Expert Comment: £9 bn railway investment announced by coalition

Dr Robert Jupe is a Reader in Accounting at Kent Business School with a strong research interest in rail privatisation and comments on the following BBC news item:

£9 bn railway investment announced by coalition

While the announcement of additional rail investment is to be welcomed, it is important as ever to read the small print. £5 bn of the investment is for existing schemes, including Crossrail and Thameslink. Further, the £4 bn of new investment is planned for 2014-19, and so will not benefit rail or the economy for some time. Another key issue is how the investment will be funded, which the coalition government claims is through a mixture of fare rises and efficiency savings.

Before this announcement, fare rises of inflation plus 3% had been planned for the next two years, which means that passengers are likely to face annual price increases of around 6%. These price rises will be on top of rail fares which are already among the highest in Europe.

The coalition government regularly invokes the mantra of “efficiency savings”, but does not specify how these will be achieved. There are many inefficiencies in the rail system, but these stem from the fragmented model which was adopted for privatisation. The infrastructure is owned by Network Rail, which charges the franchised train companies for track access, and the train companies lease trains from rolling stock companies. This fragmentation added over £3 bn to the annual costs of running the rail system which, despite the growth in passenger numbers in recent years, still requires an annual subsidy of £4 bn (four times the subsidy granted to the much-maligned British Rail). In order to make genuine efficiency savings, rail should be gradually reintegrated within the public sector as train company franchises expire.

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