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Wednesday 21 August 2013

IEA Transport Man Sells The Pass

Despite his report into the HS2 project having been rumbled bythis blog the other day, the Institute of Economic Affairs’ (IEA) head of transport Richard Wellings remains undaunted, so much so that he has volunteered a piece for the Yorkshire Post telling how the railways could become revitalised, if only the Government would flog them off to his pals in the private sector.
Here, everything would be left to The Market, which, as any fule kno, will optimally allocate resources and match supply to demand, so that train services will meet the needs of travellers and commuters, all requirements of freight operators will be met, and no subsidy will be required. Then someone woke up and realised that this was yet another ideologically driven crock of crap.

Let me deal directly with the clear weaknesses in Wellings’ argument, and start with his assertion that all was so much better in the 19th Century: “Ministers ignored the lessons of the 19th century ... Taxpayers were not bankrolling the railways in those days”. But there was increasing Government oversight, especially after the fallout from the Railway Mania of the 1840s.

And the 19th Century railway was mainly concerned with the carriage of freight, then as now a profitable operation. There was, moreover, little competition: there were no aircraft and no motorised road transport. Provided buyers and sellers were not so time conscious, there was the choice of transporting by canal or coaster. Otherwise, goods had to travel by rail. This is not the case today.

Then he really drops a clanger: “Network Rail (NR) ... should be abolished, with chunks of the network sold off to train companies. These firms would then be free to merge and create larger enterprises”. Really? With NR’s debt pile at around £20 billion, and (say) ten train operators taking equal shares of the infrastructure, that’s £2 billion they each have to raise. Who is going to lend them that much?

On top of that is the cost of maintaining and upgrading the network, assuming liabilities for damage and accidents, and all without any assistance from any Government agency. How does that pay for itself, let alone make a profit? Sure, property could be sold off, but this is a finite resource. The only similar example is what happened in the USA starting in the 1960s.

And that tells us that operators concentrated on freight, because it made money, and that, without intervention by Federal, State or other Government agencies, the USA outside major cities would not have a passenger rail service. The UK would get the same: passenger trains slowed down and sidelined for freight, or withdrawn altogether, no network expansion, and commuting only if Government paid for it.

Wellings is welcome to put that before the public. He knows the answer he’ll receive.


Chris Neville-Smith said...

Actually, the idea that the 19th century railways were all done with private money isn't quite true. That was the idea, but the railway investors got carried away, vastly overestimated what could turn a profit, and the government was forced to bail them out because by then we couldn't do without it. The net result? A state-funded railway. But would the UK have been better off with no railways? Of course not.

The reality is that it is very rare for infrastructure projects to be viable with private funding. Where they have gone ahead, it's usually been on the back of wildly optimistic estimates of cost and income. This was the fate of the WCML upgrade, the M6 Toll, and to a lesser extent, the Channel Tunnel and HS1. The only privately-funded transport project that sort-of works commercially is the Heathrow airport link, but even that has problems.

Even with the utilities, where private funding is easier, this can usually only be achieved when the government guarantees an income. If people want to argue that HS2 should only be build with private funding, that's fine, provided they also argue that every motorway in the country should only have been built with private investment. Somehow, I suspect they'll claim that's different.

Anonymous said...

And there were massive inefficiencies, like competing stations built very near each other with no interchange.

SteveB said...

"Taxpayers were not bankrolling the railways in those days" - in mainland Europe they were, and as every reader of the right wing press knows, their railways are so much better than ours! It was the lack of clear government strategy and control that led to so much wasteful duplication in some areas of the british railways network whilst at the same time failing to provide useful links in other - notably a decent cross (or orbital) London link. Or closer to home, cross Manchester! Now both schemes have finally been bounced up the priorty list and are being built with taxpayers money - if the job had been done properly 120 years ago think how much economic benefit would have been raised since.

Richard Gadsden said...

Most of the railways were granted private monopolies in the 19th century.

But knowing what you're talking about is not generally a requirement for working for the IEA