Liberalization of the railways has been a key tenet of European transport policy since the early 2000s, with proponents claiming that competition results in improved service quality and increased ridership. This is an instantly disprovable statement given that ridership was already on the rise across Europe prior to, rather than after, liberalization efforts, suggesting other effects are at play.
Gareth Dennis is an award-winning railway engineer and writer. He is the author of the internationally bestselling book How The Railways Will Fix the Future and co-founder of the Campaign for Level Boarding.
On the other hand, the case against fragmented and privatized operations focuses on three key arguments. The first is that railways are complex systems where commercial boundaries at engineering interfaces are a threat to safety and efficiency. The second is that railway operations are geographic monopolies where market conditions are — at best — contrived. The third is that railways are a public service that cannot fail — hence, introducing private interests into the railways is merely a way to sequester income into private hands while the state shoulders the financial risk. In other words, private interests’ role is simply to extract profit that could otherwise be reinvested into the system.
The United Kingdom was one of first countries in Europe to liberalize a significant portion of its railways (Northern Ireland’s railways remained publicly owned and operated). As such, the aftermath of privatization is instructive in tracing liberalization’s final destination. In short: it isn’t pretty.
Selling the Family Silver
The UK’s contiguous network in Wales, Scotland, and England was privatized in stages between 1988 and 1997, starting with its domestic train manufacturing industry. This took place following a massive self-off of public assets in the aftermath of the broader financialization of the British economy. For example, the water industry in England and Wales was wholly divested through the 1980s — something no other country has ever done. Thanks to archived papers from then Prime Minister Margaret Thatcher, we can understand precisely what the political drivers for mass privatization were.
First, as a large employer of over 50,000 staff, divesting the water industry would greatly contribute to “the privatisation programme”. Second, it would take necessary investment in an ageing asset off the public books. Finally, it would increase shareholding in the public, mitigate state interference, and create financial assets for trade. It is worth noting that none of these justifications took the quality or expansion of services into account.
And so, we turn back to railways. In 1990, things had been looking up for British Rail. Ridership had been climbing solidly since the mid-1980s. The average subsidy was as low as 20 percent of running costs, making the British system one of the most efficient in Europe. Urban, regional, and high-speed rail projects were being delivered or, in the latter case, were in serious development.
Three rolling stock operating companies bought — at rock-bottom prices — an enormous range of hugely valuable trains for which British Rail had scrimped and saved over the preceding decades.
Then the early-1990s recession hit. More than a decade of constrained public spending and service sell-offs meant there was an immediate impact on passenger numbers, sending the government into a panic. Suddenly, the Thatcherite doctrine of “sell everything but the railways” was thrown out the window, and plans for privatization were put in motion.
In July 1992, a white paper entitled “New Opportunities for the Railways” was published, heavily informed by Treasury mandarins and their advisers at the Tufton Street-based Adam Smith Institute in London. It recommended nothing less than an atomization of the formerly integrated railway operating structure, with the creation of as many independent elements as possible to maximize perceived opportunities for competition.
On 1 April 1994, the Railways Act came into effect and the demise of British Rail began. It is worth noting that privatization had already started in the 1980s, for example with the sale of the train manufacturers in Derby and various ferry operations. But the 1990s was different — this was a fire sale.
Deadly Side-Effects
The first private entity to be created was Railtrack, which took over the railway infrastructure such as track, signals, and stations. Seven infrastructure maintenance units and six track renewal units were set up to split off maintenance from operation. Six freight operating companies were created. Twenty-five train operating units were also established, which from 1996 onwards were franchised out to the train operating companies.
Three rolling stock operating companies (ROSCOs) bought — at rock-bottom prices — an enormous range of hugely valuable trains for which British Rail had scrimped and saved over the preceding decades. They then leased these back to the train operators at eye-watering cost and with little oversight, enabling a significant outflow of cash from the industry. This has incentivized one of British passengers’ biggest gripes — the widespread use of trains that are as short as possible to minimize leasing costs, without a care for the resulting overcrowding.
Another impact of the ROSCOs landing a large, cheap asset that they could rent out at high prices was the near-death of the UK train manufacturing industry, as there was no incentive to continue British Rail’s programme of fleet renewals. In the aftermath of privatization, only British Rail’s partially fulfilled orders remained on the books, and new passenger trains wouldn’t be built at volume until the early 2000s, resulting in the demise of all but the Derby works. At great cost, new plants have opened in Newton Aycliffe and Newport since, but even these are once again under threat thanks to the lack of any long-term rolling stock strategy.
All franchises had been awarded, a plethora of regulating and organizing bodies had been established to hold the system together, and privatization was essentially complete by 1 April 1997, achieving the outgoing administration’s goal of completing the process by the next general election. Despite promises to the contrary, New Labour’s coming into power did not result in a reversal of the process.
Franchise agreements, now managed by the Department for Transport, were growing more complex and more restrictive.
However, in September 1997, an express train collided with a freight train in Southall, London, killing seven people and injuring 139 others. A lack of effective communication between the fragmented elements of the railway was the root cause of the horrific crash, the first of a series of serious fatal derailments that were attributable to the new structure of the railways.
In October 1999, the death of 31 people and the injury of 417 others at Ladbroke Grove, London, resulted in a cascade of changes to safety regulation. The derailment of an express train at Hatfield in October 2000 killed four people and injured 70, sending shockwaves through the industry as it had resulted directly from Railtrack’s self-perception as a contract management organization, not an engineering outfit. This fomented the demise of Railtrack, which was absorbed into a new government body called Network Rail. A gargantuan and rushed effort to replace thousands of miles of substandard track materials followed, requiring billions of pounds of additional funds and greatly impacting passenger numbers for several years.
Another fatal derailment at Potters Bar in May 2002 killed seven people and was caused by the negligence of a private maintenance company. This led to the return of many maintenance tasks in-house under Network Rail. With the process of Railtrack’s reconstitution as Network Rail completing in October 2002, the UK’s rail infrastructure had been de facto renationalized.
Growing Pains
The West Coast Main Line had long been considered the jewel in the crown of the British rail network, having been electrified and modernized through the 1950s, 1960s, and 1970s. By 1998, passenger growth was putting significant pressure on the route, and Virgin’s Richard Branson wanted to introduce new tilting trains and a much more frequent timetable. By 2002, costs had risen from 2.5 billion to 14.5 billion pounds (just short of 30 billion pounds in today’s money), and the scope of the project had been severely curtailed. What started in 1998 as a promise for a 140-miles-per-hour railway with fully digital signalling had descended into chaos by the early 2000s, contributing to Railtrack’s demise.
By this point, railways were at their most popular since the beginning of the previous century. Passenger numbers were skyrocketing, and a cross-party consensus agreed that rail investment and the expansion of the rail network were a good thing. Franchises previously let as “not for growth” such as those in Wales and the North were creaking at the seams as people turned to trains.
Franchise agreements, now managed by the Department for Transport, were growing more complex and more restrictive. The number of bidders reduced, and the ambition of their bids increased. This came to a head in 2009, when National Express was stripped of the East Coast franchise after failing to meet its payment targets despite continuing passenger growth.
In 2012, the West Coast bidding process was scrapped by government and was awarded as a short-term concession pending a review, and amidst a wider crisis across the industry in June 2018, the East Coast franchise — subsequently awarded to yet another optimistic bid by Virgin — also collapsed and had to be returned to state operation. By this point, franchise bidders were few and far between, and the system was close to collapse.
Railways must be set into the bigger transport picture with ambitious targets — mobility in totality, not rail in isolation.
These increasingly overambitious bids, combined with ever-more complex and controlling contracts, left only one lever open to the train operators to cut costs: staffing. From 2016 onwards, a wave of increasingly disruptive strikes took hold of the network, as terms and conditions were altered to attempt to reduce the number of staff the train operating companies had to have on their books.
Just as the industry’s new structure had resulted in the creation of the ROSCOs, which incentivised a freeze in new train procurement, the creation of Railtrack and its private suppliers resulted in a freeze in recruitment across the infrastructure domain. Crudely, when you have a fleet of trains that already run the service, why build new ones? The same ended up being broadly true for infrastructure — why employ new staff when you already have an enormous workforce?
A decade-wide gap in skills was the consequence. With the growth in passenger demand came a huge growth in the number of infrastructure projects being carried out, and this skills bottleneck, combined with an industry structure that exacerbated costs by maximizing the number of organizational interfaces, meant work was being delivered too slowly and at too high a price. Cost escalations became unbearable for government in 2017 and resulted not only in the curtailment of the national electrification programme, but also in the abandonment of other enhancements across the country, particularly in and around the north of England. Meanwhile, there was a glut of new train orders, many for new electric trains for which there were no longer overhead wires planned to power them.
May 2018 was supposed to be the moment that an enormous leap in capacity was created. New track and trains would enable a great leap in the number of trains running in the timetable. As it happened, neither the track nor the trains were in place to deliver much of this uplift, and the result was a collapse in the system’s reliability. Driver training could not happen, and a lack of trains, tracks, and staff resulted in the cancellation of upwards of one third of services in the South East and the north of England, with lesser but significant effects felt by passengers across the network.
Long an opponent of the franchise system and the lack of integration between track and train, then Secretary of State for Transport Chris Grayling initiated the Williams Review in 2018 to work out what shape the industry needed to be in to enable growth without cycling back to calamity. This review took time to pick up speed, leaving the industry in perpetual crisis mode.
The Final Nail in the Coffin
In March 2020, the COVID-19 pandemic reduced ridership to 5 percent of pre-COVID levels and the industry was placed on life support. By the end of that month, all franchises were transferred onto emergency concessions, and the franchise system was gone. This was made official in September 2020, as the government stated that franchising was to cease to exist, and by April 2021 the National Audit Office announced that train operators were to be officially classified as state-owned, despite the continued involvement of private companies. The irony of a Conservative than a Labour government beginning the re-integration of the system should not be lost on readers — indeed, this is a recurring theme.
Finally, in May 2021, the Williams—Shapps Plan for Rail was published, setting out a loose view of the future structure of the railways. Although lacking in details, the headline was that a new organization called Great British Railways (GBR) was to be created. A transition team was established to understand what GBR would do and how it would be structured. The ROSCOs, as the last major vestige of the Railways Act 1993, remained untouched.
Roll forwards seven years and, despite several train operators being controlled directly by the Department for Transport, there is still no clear picture of what GBR will be empowered or funded to do, let alone what its structure and intentions will be. Meanwhile, a general election has worsened, not improved, the outlook for the railway industry, as the number of major projects continues to fall alongside ongoing maintenance funding. Capacity is more squeezed than ever before.
The rail industry needs democratization, so that decisions about the railways we use are made closer to us.
Despite the public’s continued support for publicly owned railways — 75% in 2025 compared with 60% in 2017 — the extent to which “nationalization” will achieve democratic oversight and the necessary reinvigoration of the industry remains unclear. Britain’s rail unions are cautiously supportive, but it is worth noting that scepticism has grown as the Labour Party drifts further to the centre.
The rail industry needs democratization, so that decisions about the railways we use are made closer to us. That means moving power, including over spending, away from Westminster. Democratic accountability at local and regional levels is key to unlocking the cycle of proposed and cancelled investment, and in pushing operators to do better. That means devolution of decision and funding powers to both the regions and cities, but also delivering sufficient industry funding autonomy so that it can respond quickly to these demands and rise above electoral cycles and fiscal anxiety.
Railways must be set into the bigger transport picture with ambitious targets — mobility in totality, not rail in isolation. Moreover, investment must be matched to those targets to build a railway that more people can use and benefit from — more capacity, more reliability and more accessibility.
Empowerment of the rail industry as a self-governing entity accountable chiefly to the UK’s regions and cities rather than to central government is a critical step in kicking things out of crisis mode and reshaping the industry to be fit for the long-term future. But as important is the need for the railways to tell a story about themselves that the public can get behind. Only with an ambitious and exciting vision of the future will the railways fulfil their true potential. Privatization, as the British experience shows, utterly failed to do so.