Willy Hutton on train fares

This is devastating. British rail fares, the highest per passenger mile of any country in Europe, are set to become higher still. This is a poll tax on wheels, to many, an unavoidable impost that must be paid at the same rate by rich and poor alike, even though rail transport is an indispensable public service.

Err, no, not really.

If everyone in the country is taxed so that fares can be subsidised by the Treasury then that’s more like a poll tax. Because no one has any choice about whether they pay for the railways or not. If passengers pay for the trains then not everyone has to pay do they? Those who so organise their lives so that they don’t take trains aren’t paying for the trains, are they?

Conceptually, it was absurd to divide the network from the train companies that run on it; any rail system works as an integrated whole.

That’s the European Union that insists upon that. Nowt to do with domestic politics at all: and also something that wouldn’t be changed if there was nationalisation.

It was equally a conceptual disaster to imagine that because each train licence is of necessity a monopoly – you can’t have two services from London to say Manchester competing against each other – the monopoly had to be temporary with renewable licences auctioned at 10-year intervals.

Odd that. There’s at least two different companies competing on one route I know, London to Bath.

What’s more, it was crazed to believe a public good required minimal or no public grants.

Trains are a public good now? If they were they’d never have been built, would they? For the point of a public good is that it is non-rivalrous and non-excludable. Neither of which apply to a railway. They might well be public services but that’s a very different marmite de poisson.

Lastly, it was asinine not to understand that private capital demands financial returns well above the cost of capital available to the low-risk state. As a result, there have to be never-ending and ongoing efficiency gains beyond the initial round of layoffs and wage cuts to deliver those extra returns.

Err, yes, that’s the point.

That cannot be done even by the hand of God. The only recourse is poorer service provision,

Trains are worse now then they were? When you also, in the same piece, say this?

After all, investment is booming, passenger numbers rising and safety is better. It’s not all bad.

Privatisation has made the service worse?

Directly Operated Railways is the 100% publicly owned company that took over the east coast mainline when the incompetent private operator walked away from its obligations in 2009. Five years of public ownership and it is now the best run and most efficient operator, making a net surplus of £16m for the taxpayer. Its reward? To be sold back to a private operator next February

Yes, note that verb there: sold. That means cash coming into the state, doesn’t it?

Networks of key public services such as rail are natural monopolies;

Eh? We have competing ways to get to Scotland, to Birmingham, from Bath to London. What sodding monopoly?

It’s time to build and expand the public institutions we have and insist that any private holder of a franchise designed to deliver a public good is constituted as a public benefit company with a charter that sets outs obligations to match the privileges, including paying UK tax.

We can discuss that when you learn the meaning of “public good” Willy.

26 comments on “Willy Hutton on train fares

  1. The usual nonsense on stilts about UK rail fares.

    The man who knows demolished this ignorant assertion some time ago:

    http://www.seat61.com/uk-europe-train-fares-comparison.html#.U_mcvWRylLE

    Conclusion: “So the next time someone says (or you read) “Britain has the highest rail fares in Europe”, you’ll know this is only 15% of the story. The other 85% is that we have similar or even cheaper fares, too. The big picture is that Britain has the most commercially aggressive fares in Europe, with the highest fares designed to get maximum revenue from business travel, and some of the lowest fares designed to get more revenue by filling more seats. “

  2. “Natural monopoly” is one of the most misused terms in economics. It doesn’t mean there’s no competition. It means a market where fixed costs are so high that competition is supposedly worse than monopoly because of redundancy.

  3. Why does everyone get so exercised about a 19th C. transport system? I wish socialists would stick to playing with train sets and not the real thing.

  4. I’m not bothered about helping to pay for other people’s rail fares, but I’m equally not enthused about helping pay for their housing, pavements or schools.

  5. He’s also making the daft mistake many lefties make of thinking the winner of a competitive bid is the same as a monopoly. Presumably if he tendered for a house build job and awarded the contract to the lowest bidder, he’d complain that there was no competition on the actual site.

  6. The first few years after privatisation were a bit muddled and the position of Network Rail in relation to HMG is still highly ambiguous. However, the trains are good. On the whole, they run on time and are clean and comfortable. The ticketing system works can be very cheap: my next journey, in a week or so, southeast London to Brockenhurst, 1st class, £12. Any thought of returning to some sort of state monolith subsidised by the taxpayer (more than it is already) rather than paid for out of fare box is just nostalgia for something that was actually pretty crappy.

  7. For my (thankfully rare) visits to the UK, I used to take the coach from Heathrow to visit my brother in Cambridge. In the old days, coaches were slow, uncomfortable and cheap.

    Thanks to National Express, coaches are now slower, more uncomfortable and more expensive than the train into London, tube to Kings Cross and train to Cambridge.

    And (stroke of genius here) Cambridge bus station is off-limits to all but busses and taxis. There’s no way you can collect/deliver your aging brother or doddery parent. They have to pay money into the cartel.

    Cunts.

  8. The standard lefty lie about east coast main line – which went from being second-worst line for customer complaints to second-best while National Express was running it then service slumped appallinglt after renationalisation so that it generated more than one-quarter of customer complaints for the whole network
    http://www.mirror.co.uk/money/city-news/east-coast-trains-top-rail-1979801
    and trumpets “improvement” to being only second-worst. The complaints per passenger-mile about ticketing alone exceed the total complaints per passenger-mile for National express’ remaining rail franchise
    http://orr.gov.uk/statistics/published-stats/statistical-releases

  9. Firstly, I second GeoffH, Richard Allen and Tim Newman. But I also have a different bone to pick.

    “… private capital demands financial returns well above the cost of capital available to the low-risk state.”

    This cost of capital trope is appearing with increasing frequency in economic argument – as if a whole bunch of left wing polemicists have opened a financial dictionary at random and found a term that suited their arguments.

    I’m not sure they have thought through just how well it suits their argument. Government debt is the canonical ‘risk-free’ asset – if you judge all financial decisions by “is financing this venture privately going to incur more risk than the risk represented by the ‘riskless’ asset?” the answer is always going to be “um yes obviously”.

    So every guy who walks into a bank asking for a loan to expand his fish and chip shop is going to be told “while we could give you a loan, we can’t give you an interest rate less than ten year gilts, so we think the best solution is for the state to buy you out instead. As a result you will never again have to worry about efficiency gains or the size of the payroll.”

    I mean that really seems to be what Mr Hutton is driving at (or Owen Jones or whoever else is reading the same dictionary) and it is going to apply to any business for which financing costs more than the rate on ten year gilts i.e. every commercial activity in the UK. That is an extraordinary scope and I am left wondering if it was intentional.

    But if an introductory finance textbook had been consulted also it would have revealed that calculation of the cost of capital should be done on the basis of the project and not the owner. A conglomerate mostly focused on low-risk industries shouldn’t undercut others who have a higher risk base to take on a high-risk project, because the NPV of that project will only be meaningful if assessed against the project’s inherent risks, not against the average risk of a basket of other projects the firm is involved with.

    If railways are risky and expensive to finance, that just tells you about the risks of taking on railway projects – it’s not a recipe for intervention by an outsider with lower WACC.

  10. “That’s the European Union that insists upon that.” Not if my memory is correct: the EU at the time insisted on separate accounts for track ownership and the operating business: it was HMG that though that the only sensible and honest way to achieve that would be to have them as separate companies.

    I’m open to correction, mind.

  11. Just to add: in the late 70s I depended quite a lot on the East Coast Main Line. Under British Rail almost everything about it was lousy.

  12. “That’s the European Union that insists upon that.” Not if my memory is correct: the EU at the time insisted on separate accounts for track ownership and the operating business: it was HMG that though that the only sensible and honest way to achieve that would be to have them as separate companies.

    The French separated their companies (which caused strikes) but are now looking to merge them (which has caused strikes). Although admittedly what the French do is no indication of EU law.

  13. Directly Operated Railways is the 100% publicly owned company that took over the east coast mainline when the incompetent private operator walked away from its obligations in 2009. Five years of public ownership and it is now the best run and most efficient operator, making a net surplus of £16m for the taxpayer.

    This is, as they say, the purest bollocks. As someone who has used the East Coast Line extensively (from London to Edinburgh), I can say that the main feature of that line going into public ownership was that the prices doubled.

    Further, £16 million return to the taxpayer is pretty shoddy besides, for instance, South West Trains’ £310 million return. And even First Capital Connect gives back rather more money that East Coast (which was net subsidised up till last year).

    I’d say that we need to apply the Polly conundrum. But, since it’s Will Hutton, I’m inclined to think that his bollocks is due to ignorance…

    DK

  14. @ BiJ
    Whereas there are two competing coach services London to Oxford so they are quicker, more frequent, more reliable, more comfortable and even cheaper than in the old days when they were run by a nationalised monolith.
    http://www.oxfordtube.com/
    Your brother just picked the wrong university city.

  15. ““Natural monopoly” is one of the most misused terms in economics. It doesn’t mean there’s no competition. It means a market where fixed costs are so high that competition is supposedly worse than monopoly because of redundancy.”

    Natural monopoly means you have a subadditive cost function. That is C(X+Y) < C(X)+C(Y) which implies that one producer is cheaper than two and thus you get only one producer in the market. Note that you can have a subaddtive cost function even even when average cost is rising. Just not for long.

  16. The trains in China are state owned, subsidised, and absolutely fantastic. Just last week I took a four and a half hour, 300 km/hr train for 20 quid. Had a table, a powerpoint for my laptop and cheap coffees delivered on demand.

    However, of course there are also people subsistence farming in the countryside and living in absolute poverty in the cities. It’s all just a government vanity project. Not to mention the fact that the subsidised trains are so popular you have to book a week or two in advance to get a seat.

  17. It’s worth noting that he’s also telling outright lies:

    > Given the chancellor’s ambitions to eliminate the public sector deficit solely by spending cuts,

  18. “Not to mention the fact that the subsidised trains are so popular you have to book a week or two in advance to get a seat.” YOU may have to, but WE don’t: betcha.

  19. One benefit of the current system is that it has removed the monopsonist privilege of BR – t’workers can now play off the various TOCs to get a decent wage. Hurrah! (AFAIK, they have done – more hurrah.)

  20. There’s at least two different companies competing on one route I know, London to Bath.

    The revenues from season tickets, and I assume all non-specific tickets, are split according to the relative capacities of the TOCs operating the relevant route. So we have alternative train operators on certain routes, and if they offer operator-specific tickets then there is a degree of competition, but how much? What is the balance of revenues between the operator-specific tickets and the non-specific ones?

  21. Luke

    Good point that, it wasn’t the only advantage the workers got from privatisation either, however I’m not sure that any defender of free market economics should be happy with a situation where the producers can do well at the expense of the consumers.

    On which point there’s something to ponder here on the subject of the relative cost of subsidies for BR in the 80s and the privatised railways since the demise of Railtrack.

    http://home.ezezine.com/759/759-2014.08.25.04.00.archive.html

    ( Fourth item, RDG Invites a Spanking )

  22. @ Thornavis
    “relative cost of subsidies for BR in the 80s and the privatised railways *since the demise of Railtrack*”
    Very clever: pretending the £2bn operating profit of Network rail is a subsidy to the private sector. The cost of Network Rail is public sector and the difference between its charges* of £5.94 billion last year and £2.25bn that Railtrack charged is a subsidy from the private sector to the public sector.
    Also the word is not “demise” it is “expropriation”.
    Even allowing for inflation there is simply no comparison between the charges that Railtrack was allowed to levy and the amounts that Network levies
    *Total revenues include property and miscellaneous income – I, being honest, have excluded these from the comparison

  23. john 77

    I get fed up with your constant self regarding claims to exclusive honesty whenever anyone writes anything you disagree with. Assuming you’ve actually read the link I provided you don’t appear to have read it properly, As the author of that is the highly respected commentator on railways Roger Ford, whose knowledge and insight into rail finances and operations is always worth reading, I prefer to take his opinions rather more seriously than yours.

  24. @ Thornavis
    Well, of course you do since he is specialising on railways *but* he is claiming £2+ billion of public sector profit – and other £1billion of public sector costs – are subsidies to the private sector.
    I *have* read the link properly – which meant I noticed that he carefully excluded the period when Railtrack was operating. I also noticed his claim that Reid operatyed a business-like railway – I had to travel on that railway and I can tell you that his “business-like” which involved treating passengers like sh1t was nothing like the running of a private sector business where you have to treat customers decently or they can and will walk away.
    The Rail Regulator exposes the horrendous number of complaints about the renationalised East Coast Mail Line but pre-1996 British Fail never admitted that it got complaints. I once sent in a complaint that my fastest journey home that week had been when I took a tube to Oakwood and ran the remaining twenty miles – BR did not even reply! (Well, what could they say?)

  25. I *have* read the link properly – which meant I noticed that he carefully excluded the period when Railtrack was operating.

    No you haven’t read it properly if you had you would realise that Roger Ford is not deliberately excluding the period when Railtrack was operating, he is using the RDG’s own chosen timescale of the last twelve years and comparing it with the last twelve years of BR operations.

    I’m also a little baffled by this :

    Well, of course you do since he is specialising on railways *but* he is claiming £2+ billion of public sector profit – and other £1billion of public sector costs – are subsidies to the private sector.

    He is, as far as I know, not claiming any such thing but rather drawing attention to the amount of total spend per passenger km. The actual figures and the methodology, again RDG’s chosen one, will presumably be revealed in more detail in his full column in this month’s Modern Railways, published this week. This is why I originally said it was something to ponder rather than a definite fact, I’m waiting to see the whole thing. The fact that this is a preview is shown clearly in the heading.

    Your anecdotes about BR in the 80s aren’t relevant to the point at issue which is total costs. Unless you are suggesting that the best way to get customer service is for the state to spend billions ? Sounds like the sort of thing Will Hutton would say. Also the phrase you quote is ‘business led’ not business like, are you quite sure you read it properly ?

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