Executive Summary

The economic fallout from Covid-19 has created new vulnerabilities and exposed deep inequalities and insecurities in our society that long predate this crisis. Most clearly, the economic pain and uncertainty induced by the rapid demobilisation of large parts of the economy in response to the public health emergency are being disproportionately borne by workers and communities forced to grapple with widespread layoffs, exploitation, health and safety violations, and a social security system substantially weakened by a decade of austerity.  Policy measures enacted in response to the emergency must also address structural inequalities in the economy so that it emerges from the crisis significantly more resilient, and firmly rooted in social justice.  

A core focus of the response to the economic fallout has been efforts to prevent the collapse of affected businesses, many of which have experienced a stark contraction in demand. Among the sectors hit particularly hard by the crisis is transportation, with rail franchises in England being nationalised  – at least provisionally - following the suspension of franchise agreements to transfer “all revenue and cost risk” to the government. In Scotland, ScotRail is also set to be temporarily nationalised.  

While the scale of the crisis has triggered several significant public policy interventions, including these measures for the rail sector, the UK government stepping in to save private rail companies is far from new, with the East Coast rail service being nationalised in 2018 amid financial turmoil, followed by Northern Rail in January of this year, and then South Western Railway, which faced the possibility of nationalisation this January after losing £137million in the financial year to March 2019. This reactive model of socialising losses while privatising profits has long defined the railway industry throughout the UK.

Key Points

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Nationalising the Losses, Privatising the Profits: Who Benefits?

Preventing the collapse of the rail industry as ridership effectively halts amidst the ongoing public health crisis is essential – for commuters, railway workers and their supply chains, and for any viable decarbonising strategy for the UK - but it also raises important questions concerning the mechanisms by which the rail companies are bailed out, whose interests are served - and how the sector should be organised post-crisis.

The suspension of the UK rail franchise system exposes the illogical and unspoken arrangement according to which the rail system operates, whereby private companies are substantially subsidised to profit during normal times – paying out hundreds of millions of pounds per year to shareholders, including more than £1.2 billion in dividends to shareholders in the last five years, despite deteriorating service quality even as TUC research shows fares for commuters have risen by 46 percent in the decade since 2009, twice as fast as wages – while their losses are guaranteed in times of crisis. And while actions to safeguard jobs and ensure the continuation of safe and reliable rail services for key workers during the crisis are welcome, the decision to absorb these companies’ losses during this crisis with no strings attached is in large part a bailout for other governments, shareholders, and billionaire private investors.  

As the diagram above shows, the primary beneficiary of the temporary nationalisation of UK rail companies’ losses is a complex network of other governments and private shareholders. Despite the UK having largely privatised rail franchises, foreign government ownership is ubiquitous among the UK’s rail system, with these governments being the sole or majority owner of several UK rail franchises, often through long chains of operating companies. For example, the Dutch government alone is the sole or majority owner of East Midlands Railway, West Midlands Railway and ScotRail through its state-owned rail operating company Nederlandse Spoorwegen.

Nationalising the Losses, Privatising the Profits: Who Benefits? Building a resilient rail systemThanksFootnotesBack to the top
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Building a resilient rail system

Money provided from the taxpayer must not be used for a no-strings-attached bail out of shareholders and private investors; rather, any public support for railways must be associated with strong conditions that support long-lasting social, economic and environmental benefits for the public.

First, there must be guaranteed protection for railway workers. While the UK Government’s job retention scheme is a much-needed step in the right direction, it is important that this policy package recognises the precarious nature of the labour market, and is extended to non-PAYE railway workers.

Second, rail travel should be free for key workers for the duration of the crisis - at a minimum, for as long as the Retention Scheme is in operation.  If the government advice is that people must stay at home and only key workers should travel in order to safeguard our collective health and safety; it is only fair that those workers are provided with free travel. Workers not deemed essential should be strongly discouraged from travelling by rail. However, this will require the government to provide a basic level of economic security for all non-essential workers to enable them to securely enter economic hibernation, with further action needed for all in areas such as income support, a minimum income guarantee scheme, access to childcare and outgoings such as rent. We echo the demands of railway workers that: "No one should be putting themselves, and others, in danger because of the financial risks of not taking journeys.”

Third, beyond the immediate crisis, it is imperative that the cyclical nature of the public purse bailing out private rail companies is undone and instead replaced with long-term public ownership of the railways. As We Own It argue, bringing rail services into public ownership can help to alleviate many of the problems associated with the broken system of privatisation: by removing shareholder payouts, earnings can be reinvested to improve services and reduce rail fares instead of being distributed to major investors; by replacing the for-profit structure of the rail services, a new de-financialised structure of incentives can emerge to  meet social, economic and environmental needs.  

Thanks

With special thanks to Dr. Joseph Baines and Dr. Sandy Hager for compiling the data for this briefing.

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