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Why privatisation always trumps nationalisation – a view from the markets

It is far better to have private businesses that are responsible to consumers and shareholders rather than nationalised industries that answer to bureaucrats and vested interests, insists Philip Booth

In a recent poll, there was strong support for the renationalisation of both the railways and the energy industry. In both cases, renationalisation would be a strange step back into the dark ages of state controlled industrial strategy. As it happens, ownership of the railway infrastructure is already nationalised although the trains are operated privately. It is the problems caused by the nationalised part of the industry about which the most complaints are made.

When we are sitting on a train complaining about delays, that delay is normally caused by the nationalised infrastructure company and not by the private company operating the trains. When we complain about the costs of the railways and the level of government subsidies, the nationalised network is responsible for those high costs to a much greater extent than the private operating companies. Nationalisation cannot be the solution to the problems evident within a nationalised industry.

Indeed, the private part of the train network – the operating companies – are doing spectacularly well by all measures whether it is passenger traffic, investment in rolling stock or the marketing of special cheap rail deals attractive to different types of customers. There is a good news story here. Passenger traffic is back at levels not seen since the 1920s, having increased by 88 per cent since privatisation.

Any students wishing to travel home to Manchester for Christmas can book a lunchtime train from London with Virgin for just £30 in mid-December. This would be a first class ticket with free meals, drinks and Wi-Fi; something I could have only dreamed about as a student. So, let us not go back to the dark days of nationalisation. Indeed, it would be much better to allow the industry to merge the track with the trains under private ownership to avoid the unnecessary costs imposed by the artificial split.

The situation in the energy market is similar. Privatisation was an unalloyed success with prices falling by over 30 per cent in the following decade or so. What has happened since is a form of corporatist state control of private businesses as regulations and costs have been loaded onto the energy companies – and investment plans dictated by the state. The government has locked in a nuclear power deal that involves guaranteeing twice the current market price for electricity. The state also requires companies to source energy from renewables costing up to three-and-a-half times the cost of producing electricity through the cheapest method.

It is true that, today, after a decade or more of increasing state control, we have an energy industry that serves vested interests rather than the consumer interest once again. Electricity prices before taxes are now 15 per cent higher than the average of major developed nations. Electricity could be around 50 per cent cheaper without the government’s interventions. We must liberalise that industry and not return to the state control that is the source of most of the industry’s problems.

We should, perhaps, remember one fact from the era of nationalisation. In the post-war period, government planning dictated the development of a nuclear programme using expensive technologies promoted by the government of the day. This led to the most expensive government project disaster in British history, costing well over £30bn.

Perhaps the nationalised High Speed 2 rail service will beat that record. We may have grumbles from day-to-day but it is far better to have private businesses that are responsible to consumers and shareholders rather than nationalised industries that answer to bureaucrats and vested interests. The record demonstrates that. If anything, the experience in both the rail and energy industries suggests that the government needs to intervene less and not more.

Philip Booth is editorial and programme director at the Institute of Economic Affairs think-tank in the United Kingdom

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