Labour says that the private sector still has a role to play in rail – but what is it?

Speaking at Trainline’s Central London office earlier in the month, the Shadow Secretary of State for Transport, Louise Haigh, pledged, if elected, to bring most rail services back into public ownership during Labour’s first term of government. They propose this transition will happen when existing contracts expire to avoid costly compensation at the taxpayers’ expense. Labour holds a significant lead in the polls, with leading pollster Sir John Curtice giving the current Government a mere 1% chance of winning the next election. Consequently, the smart money is on Labour’s “renationalisation” pledge becoming Government policy by the autumn.

The announcement has caused concern to some in the rail industry, but this should not be mistaken as indicative of Labour’s broader view of the private sector’s place in the rail industry or public services. In fact, the reality is probably quite the opposite.

Although presented as a bold policy, Labour’s pledge is actually just reflecting the current direction of travel (with several lines already having returned to state control since the pandemic). The policy also doesn’t fit with the broader narrative Keir Starmer is trying to establish, which is that Labour, not the Conservatives, is “now the party of business”. Labour has made this decision because it is an easy win with the electorate (at minimal cost), pleases the left of the party and puts some distance between themselves and the Government, in an area the Conservatives are perceived to have failed. It is not necessarily reflective of their future approach to rail.

This explains why, during a speech on public ownership, Haigh was at pains to impress that Labour still views the private sector as having an important role to play in rail, stating that a Labour Government would “crowd in private sector investment” and that “we are not ideological about this, we are encouraging working with the private sector”.

Of course, to some extent, Haigh’s comments will have been made to provide reassurance to the current private sector components of the rail industry. Particularly, privately financed open-access providers, freight services and rolling stock companies (ROSCOs), whose status under Labour’s plans remains either unchanged or – in the case of freight and ROSCOs – potentially enhanced. Nonetheless, Haigh’s talk of “crowding in investment” hints at a further role for the private sector.

The shape this will take is unclear from Haigh’s speech, but if we dig a bit deeper and look at Labour’s manifesto planning and policy development process, we can find strong indicators of what they envisage and every clue points to rail infrastructure.

While not something Labour has been making a lot of noise on in public, behind closed doors, infrastructure funding has played a significant role in their manifesto planning. Last year, the party launched two reviews into major infrastructure delivery, one of which was specifically targeted at rail infrastructure. Both reviews scrutinised how to enhance private-sector investment. Additionally, the establishment of the Shadow Chancellor’s ‘British Infrastructure Council’, aimed precisely at increasing private capital in UK infrastructure, signifies they are serious about establishing new funding mechanisms.

This also makes sense when considering Labour’s key priority for their first term of Government, which is economic growth. Proper infrastructure is integral to generating growth. As a former Prime Minister once opined “You and I come by road or rail, but economists travel on infrastructure”. The Labour frontbench clearly recognises this too, with Shadow Chief Secretary to the Treasury Darren Jones MP recently stating that “by focusing on infrastructure delivery we can start rebuilding our economy after years of sluggish growth”.

Other significant Labour priorities are also equally contingent upon improved and enhanced infrastructure, such as the net-zero transition and addressing regional disparities.

Private funding is also realistically the only viable way to fund rail infrastructure. Labour has committed to a stringent set of self-imposed fiscal rules, which dictates that day-to-day costs must be met by revenues and that debt must fall as a share of the economy. It cannot be covered by the public purse.

So, what might private-sector rail investment entail? If we examine Labour’s recent initiatives and statements on infrastructure, it seems likely that they will predominantly focus on fostering long-term stability to incentivise private investment. One avenue to deliver this could resemble the contracts for different model used in offshore wind projects. Under this framework, private investors would finance the infrastructure and, in return, receive a predetermined ‘strike price’ for its operation. This mechanism effectively transforms the rail project into a viable financial product appealing to investors, notably pension funds, owing to its predictable returns on investment.

However, concrete details are yet to emerge on exactly how the opposition plans to secure private infrastructure funding and we cannot necessarily expect this to happen before the election. Nonetheless, the findings of Labour’s reviews into infrastructure, which are due to be published before the summer recess, may offer some increased clarity.

Speaking of infrastructure, NSAR will shortly publish a paper on the case for generating private-sector investment to deliver rail infrastructure, which investigates the infrastructure investment in more detail, so keep an eye out for that.

Scroll to Top