Renationalising Great Britain’s Railways

Background

Privatisation did not take place through the introduction of competition directly in the rail market (which would be difficult given the congested nature of much of Britain’s rail network) but through fragmenting the former single enterprise of British Rail into over 100 different companies, each sold separately.  Key to this was the separation of the infrastructure from the provision of services.  The infrastructure operator was originally Railtrack, a private company, but, after major financial difficulties and serious accidents caused by inadequate maintenance, it was replaced by Network Rail, a ‘public interest company’ with no shareholders.  In 2014 this was brought back fully into the public sector. Passenger services were provided through 25 franchises for which companies bid to run groups of services for 7-10 years after a competitive bidding process.  UK public sector companies were prohibited from bidding, but public enterprises from other European countries succeeded in acquiring a substantial number of franchises.  One aim was to bring in alleged advantages of private sector innovation, and to transfer risk from government to the operators.  However, the franchise contracts were highly stipulative and detailed, even down to the timings of individual services. There were also a few open access operators, competing against franchisees on individual services, and freight operated wholly on the basis of open access. Passenger rolling stock was owned separately by privatised companies (the ROSCOs) and leased to operators.

The new structure failed for reasons which should have been obvious at the outset. There was limited competition for franchises and many were awarded through direct awards without competition.  The stipulative franchises limited innovation and did not succeed in transferring financial risk, largely dependent on the performance of the wider economy, from the Treasury to the operators.  Financial difficulties of the latter led to a number of franchises having to be terminated early and services instead having to be provided by a public sector operator of last resort. In Scotland and Wales, where rail services are devolved to their national governments, public operators also replaced the private operating companies, reflecting the priorities of the devolved governments.

Most serious of all was the effect of the fragmentation of the system into a large number of different enterprises with complex interrelations.  This created the need for arrangements of byzantine complexity to allocate the costs of delays between those affected, and complex fares with no less than 55 million different fares available.  Matters came to a head with the failure of the introduction of a new timetable in May 2018 intended to implement improved services, with a complete collapse of services in two important regions.  Such changes were dependent on cooperative action between the infrastructure operator, train operating companies and rolling stock providers.  In the absence both of such collaboration and of effective regulatory supervision of the rail system as a whole, failure was inevitable.  The final nail in the coffin of the franchising system was the COVID-19 pandemic which completely undermined the revenue assumptions on which franchises had been based.  Franchises were replaced by national rail contracts awarded to the existing operators, transferring all cost and revenue risks from the companies back to the Treasury.

The Williams-Shapps Plan for Rail

In 2021 the Conservative Government published the Williams-Shapps Plan as a government white paper.  It was unstinting in its criticism of the effects of the fragmentation of the industry, seeing the problems as due to complex and adversarial relations between the different actors involved, creating a blame culture and preventing collaborative operation.

The plan proposed the solution of a new public body, Great British Railways (GBR), to act as a ‘guiding mind’ for the railways as a whole. It would take over the operation of the rail infrastructure and would be responsible for drawing up timetables and setting most fares. Ministers would set a 30-year strategy within which the new body would work.  It would be responsible for commissioning the provision of passenger services not through franchises but through concessions. These would not attempt to transfer revenue risk to the operating companies but would include service standards and incentives for operators to cooperate. The intention was thus that services would continue to be provided by private operators.

The plan did represent a recognition that competition is not effective in organising a complex network industry such as rail.  However, implementation provided difficult, partly due to the political chaos associated with the Johnson and Truss administrations of this period. A visceral distrust of state intervention influenced opposition within the Conservative Party, with right-wing former rail ministers calling for a return to franchising and alleged private sector entrepreneurialism; the Treasury was also concerned about possible loss of control over the finances of GBR.  No thirty-year strategy for rail emerged. Meanwhile, passenger services continued to deteriorate, with a long-running series of strikes by rail unions and extensive cancellation of services due to a shortage of drivers; further operating companies had to be transferred to the state-owned operator of last resort.

The Labour Government’s Policy and Its Implementation

In July 2024 the Labour Party won the general election with a landslide majority.  Its manifesto had committed the Party to renationalise the railways and its plan proposed that GBR be created as an arms-length body acting as a ‘directing mind’ for the railways, with the Secretary of State being responsible for setting overall strategy; in these respects it followed the recommendations in the Williams-Shapps plan. There would also be an increased role for devolved and regional authorities.  However, rather than contracting out passenger services to the private sector, contracts would be ‘folded in’ to GBR as they expired, thus gradually moving to full public ownership of the provision of passenger services by the end of 2027. The ROSCOs would remain in the private sector given the cost of renationalising them. There would continue to be a role for open access services where it would make the most of network capacity, and freight would remain in the private sector with contracts managed by GBR.

A) Passenger Services

The new Government worked quickly to change the arrangements for the provision of passenger services. The short Passenger Railway Services (Public Ownership) Act became law on 28 November 2024.  The Act amends existing legislation through removing the power to award franchises to private sector companies, although extensions to franchises may be made where public sector provision is not practicable.  Instead, the Secretary of State for Transport (the senior minister) and the devolved authorities in Scotland and Wales are empowered to enter into contracts with public sector companies for the provision of rail services.  This effect will be that public sector provision will replace the remaining franchises as they expire, a process which should be fully complete by the end of 2027. The first service to transfer was South Western Railway in May 2025, followed by c2c (a small suburban operator) in July and Greater Anglia in October.  The new contracts will be held by Dft (Operator) Ltd., the successor to the former operator of last resort, until GBR is fully established and the holdings can be fully integrated into it.  Groups of services will be managed by Integrated Railway Businesses having responsibility for both infrastructure and passenger service operations; they are being set up in advance of the full establishment of GBR.

B) Establishment of Great British Railways

Process has been slower in the much more complex task of management and regulation through the establishment of GBR.  The Railways Bill was introduced into the House of Commons on 5 November 2025, and it is expected to complete its Parliamentary process in October-November 2026.  It enables the Secretary of State to designate a company through secondary legislation as GBR. It will not have Crown status and so cannot benefit from Crown immunities, nor will its employees be civil servants, though it will be in the public sector. GBR’s functions are enumerated as, inter alia,

·       managing and improving rail infrastructure

·       delivering passenger services, including setting fares and selling tickets

·       undertaking research and setting operational standards

·       taking decisions on access to its infrastructure

New functions may be added by the Secretary of State.  The overall emphasis of the Bill is thus one of the integration of the parts of the industry which had been fragmented at privatisation.

C) Great British Railways, Government and Funding

The Secretary of State and the Scottish Ministers are empowered to issue directions to GBR; these must be published and the organisation is under an obligation to comply with them.  According to the Government, directions will be ‘a responsive tool for necessary course correction, rather than as a proactive tool to set requirements.’ The same ministers may also issue guidance to which the organisation must have regard.  The provision of funding for infrastructure will be by a five-yearly Funding Period Review broadly the same as the existing system which has worked well.  It involves the Secretary of State issuing a statement of what the Government will require from the railway in the next five years and of the public funds available for it.  The Office of Rail and Road then examines the infrastructure owner’s plans for delivery to secure value for money.  This will take place in the context of a general duty for the Secretary of State to prepare a long-term strategy for the railway.  However, at least initially, support for passenger services will fall outside this funding settlement and will instead be dependent on general government spending plans, limiting full integration and predictability.

D) The Duties of Great British Railways

The Bill sets out the duties which will apply to the new organisation. These include

·       promoting the interests of users and potential users of the railway

·       promoting the use of rail freight

·       promoting high standards in railway performance

·       running the railway in the public interest, including social, economic and environmental interests

·       making efficient use of public funds

A striking absence is any duty for GBR to promote competition. The regulator, the Office of Rail and Road, will have such a duty, though this has important exceptions, for example in relation to the determination of access to infrastructure. There is now a clear shift away from competition as a central principle (however limited in practice) towards other means of promoting passenger interests and the public interest in general.

E) Open Access

This raises the question of open access.  Though there are some open access services in the UK, they operate at the margins to serve destinations not well served by the main operators.  Terms for access have been determined in the past by the Office of Rail and Road, but will now be set by GBR, with an appeal to the regulator.  It is envisaged that some open access will continue, but the congested nature of the main lines and the failure to develop a network of high-speed routes means that there will be no development of competition for core services as provided, for example, by Italo in Italy.  It will continue to be necessary to set access terms for freight operators as these operate on an open access basis.

F) Regulation

Turning briefly to regulation of GBR, the Office of Rail and Road will continue in operation as an independent regulator, though, as mentioned above, it will act only as an appellate body in relation to access applications and their terms. It will retain its central role in the assessment of infrastructure funding and be able to examine overall performance in an advisory capacity. However, a new passenger watchdog will be created to consolidate the consumer functions of the Office and of the existing Rail Ombudsman and Transport Focus, the consumer representation body. The new body will be able to set standards relating to the customer experience.

G) Devolution

As mentioned earlier, rail is devolved in Scotland and Wales, and this has permitted important policy divergence in both cases; for example, in a greater commitment to rail route electrification.  This devolution will continue, and it will be governed by new memoranda of understanding.  The UK government is also committed to further devolution withing England through the creation of mayoral strategic authorities headed by ‘metro mayors’ which have already assumed a major role in the development of transport in some urban areas, notably Manchester.  This role is to be developed further with partnership arrangements between the authorities and GBR, including potential mayoral funding.  Further devolution of rail services, though not central to the Bill, is likely to be a major theme of rail policy in the next few years.

Concluding Remarks

The return of Britain’s railways to predominantly public ownership is thus well underway.  There are now very few supporters of the fragmented model of privatisation chosen in 1993.  This was based on a number of fundamental errors about the working of the railway network.  It was then viewed as a declining industry, whereas in fact the number of passengers has grown substantially, reflecting the growth in Britain’s population and road congestion. The opportunities for competition were dramatically overstated, both in terms of competition for the market through bidding for franchises and competition in the market through open access.

The reform of the railway industry has been long-awaited and has been highly popular; although there will no doubt be many amendments to the Railways Bill during its passage through Parliament it is very unlikely that we shall see changes to the general principles.  Indeed, it is surprising that has taken so long, with the last operating companies entering public ownership only by the end of 2027 and with GBR unlikely to be in operation until roughly the same time, although it can undertake earlier preparatory work in shadow form. Uncertainly remains over some matters, notably the future of the ROSCOs and the funding arrangements for passenger operations The delay may threaten some of the goodwill built up for reform given the continuing poor performance of the fragmented model associated with privatisation. Nevertheless, the move towards an integrated publicly owned rail industry is comprehensive.  No doubt problems will remain, largely due to congested infrastructure and the failure to develop a high-speed network of the kind which is now the norm for comparable European countries. However, the new model being currently introduced does offer a much more promising basis for a modern rail network than that which has been in existence for the last thirty years.