[gsnedders]

Is cross-subsidy really the best way to fund unprofitable routes, though? It makes sense if you view the state's rail budget as something that needs to be balanced in and of itself, but that's a matter of government accounting, moving where the revenue comes from, rather than a business in its own right.

Relying on cross-subsidy you're essentially overcharging those taking the profitable lines, versus raising the subsidy required through general taxation. At least in the majority of cases, I'd expect cross-subsidy to be a form of regressive tax, quite possibly skewed towards middle-income groups.

And it's not like those taking the profitable routes are getting disproportionate benefit from the unprofitable ones; the benefit from maintaining the unprofitable routes is derived from both the local economy and through benefiting the national economy, and as such it makes sense that it come from general taxation rather than fare-box revenue from profitable routes.

[kergonath]

> Is cross-subsidy really the best way to fund unprofitable routes, though? It makes sense if you view the state's rail budget as something that needs to be balanced in and of itself, but that's a matter of government accounting, moving where the revenue comes from, rather than a business in its own right.

I think you’re right. It’s just that we’ve been brainwashed into seeing our state-owned companies as normal companies that need to turn a profit. From that point of view it makes sense for high-margin routes to subsidise unprofitable ones. But a state does not have to balance the books the same way.

Subsidising smaller routes directly from the State budget works as well, and results in lower fares overall, at the expense of a bit more in taxes.

Subsidising private companies operating these routes, however, is a recipe for disaster. These companies expect a profit and would cut any corner to pocket the subsidies instead of doing their job. This is how it (mostly) works in the U.K., and it is terrible and expensive.

[gsnedders]

> Subsidising private companies operating these routes, however, is a recipe for disaster. These companies expect a profit and would cut any corner to pocket the subsidies instead of doing their job. This is how it (mostly) works in the U.K., and it is terrible and expensive.

While I might defend the EU's push for rail liberalisation in general, I'm certainly not going to defend the historic GB model (Northern Ireland was never privatised, and the model of franchises carrying the revenue risk is gone from GB[1], killed slightly sooner than it would've been due to the pandemic).

That said, note a significant part of the reason why GB ends up with higher fares is much higher cross-subsidy and much lower reliance on the State budget than elsewhere in Western Europe. We've year-on-year had above inflation fare rises (and note that the rises have always been limited by Government; had there been a desire to set a lower (or no!) fare rise Government could have done so) combined with decreases in subsidy. This is highly unlikely to change even with the demise of franchises as we currently know them, as the Government desire to reduce subsidy is likely to continue.

So the GB model did achieve its stated goal: moving revenue risk to the private sector and decreasing subsidy.

The failings of prior franchises—and whether or not they're terrible—is a long and varied topic. Ultimately, they by and large delivered the service they were contracted to. There's ways in which this is an issue with the specification of the tender, and ways in which it's inherently a downside. Many of the complaints have some of their origins in Government intervention, it must be said: rolling stock acquisition was very tightly controlled from the 2000s onwards, inconsistent and often changing electrification plans, and infrastructure in many places running near capacity.

That's not to say the franchisees did nothing wrong, but often they had their hands tied in many, many ways: and often much tighter tied than British Rail ever did.

I'll argue to the end that the biggest mistake was selling off all of British Rail; elsewhere in the EU having the incumbent survive has almost certainly provided a more beneficial competitive environment.

[1]: https://www.gov.uk/government/news/rail-franchising-reaches-...