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Examine to what extent privatisation of rail service in the UK has achieved its objectives

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Introduction

Markets and Intervention Holly Cooney L120627 Examine to what extent privatisation of rail service in the UK has achieved its objectives Privatisation is the term given to the movement of entitlements of a service from the public to the private sector. This movement deals with the transfer of the entitlements to residual profits from the public to private sector. This Results in a relationship change when considering that between those responsible for the firms decisions and the beneficiaries of the firms profit flows. The UK railways were nationalised in 1947 by the Atlee Labour government. This took place at a time when the rail undertakings were losing a considerable amount of money due to competition from road use. Up till 1996, however, the government run service went in to steady decline. Several problems within the field led to the government looking towards privatisation. They considered this a method in which the particular problems could be resolved. The railways deficit was a major problem. As an expensive and nonflexible mean of transport the railway requires long loan repayment periods which would be expected to deter interest from private investors. Under national management, the railway was subject to criticism and intrusion mainly from politicians as well as users. This was hardly advertising sound management and also contributed to deterring private investment as the investor would not like to be subject to this kind of political pressure. ...read more.

Middle

It was very common for costs to be overrun under public ownership but due to competition which naturally arises between the privately run firms, each strives to lower there costs. Under privatisation there was expected to be no pressure from the government for example to take on extra workers in order to improve a then current employment problem. There was no particularly urgent need to reduce costs under government control as the threat from competition didn't exist. Another aim was to provide a service of higher quality. As well as cutting costs, each private firm aims to have a little edge over the next in order to win custom so each competes with one another thus pushing up quality levels. The decline under the nationalised situation was to the lack of this factor. The effect of the change over was dramatic. Noticeably a large increase in the number of trains in circulation was observed, thus an increase in kilometres travelled by train. The diagram below illustrates this significant increase. The diagram shows that from 1969 up till 1996 when privatisation occurred, train kilometres fluctuated but rarely exceeded 0.5 billion. However, from 1996 to 1999 a sharp increase was observed which soared past the 0.6 billion mark. This initial observation was fantastic. The nation saw figures rising and thought that this move could only be a good thing, rail traffic increased by a quarter and spending on infrastructure doubled but the network became overcrowded, the quality of the service provided under this private system began to decline. ...read more.

Conclusion

The below diagram illustrates this decline in serious incidents. Source: HSE The increased use of railway, however, was largely to economic growth which leads to increased road congestion as a result of increasing trade and travel as it became a more attractive mode of transport. This pointed another defeat in privatisations eye but it was considered not vitally important as at least privatisation wasn't preventing this increase. Performances of the different train operating companies varied. Some were good, some weren't. Huge numbers of driver were made redundant which lead to the cancellation of many trains. Huge costs were faced by Railtrack as they were committed to replacing miles of track in the air if the Hatfield disaster. Privatisation has most definitely produced some positive outcomes but not one leaving no room for improvement however. A proportion of objectives were partly achieved but under no circumstances to an extent were one could state that privatisation was a positive solution. It has most certainly not provided a long term solution to the problems faced when the service was nationalised. Looking back to when the service was nationalised, the situation was also far from problem free and arguably today's state of privatisation definitely provides a basis to work from more so than that if the system were to revert back to public ownership. There is much opportunity to build upon the existing framework thus addressing major weaknesses and other points of concern. ...read more.

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