalizing state-owned industries is to improve efficiency and innovation by introducing the incentive of private investors to make a return. This works best when there is competition, the "invisible hand" acting as a motivator for businesses to raise their game or have their lunch eaten by rivals. Herein lies the difference between Britain's rail and water industries. The government introduced competition to railways by breaking them into dozens of separate operators. This wasn't possible for water, because there is no practical way for competing providers to use the same infrastructure. Both ran into disastrous problems, but for different reasons.
There is less to Labour's rail pledge than meets the eye. If it wins the next election, the party plans to take operators of passenger services back into state control as their contracts expire and exercise break clauses to end some of them early. This, though, simply continues a process that is already happening. Almost 40% of mainline passenger travel is now on trains directly controlled by the government, according to the Financial Times. Meanwhile, Labour doesn't plan to nationalize the rolling-stock leasing companies, which supply trains and are highly profitable.
The party's approach misses the really big point about Britain's railway shambles: The problem isn't ownership, but structure. Bringing the system back into public hands won't help unless authorities simultaneously reverse the fragmentation that privatization introduced. This is a point made, ironically, in the Williams-Shapps review (which has been going nowhere fast under the more autophile leadership of current Prime Minister Rishi Sunak): "What needs to change, in short, is not the ownership of the railways, but their complexity."
For water, which didn't face this fragmentation, the issue has been the failure of the state to specify the mission and then regulate the performance of the private investors that it allowed to take over this essential public service. In this respect, the case for returning water companies to public ownership might be considered more obvious. That, though, would mean taking the vast debts they have accumulated on to the government's own balance sheet. And that is another story entirely.
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