Answers to these and similar questions may be found in the book “All Change. British Railway Privatisation” edited by Freeman and Shaw and published by McGraw-Hill in 2000.
To set the scene — BR had been losing traffic practically since its formation. It had last covered all its costs in 1951-2 and a couple of years later it no longer covered its operating costs. Since then it had been in receipt of a subsidy and by the time active steps were made to privatise it these had been paid for 35 years.
The issue was how best to manage decline as economically as possible and it was recognised from the beginning that continuing subsidy would be needed. As taxpayers' money was to be routed to private companies the method selected had to be as clear and transparent as possible
At different times five models for privatisation of passenger train operations were put forward by different groups, being the Cabinet Office, the DfT, the Treasury and some outside parties. Very briefly these were:
So several models were available - and the supporters of each produced their own arguments. The was no ‘basic premise’ on the part of government that one model be selected over the others apart from the feeling that costs could be reduced and the quality of service improved if the private sector were to be involved.
- BR plc
- Regional - essentially re-creating the ‘Big 4’ (but could have been up to 12)
- Sectorisation
- A 'Track Authority'
- A hybrid of these models.
There were all sorts of arguments within the working groups on how to handle the necessary on-going subsidy.
The ‘BR plc’ approach was ruled out because, unlike the privatisation of BAA and telecoms and similar, BR was not profitable. Selling shares to the small investor on the basis that any dividends were reliant on the level of subsidy received from the Government would not have worked. This was also true of the 'Regional' model.
In the same way any ideas of a ‘trade sale’ were abandoned as no company would take on the risk.
'Open Access' bidding for paths on a monthly or bi-monthly basis was not applicable because of the inter-related nature of railway operations. So that was dropped as well. It was decided the best way to handle the subsidy issue was for potential train operators to bid for a group of services (the 'Track Authority' model as the train operators would not be responsible for the infrastructure)- a clear figure was available for each area and any cross-subsidy between profitable and loss-making services was up to the individual operators to manage. This avoided the DfT having to identify costs and revenues on an individual service basis.
There's a cheerlead for privatisation.
The reality is that BR were "getting there" by the 1990's, and the sectors were more than capable of growing the business.