Impacts of rail privatization in Britain

Abstract

Current policies in Britain involve means by which the state avoids a large initial expenditure, or gains a large income in a short period, offset against future negative cash flows. In the case of rail privatization, sale of the rolling‐stock leasing companies (ROSCOs) in the 1995/96 financial year, followed by Railtrack in the 1996/97 financial year, has produced over £3000 million (£3000m) as income to the state, but this is offset by large payments (vis‐à‐vis those under the previous rail ownership structure) to Train Operating Companies (TOCs) to meet the charges imposed by ROSCOs and Railtrack. A brief parallel is drawn with the case of DBFO (Design, Build, Finance, Operate) road schemes, in which the private sector provides initial capital, but subsequently receives revenue through shadow tolls from taxation. In both cases, the long‐run outcome is dependent upon the bids made for TOCs and DBFO projects. Discounted cash flows are used to compare present values for the current rail policy vis‐à‐vis a continuation of the previous system. In the case of rail privatization, the net outcome for the state depends upon the realism of bids made by the current franchisees.