Government Intervention (Edexcel A Level Economics A)

Assess whether complete nationalisation of the rail industry might protect employees (10 marks)

Extract A

The case for nationalisation

Privatisation has not made the rail industry cheaper to operate, despite the promise from one government source that it would see private companies bringing: “more competition, greater efficiency and a wider choice of services”. One reason, suggest the critics, is fragmentation. Instead of pushing British Rail into the private sector as a single supplier the government chose to break it into three components of track, train operators and rolling stock i.e. the trains and carriages. This has encouraged each part of the rail industry to prioritise its own profits rather than collaborating to improve the system.

Privatisation, meanwhile, never really worked. The rail network of 2 500 stations and 32 000 km of tracks was renationalised in 2001. This has encouraged the government’s transport secretary, a supporter of private sector involvement, to argue that the state Network Rail monopoly should be removed so that companies can bid to build new rail lines to upgrade the railway.

The privately-owned train operators are now the subject of fierce criticism, due to overcrowding and cancelled services. Private companies are supposed to compete to win a bid to be the train operator for a region for a short number of years. However in recent years the number of private companies bidding or renewing their contract as rail operators has fallen. In May 2018 the government rescued the East Coast line by renationalising it. The line had been run by the private rail operator Virgin Rail, which was suffering lower passenger numbers and revenue than forecast.

Some argue that there is a simple solution: reunite track and train in the only feasible manner, nationalisation.

(Source adapted from: https://www.ft.com/content/d82848ca-f7ba-11e7-88f7-5465a6ce1a00)

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Examine measures the government might use to restrict the monopsony power of supermarkets.

With reference to Extract C, explain one form of government intervention the Competition and Markets Authority may use to regulate monopoly power 

Extract C 

Proposed merger activity in the supermarket sector

Analysts at Société Générale, an investment bank, have recommended a merger between  Sainsbury’s and Morrisons. They claim it would lead to increased economies of scale  and market power for the combined business. Such a merger between the third and  fourth largest supermarkets in Britain would have been unrealistic a few years ago due  to concerns of its impact in reducing competition. However, the chances of getting  permission from the Competition and Markets Authority have increased following the  growth of Aldi and Lidl. Giant mergers have been approved in other sectors such as  Lloyds-HBOS (banking) and British Telecom-EE (telecommunications).  The suggested merger would have its challenges. There is considerable overlap between  the locations of the stores and the enlarged company would require the rationalisation  and co-ordination of hundreds of thousands of employees. A new expensive IT system is  likely to be required and the underlying difficult market trends would remain in the food  retailing industry.

(Source: adapted from ‘Tesco-bury and AS-Morrisons. Could Britain’s supermarkets be about  to merge?’ Graham Ruddick, in The Telegraph, 16th December, 2015. http://www.telegraph. co.uk/finance/newsbysector/retailandconsumer/11699724/Tesco-burys-and-AS-Morrisons.- Could-Britains-supermarkets-be-about-to-merge.html)

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Discuss the likely problems for Sainsbury’s and Morrisons if the suggested merger between them goes ahead. Refer to Figure 1, Extract C and your own knowledge in your answer (15)

Discuss methods of government intervention to protect consumers within the utilities markets, such as energy and telecommunications.