Financial Analysis of Public Policy

 
Financial Analysis of Public Policy
Introduction
It is believed that privatisation would result in greater efficiency, healthier competition and
would be more beneficial to the consumer. In the case of British railway service, privatisation was
adopted to reduce the burden of the government and to generate more income to the government.
This move helped in reducing public sector borrowing, as there were lesser subsidies to be provided
to the railways due to privatisation. After the passing of the 1993 Railways Act, British Railways
was privatised. The privatisation led to the separation of ownership and control of the railway
infrastructure including tracks, signals, and stations. The passenger train operations were separated
from the other activities. Despite the benefits the privatisation was expected to bring, it also carried
a number of disadvantages. The problems faced pre and post privatization of railway service and
franchising rail operations are not peculiar to the United Kingdom alone. Many developing
countries faced similar problems, and privatisation has not appeared to be an effective solution due
to the increase of costs and the disregard of public interest among several other reasons. This paper
analyses the public policy of privatising the British Railways from a financial perspective and
relates the issues of rail franchising to the conditions prevailing in developing countries.
Problems in Running British Rail Prior to Privatisation
Private companies ran railways in the UK until the year 1948. The post war labour
government recognised the need for improving the conditions and functioning of the railways in the
country and decided to nationalise railways. In 1948, the state owned the railways in Britain, and
promises were made that there would be all round improvements in railways including renovation
of stations and improvements to rolling stock with the ultimate aim of enhancing the conditions of
services to the commuters.
Year 1962 witnessed the handing over of the responsibility of the railways to British Rail for 
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operating the service, maintaining the tracks, and managing the rolling stock. By the 1980s and
1990s, there were efforts taken by British Rail to improve the profitability and reduce the level of
government subsidies to railways. However, the governmental restrictions on British Rail to
increase the passenger fares and freight charges made it impossible for British Rail to achieve its
objectives.
The governmental restrictions coupled with the deep recession led to severe financial
struggle, and British Rail had to rely more on public funding for running the railway service. With
the increased financial difficulties, British Rail could not maintain the quality of rail service.
Passengers faced the problem of travelling in old, dirty and overcrowded trains. Trains were
running late frequently, and many train services faced cancellations. Many of the commuters lost
their faith in rail service and chose to travel by alternative means of transport, namely, by bus or by
car. The trains were badly in need of maintenance, and there were no spares available for carrying
out effective repair works.
Considering the problems faced by the British Rail, an investment programme with an
outlay of £ 1 billion was prepared with an expectation that the organisation would get government
funding. However, due to recessionary conditions, British Rail had to arrange the funds from its
own sources as the government did not have means to contribute to the refurbishment programme
(Veljanovshi, 1991). This left British Rail with no other options except selling off the lands owned
by it. With the announcement of the Treasury that it would not provide any additional funding to
British Rail, the problems were accentuated.
It was concluded that like any other state owned undertakings, railways have to be privatised
to overcome the financial issues. However, Veljanovshi (1991) argues that the Conservative
Government did not have any precise planning done with respect to privatisation of the railways. In
many developing countries including China and India, though a remarkable progress is being made 
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in the railways, there are still disparities in the growth of railways as compared to the economic
growth in general (Lin and Jianhua, 2004). The railways are still unable to meet the demand of
people of the respective countries. Since railways in the developing countries form a part of the
national infrastructure, they require huge investments as happened in the case of British Rail.
Increasing railway construction has always been a priority of the national governments. However,
the developmental plans are often facing shortage of allocations from national budgets due to huge
budget deficits, thus, slowing down the progress of railways growth. Generally, this has been the
experience in many of the developing nations.
Collapse of the Second GNER Rai