Network Rail rejoins the public sector today, but for statistical purposes only. Wouldn’t it make sense to follow the example of other countries and take it back properly into public control?

Today Britain’s rail infrastructure passes back into public ownership: not through any political intent but solely because the Office for National Statistics decided it was too close to the public sector to be classified outside it. Thus the attempts to privatise the rail network, which began 20 years ago under John Major and were repeated by Tony Blair when Railtrack collapsed in 2001, have run into the ground.

The result is hardly creditable to either party. Labour ducked the chance to restore proper control over the network 12 years ago and instead created a peculiar hybrid company which is not properly accountable to anybody, despite its being responsible for £34 billion of public borrowing. David Cameron’s government has had no alternative but to acquiesce in the latest change, despite its adding 2% to the stock of public sector debt. Thus both parties perpetuate the notion that there is no alternative to the organisational fudges that we’ve seen not only in transport but in the energy, higher education and housing sectors over the years. No one seems to ask why these fudges seem only to happen in Britain when other countries’ governments invest much more freely in their public infrastructure.

The anomalies in the rail sector become more pronounced with every new development in the ongoing farce of who runs the railways. The one successful public sector company, Directly Operated Railways, which took over the running of the East Coast Mainline and delivered a profit of £235m to the Treasury, is not to be allowed to compete when the franchise is re-let. Even Labour only promises that they will be able to compete for future franchises, rather than allowing them to take over contracts automatically as they lapse.

Meanwhile, a clutch of unfamiliar-sounding companies with names like Abellio, Govia and Keolis are the ones increasingly likely to be running the rail franchises. And whereas they may have those infuriatingly modern-sounding names, it turns out that, just like the more down-to-earth Directly Owned Railways, they too are state-owned companies. The difference is that it is foreign governments, not ours, who own them.

I have written before on the PF Blog about the ridiculous competitive advantage that we concede to foreign state-owned companies. Just like Network Rail, they borrow cheaply with their government’s backing. Unlike Network Rail, they are classified as public corporations and – thanks to the fiscal rules operated just about everywhere except in Britain – they are not treated as part of government and so their debt is not government debt. This means that if they borrow to invest in Britain, they get their government’s backing with no fiscal penalty attaching to it; but if Network Rail or DOR do the same, they immediately clock up more government debt.

This situation could be changed tomorrow if the Treasury would simply bring borrowing rules into line with those we have to comply with anyway under the Maastricht Treaty, and on which our performance is judged by bodies like the IMF and OECD. If the clocking up of Network Rail’s debt on the government balance sheet is insufficient incentive, surely the prospect of more foreign governments effectively running much of our transport system, not to mention supplying much of our energy, should give pause for your thought? After all, if the profits from running trains and power stations can legitimately go to reducing taxes in France and Germany, isn’t it even better if they can be used to reduce taxes here?

Original post and comments: Public Finance