Do EU regulations actually promote privatisation in the railways across Europe as some Lexiters believe?
“We’re in a situation where the EU, through the fourth railway package, is promoting further privatisation and will prevent us from renationalising our railways.” — Mick Cash, general secretary of the RMT. (BBC Radio 4’s Today programme, 1 June 2016)
The changes to EU rail regulation, known as the fourth railway package, don’t require member states to privatise any aspect of their rail networks. Neither do they require any member to break up its national operator.
There was an initial proposal for rail infrastructure and services to be split into separate organisations, which would have meant breaking up national operators, but the German chancellor, Angela Merkel, directly intervened and it was dropped. In the UK this was in any case only relevant to Northern Ireland – mainland Britain has only a state-owned infrastructure operator in Network Rail. Service operators since the 1990s have mostly been in private hands (with the exception of a couple of interim periods on the East Coast and South Eastern franchises).
What the package does propose is to open up each country’s rail network to competition and ultimately create a single European market in rail services. The three main components of the changes, which are currently awaiting European parliament approval, are that each member state liberalises passenger services; develops common operating standards for both trains and the workforce and has an independent infrastructure manager (even while ownership of infrastructure and services can be under the same company).
When it comes to liberalising passenger services, the word “liberalise” is open to interpretation. It could be taken to mean they must be run by private companies, which would rule out any renationalisation in mainland Britain. But that looks to me like the very worst-case scenario.
More likely, state-owned passenger rail service companies – which still exist in all member states except the UK – will have to compete to retain the routes they currently run, probably through competitive tenders. The situation would resemble the current situation in Britain, where subsidiaries of the German and Dutch state rail companies both run franchises.
Rail would become similar in this respect to many other public transport markets in Europe, such as provisions for bus services in most European capitals. Again this would include the UK, where state-owned Scottish ferry provider Calmac recently won the right to operate the network for another eight years in preference to private provider Serco.
By introducing a more competitive rail market across the EU, the fourth railway package will in some respects follow the path of the British Railways Act 1993. That privatised Britain’s railways, including the infrastructure business, which was held by private company Railtrack until it was taken back into state hands as Network Rail in 2002, and introduced the passenger franchise system currently in place.
The act originally envisaged that direct competition would be introduced into many of these franchises after an initial period of protection for the holder. The policy relied on the dubious assumption that you could make money out of having competing passenger services on a railway. In fact, all but one of the franchises turned out to be loss makers, many of them heavily so – even before the protection period was up. It meant that any competition on these services would effectively involve taxpayers subsidising shareholders to run them, so the idea was quickly forgotten and most lines became monopolies.
The regulator has only allowed direct competition on a few lines where the benefits outweigh the subsidies, the most well known of which is on the Hull to London line. The lesson? You shouldn’t always believe what policy people initially propose. Sometimes the hard economic realities have to come to the fore before you see any semblance of common sense. Those worried about the radical impact of the fourth railway package should bear that in mind.
The EU regulations promote competition for the market between rail operators irrespective of ownership structure, but not privatisation. As far as renationalisation is concerned the reality is that, unless the rules are interpreted in an extreme way, they do not make it any easier or more difficult than the structure in place at the moment. The only thing that the new system will almost certainly rule out is state monopolies that do not have to compete with rivals to win franchises, renationalised or otherwise.
*Nicole Badstuber, researcher in urban transport governance at the London School of Economics and UCL:
I broadly agree with the author’s outline of the issue. But where the author states that the regulation does not require member states to privatise any aspect of their rail network, my reading of the fourth rail package is that it categorically seeks to dismantle incumbent state monopolies in other EU countries. This rules out reinstating mainland Britain’s old state monopoly, British Rail. While public sector organisations will still be able to run rail services, any service or route will need to be contracted out and not simply awarded.
By liberalising the European rail industry, the fourth rail package is continuing a longstanding EU objective. The EU appears to share the British ideological mindset of the 1990s that led to a fragmented rail network and privatisation. It is arguing for this under the mantra that competition will bring better and cheaper services for passengers.
The EU package may not strictly require privatisation but it is definitely designed to create an environment conducive to this. Curiously, the EU holds up Britain as a role model, despite the fact that many in the UK take a more critical view of the privatisation in hindsight. I would therefore suggest there is a valid case for Mick Cash to say that the package promotes dismantling state rail services and paves the way for privatising operations.
As the author points out, the EU did water down its cornerstone policy of strictly separating rail infrastructure and services operations following intervention by Angela Merkel, among others. While allowances have been made, a large degree of separation is still required by the new rules. To give an example, German state rail company Deutsche Bahn will be allowed to retain its infrastructure and operations and divisions but it will need to make them legally separate entities.🔷
*This piece was written by Jonathan Cowie, Lecturer in Transport Economics, Edinburgh Napier University. It was originally published on The Conversation. | The author writes in a personal capacity.)