Privatisation is the term given to the movement of entitlements of a service from the public to the private sector. This movement deals with the transfer of the entitlements to residual profits from the public to private sector. This Results in a relationship change when considering that between those responsible for the firms decisions and the beneficiaries of the firms profit flows.
The UK railways were nationalised in 1947 by the Atlee Labour government. This took place at a time when the rail undertakings were losing a considerable amount of money due to competition from road use. Up till 1996, however, the government run service went in to steady decline. Several problems within the field led to the government looking towards privatisation. They considered this a method in which the particular problems could be resolved. The railways deficit was a major problem. As an expensive and nonflexible mean of transport the railway requires long loan repayment periods which would be expected to deter interest from private investors.
Under national management, the railway was subject to criticism and intrusion mainly from politicians as well as users. This was hardly advertising sound management and also contributed to deterring private investment as the investor would not like to be subject to this kind of political pressure. On the other hand, however, it was an opinion that pressure on public finances at that time would be eased as a privately run railway would attract private capital once profit making. The railway would have to be profit making in order to make it a viable move for the private entrepreneur as this is his main interest, whereas under public management any resulting finance is pumped back into the system in attempt to improve the service being provided. This factor meant that the general public opinion was against privatisation as it was assumed that the service would not be run taking the consumers interest into consideration.
John Major’s conservative government privatised the railway in 1996. The publicly owned British rail was divided into a hundred parts which were sold separately or, otherwise, franchised. This is due to the network basically being split into its several components; track, rolling stock, maintenance and train operating workings. Railtrack is the single company which took over the ownership and the operation of track signalling and major stations. The plan was that Railtrack would then charge companies for the use of its infrastructure.
It was said that the railway would be fully privatised when it’s situation met certain conditions which include the operation of the railway being in line with the commercial law after sale to private entrepreneurs, the accounts being balanced by the private owner who also enjoys freedom of management and also the public service obligations should be abolished unless they are of course met. During the initial onset of privatisation the achievement of the above conditions was yet to be seen, the concept not really taking off as had previously been planned. However it was thought that the change over would bring about other advantages to the consumer for example the benefits of competition. The whole feeling of uncertainty surrounding the subject led to a lot of mixed feeling and very much divided opinion. Huge gaps were left open for debate as to whether privatisation was a viable move.
The aims of privatisation set out at the beginning of the change over included the intention to lower costs. It was very common for costs to be overrun under public ownership but due to competition which naturally arises between the privately run firms, each strives to lower there costs. Under privatisation there was expected to be no pressure from the government for example to take on extra workers in order to improve a then current employment problem. There was no particularly urgent need to reduce costs under government control as the threat from competition didn’t exist. Another aim was to provide a service of higher quality. As well as cutting costs, each private firm aims to have a little edge over the next in order to win custom so each competes with one another thus pushing up quality levels. The decline under the nationalised situation was to the lack of this factor.
The effect of the change over was dramatic. Noticeably a large increase in the number of trains in circulation was observed, thus an increase in kilometres travelled by train. The diagram below illustrates this significant increase.
The diagram shows that from 1969 up till 1996 when privatisation occurred, train kilometres fluctuated but rarely exceeded 0.5 billion. However, from 1996 to 1999 a sharp increase was observed which soared past the 0.6 billion mark.
This initial observation was fantastic. The nation saw figures rising and thought that this move could only be a good thing, rail traffic increased by a quarter and spending on infrastructure doubled but the network became overcrowded, the quality of the service provided under this private system began to decline. The aim to increase investment was foiled. This was because, although private investment was high the public investment decreased so the overall increase was much lower than expected and certainly not enough to cover repair costs for the deterioration of the infrastructure. This occurred as a result of years of under investment when the railway was nationalised. The following diagram illustrates this factor. It shows how private investment increased from nothing and how public investment declined after privatisation. It has been taken from Transport 2010 – the ten year plan (DETR, 2000)
The general bad feeling surrounding this decline in quality was worsened when Tony Blair and his new labour government came into power as they strongly opposed privatisation of the railway. It was only in 2000 that the conservatives announced that errors had been made when they privatised the rail industry. They decided that the system had been converted, agreeably, into too many different companies. This revelation came in reply to Railtrack’s chief executive Gerald Corrbett who announced his wish for a reorganisation of the situation. His suggestion was to merge the firms responsible for the trains and those responsible for the track maintenance.
His particular concern was that as a result of privatisation, the outcome was to maximise the proceeds to the treasury but not to safety or investment. Particular concern lay with safety. There was a forty percent increase in passenger use and fifty percent increase in freight use. However in October 2000 the derailment of a train at Hatfield in Hertfordshire resulted in four deaths. It was the third fatal accident to occur within three years. This knocked consumer confidence and it became a common opinion that UK rail accidents had increased after privatisation. A lot of interest went into researching this but only to find that in actual fact, notwithstanding the previously mentioned tragedies, the number of serious incidents on Britain’s railways actually declined. The Hatfield disaster was proven to be due to the disrepair of the track and this was considered to be failure on the private firms part as the move was supposed to improve the situations imposed on the service when nationalised. The below diagram illustrates this decline in serious incidents.
The increased use of railway, however, was largely to economic growth which leads to increased road congestion as a result of increasing trade and travel as it became a more attractive mode of transport. This pointed another defeat in privatisations eye but it was considered not vitally important as at least privatisation wasn’t preventing this increase.
Performances of the different train operating companies varied. Some were good, some weren’t. Huge numbers of driver were made redundant which lead to the cancellation of many trains. Huge costs were faced by Railtrack as they were committed to replacing miles of track in the air if the Hatfield disaster.
Privatisation has most definitely produced some positive outcomes but not one leaving no room for improvement however. A proportion of objectives were partly achieved but under no circumstances to an extent were one could state that privatisation was a positive solution. It has most certainly not provided a long term solution to the problems faced when the service was nationalised. Looking back to when the service was nationalised, the situation was also far from problem free and arguably today’s state of privatisation definitely provides a basis to work from more so than that if the system were to revert back to public ownership. There is much opportunity to build upon the existing framework thus addressing major weaknesses and other points of concern.