Posted: March 24th, 2023
The UK rail services were privatized in the 1990s and since then, various private companies have been providing the transport services. In the country, the rail provides a critical transport service that benefits almost all people. In fact, millions of the people utilize the railway services in the UK each day (Jack, Murthy, and Kumar 2016, p. 395). However, in the years before the privatization, the rail sector was poorly managed and resulted in periodical losses, which necessitated the transfer into private investment. At the time, privatization promised the people better and cheaper services that could also require none or little subsidies from the public. Again, the private investors were expected to inject on the capital as well as harness the modern technology in the sector. Nevertheless, the expectations could not be met as many years into the 21st century; the UK railways have resulted in higher costs of management and persistent poor quality services (Jack, Murthy, and Kumar 2016, p. 395). Consequently, there has been a constant challenge to the government to revert the management of the country’s railway services in the hands of the public. Therefore, this paper focuses on evaluating the effectiveness of running the UK railway system on the privatized platform and provides recommendations on whether it should be reverted to the public ownership.
The actual process of privatization of the British railway services occurred in 1993 and since the time, the private companies have provided the services. The industry is currently facilitated by about 16 franchises, which are all under the private ownership (Parker 2013, p. 313). The awarding of the franchises is regulated by the public transport department, which after reviewing the bids available settles on the most efficient one. The government then gets into an agreement on the amounts of returns that the private firm could remit and then injects some initial capital to the company. However, through the years, the privatized system has been running through high costs that have resulted in lowering profitability of the rail system. In fact, when compared to other railway systems in the European region, the UK system has been shown to be about 30% more expensive (McCartney and Stittle 2013, p. 321). The cost of privatization has also been shown to escalate by the day. On the other hand, the lack of private investment has contributed to poor profitability as the system lacks infrastructural improvement. Consequently, the debate on whether or not the railway services should be reverted to the public sector has had many people argue in support to the effect.
The Failure of Privatization
There are various reasons that could be highlighted to illustrate that the privatization of the railway services has failed as discussed.
High Costs of the Private Ownership
It is worth appreciating that the government has had to finance the operations of the private investors through grants and loans. Accordingly, the higher borrowings in the government-financed investments have been blamed for raising the cost of privatization in the country (Parker 2013, p. 313). In fact, when the cost of the daily operations is not met by the fares charged to the passengers, the government comes in to provide subsidies in the form of millions of pounds. Indeed, this contributes to the high cost of private ownership, which has been widely blamed for causing high inefficiencies to the railway sector; therefore, the argument in support of public investment.
Prioritization of the Shareholders Against the Customers
In private ventures, the management teams are highly obligated towards maximizing profit for the shareholders. Accordingly, the private companies operating the UK railway system have a legal obligation to maximize the profits for the shareholders (Salveson 2013, p. 56). The process of focusing on the investors often leads to the neglect of the passengers’ welfare. The private companies make millions of pounds in annual returns, the majority of which are directed towards paying dividends for the shareholders and only a little amount is directed towards improving the welfare of the customers. Therefore, the proposal to have the railway sector reverted to the public domain can be justified by the argument that the sector has neglected the customers and only concentrated on the shareholders (Salveson 2013, p. 56). In fact, with much of the money injected into the system coming from the taxpayers’ money, then public management could ensure that the organization is accountable to the taxpayers and the passengers for improved service delivery.
One could note that private investors are always focusing on profitability. Consequently, raising the fares has been considered as among the strategies to raise the revenues in the railway sector. In fact, the literature confirms that the trend in the fare schedules in rail transport in the country has been on the rise over the years since the railway system was put in the private domain (Finger 2014, p. 278). Again, in comparison to the fares charged in other countries like Germany, Spain, and France, the UK railway fares have been dominantly high (Salveson 2013, p. 56). Therefore, the trend in the ever-rising fares threatens to discourage the use of railway transport by the majority of the commuters in the country.
The changing times and technological advancement warrant the constant improvement of the customer experiences through better quality services. However, with the low investment in the infrastructure and management of the private franchises, the customers experience low value compared to the money paid for the services (Taylor and Sloman 2013, p. 329). In fact, the rise in the number of people using the railway mode of transport has not been reciprocated through improved infrastructures like the upgraded train wagons. Therefore, the public has developed a negative attitude towards the private management of the railway services.
In 2014, the Labor Party officials voted overwhelmingly in support of having the railway services being restored to the public domain as illustrated in the chart below.
Labor Party votes against the privatized system
(Adopted from Badstuber 2015, p. 1).
Approximately, 60% of the cast voted was in the favor of the decision, 22% supported the privatization of the railways, while the rest resulted in strategies to have the public-private partnerships in the sector harnessed.
The Support of Public Management of the Rail System
As illustrated in the discussion, the debate in favor of taking back the privatized railway system to the public has been gradually rising in the recent years. Among other reasons fronted are that the railway management under the public will be more accountable to the customers more than on the shareholders as has been the case under private ownership. Second, the discussion holds that under the public domain, the railway fares could fall significantly hence accord the passengers’ value of their monies (Spackman 2013, p. 190). Again, the argument considers that if managed through the public sector, the rail sector could improve efficiency and quality of services offered. In a survey to establish the opinions on the effects of running the rail through the public sector to the ticket prices, about 50% of the respondents reasoned that the prices could fall (Spackman 2013, p. 190). Nevertheless, the magnitude of the fall in the price as recorded could differ with the larger segment of the respondents anticipating a slight fall. The findings of the survey are represented in the chart below.
Variation of ticket prices
(Adopted from Spackman 2013).
Benefits to Be Derived
The discussion also notes the benefits that could accrue from the public rail sector outweigh the benefits that the government and the people derive from the privatized venture. Besides improving the customer experiences and enhancing the infrastructure, many other benefits are anticipated (Taylor and Sloman 2013, p. 329). For instance, the nationalization of the railways could improve the payment of dividends to shareholders. Instead of paying heavy dividends to the shareholders, the nationalized system could reinvest the returns and hence ease the burden on the taxpayers (Finger 2014, p. 278). Again, the nationalized system could lower the administration costs. For example, the national system could eradicate the franchising system, which costs the taxpayers millions of pounds annually. In addition, the consulting fee with the external contractors and consultants could add onto the benefits to be realized. Finally, the bidding process as engaged by the government to establish the companies to run the franchise is considered cumbersome and costly. Consequently, if the rail services could be reverted to the public domain, then such challenges could be overcome (Taylor and Sloman 2013, p. 329). In essence, the timely nationalization of the rail services could save the country greatly in the contract renewal fees.
The discussion illustrates that the majority of the UK residents have lost confidence in the privatized system of rail services. As a result, the debate on whether or not to nationalize the services has had the highest response, especially in the support of taking the services back into the public docket. The analysis of the opinions shows that the privatized system has been associated with poor service delivery, high costs of management, and least attention on the customer welfare. However, such areas of weaknesses are expected to improve on the event of nationalization of the rail services.
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