Dr Stephen P Dunn
Director of Delivery and Development South
Trust Development Authority
105 Victoria Street
Dear Dr Dunn
Efficiency of rail privatisation
In your letter of 15th November you assert that “There is also research evidence that franchising in the rail services is more efficient than a public service model”.
This is debatable. The McNulty Review found that there were excessive costs from privatisation arising from fragmentation and complexity of the 1994 rail reforms. Pre-privatisation costs were £2.4 bn/y, and post privatisation they have risen to £5.4 billion/yr. Fares have also increased, so that we have the highest fares in Europe.
The “Rebuilding Rail” Report (June 2012) builds on this finding. Its bottom line is that a programme of taking rail back into public ownership, gradually, as each franchise fails or comes to an end, could ultimately save the taxpayer £1 billion per annum.
The increased costs are the result of
· higher private interest rates for debts
· fragmentation, which leads to higher administration and management costs to cover duplication and interfacing.
· Complexity, with tiers of contractors and sub-contractors, each with their profit margin to apply
· Dividends to investors
These costs add up to at least £1.2 bn/yr.
Rail manufacturing in the UK has also plummeted due to low investment and absent unifying guidance. This stands in contrast to the situation on the continent.
On the basis of this evidence, your belief that NHS privatisation can model itself on the success of rail privatisation is not justified.