Britain's privatised rail: 40% too expensive?

This article has been updated

"Our railway system costs 40% more to run than other systems across Europe"—Andy Burnham MP, Labour leadership manifesto

Andy Burnham's campaign for the Labour party leadership includes a call for the return of the railways to public ownership, accompanied by the claim that the current system is 40% more expensive than those of our European peers.

He's got a point when it comes to higher costs, according to research carried out several years ago comparing Great Britain with a few other European countries.

More precisely, what the 2011 McNulty Report into our railway system said was that "a comparison of whole-system costs per passenger-km suggests that unit costs in GB rail would need to be reduced by around 40% to reach the average of the four comparator countries".

So we're not saying that, for instance, France spends £1 billion on railways and we spend £1.4 billion. That would be off for two reasons.

First, this is about cost-efficiency rather than overall spending: we would need to reduce costs by 40% to be as efficient as the average of France, Switzerland, Sweden and the Netherlands, where railway systems are mostly in public ownership.

Second, and rather confusingly, the McNulty report saying that costs would need to fall by 40% doesn't mean they are 40% higher currently. Going from 100 to 60 is a 40% reduction, but going from 60 to 100 is a rise of 67%.

In this example, putting things very simply, where these other countries on average spend £1.20 getting a passenger from A to B, we spend £2.02—factoring in all the overhead and capital costs involved.

So in a way, Mr Burnham is underselling his case. These unit costs are, in fact, over two thirds higher.

The comparison was made on the basis of performance in 2009, though, and the report warns that "benchmarking is seldom an exact science". It also thought that some of that efficiency gap was "systemic", or unavoidable, and we should aim to reduce costs by 30% rather than 40%.

Why are we less efficient?

Major factors seem to be the higher costs of upgrading the physical railways, and relatively low levels of train use.

A lot of the difference had to do with Network Rail, the state-owned company that runs the rail network (tracks, signalling, bridges etc). The costs, per kilometre of track, of running that network is higher than in the other countries studied, according to analysis by consultants Civity. The cost of replacing track and other equipment is a big factor in this.

The cost of 'rolling stock'—trains, to you and me—was also higher in Great Britain, with Civity attributing this in part to the high profit margins enjoyed by companies that lease them to the train operators. The McNulty report points out that "no allowance has been made for rolling stock age or quality", though.

The consultants found that operations by Britain's private train companies were quite efficient, but the McNulty report thought that Britain would come out worse if passenger distance travelled, not just train distance travelled, were taken into account. Each kilometre travelled by a British train accounts for far fewer passenger kilometres than in the four European countries.

The McNulty report stresses, though, that while the cost of operations is "similar to those of state railways in Europe", the privatised services there seem to be more cost-effective. Franchising in Great Britain, it says, hasn't led to the same benefits here.

All the higher costs of the British system are ultimately borne by taxpayers and rail users.

Update 18 August 2015

We updated the piece to make clear that according to the McNulty report, while our rail costs would need to be reduced by 40% to reach the level of the selected European countries, from the perspective of how much higher our costs are the difference is around 70% rather than 40%. We corrected our simplified example accordingly.