Best Believe, British Beelines Bamboozles Boarders

 DingDong! Your train has been cancelled…

Have you ever found yourself at the station waiting for a train that never ended up coming? You could be waiting for one right now. But, you’re not alone! In 2025, Great Britain had 7.4 million trains planned and a 4.1% annual train cancellations score. This implies approximately 300,000 train cancellations left passengers stranded (Office of Rail and Road, 2026). We hear stories of the futuristic rail systems in Japan and Switzerland, where trains are affordable, on time, and rarely ever cancelled. Private operators, such as JR East, which have not raised fares in over 31 years, and the publicly owned Swiss railway system, where 60% of the funding comes from government subsidies and public investment (Harding, 2019). Yet, in the 6th largest economy, we pay absurd fares whilst having a 4.1% chance of never actually reaching our destination (Office of Rail and Road, 2026). Is this simply poor infrastructure and management? Or are private actors deliberately taking advantage of the principal-agent problem?

Figure 1: Mass Cancelling of trains (Getty Images, n.d.)

 

What is the Principal-Agent problem?

Train cancellations are not always a reflection of circumstances such as bad weather or strikes, they could be a principal-agent problem. The principal-agent problem occurs when an entity (the “agent”) is hired by and makes decisions on behalf of another entity (the “principal”). Since the principal can only observe the outcome, the agent will pursue their own interests rather than the principal’s. Here, the principal-agent problem leads to a moral hazard (Grossman and Hart, 1983). What’s a moral hazard, you say? I’ll leave that to future me to explain!

Figure 2: The principal-agent problem (Source: ChatGPT, 2026)

 

 

In the UK rail system, the government, as the principal, observes outcomes such as cancellations and delays. But, it cannot know how much effort train operators, as the agents, put into staffing, maintenance, disruption management, etc. In practice, train operators aren’t willing to reduce cancellations and delays by increasing spending on train operations. Put simply, if a company feels a decision is not worth the cost, it may decide to forego it. To try and solve this issue, the UK government has stopped renewing expired railway contracts and is moving towards nationalising the train system through establishing the Great British Railways (GBR) (Department for Transport and DfT Operator Limited, 2026).

 

 

Wait…but what do you mean by “Moral Hazard?”

Do you remember when I mentioned moral hazard? I’ll explain it now! Imagine you’ve hired a cleaner to tidy your home, paying them by the hour. When you’re home, they always appear to be hard at work, leaving every corner spotless. But as soon as you leave, they start slacking off, only mopping the floor just before you return.

Economists refer to this phenomenon as “moral hazard”. Once an agreement is signed, the agent can simply neglect responsibility since they don’t bear the full consequences. The agent may cut corners in their work, harming the principal.

 

 

The ones who made too many promises…

 

The UK rail franchising system has been in place since the 1990s, outsourcing passenger rail operations to private firms to introduce competition and improve efficiency. It sounds wonderful, doesn’t it?

 

 

Wrong! This system has created distorted, conflicting incentives. Operators know their own costs far better than the government, so to secure a franchise, they make extremely optimistic revenue forecasts, knowing that the government couldn’t verify this. A great example is Virgin East Coast, which promised to pay £3.3 billion to operate the East Coast line until 2023 (GOV UK, 2014), claiming that, in addition to more seats, passengers would enjoy cleaner, more reliable trains and faster journeys. However, within just a few years, the East Coast franchise failed, forcing the government to take over, using taxpayers’ money to foot the bill for a private company’s rash decision-making (Parliament UK, 2018). The franchising system created moral hazard twice. Operators inflated bids knowing the government would absorb the losses if they failed, then underinvested once contracts were secured knowing penalties were too small to hurt. The rail company knew that the government could not let the rail network grind to a halt if things went wrong. They enjoy the benefits of neglecting responsibility while others bear the cost. Who suffered when the franchise failed? That’s right: passengers like you left waiting for the train. It doesn’t get more morally hazardous than that! (Preston and Bickel, 2020)

Figure 3: Decision Tree Game

 

GBR: A new hope or the same old problem?

Next time you're stranded on a platform, remember that the system wasn't broken by accident. Private operators promised everything to win franchises, let the service quality decline through underinvestment, and then made taxpayers foot the bill when things went wrong. However, as the decision tree game above tells us, this isn't malice; it's rational economics. Play the game to find out how an agent can privatise gains and pass the losses onto you, the taxpayer. The GBR proposal to nationalise track and train could improve the situation, but the principal-agent problem isn’t resolved by just nationalising. Managers in a public rail body may still know more than ministers or passengers about costs, staffing, and maintenance, meaning weak monitoring can still lead to underperformance. GBR becomes the agent, meaning Parliament and the public become the principal. They must now hold a public body to account rather than a private one. Without binding and transparent performance targets, the incentive to cut corners doesn't disappear. Basically: new agent, same problem!

“Oh no! Should I give up?” - No! Here’s what YOU can do:

 

However, all hope isn’t lost. Switzerland’s SBB demonstrates that this problem is solvable. The Swiss Federal Railways' 1999 reform introduced what Desmaris (2014) calls a "net cost" model. Targets and budgets were fixed in advance through binding contracts with strict reporting requirements, meaning any overspend came out of SBB's own costs. The incentive to cut corners disappears because the state won't bail you out for promises you didn't keep, the agent bears the cost of their neglect. This is the model GBR needs. Write to your MP while the Railways Bill is still in Parliament. Contact the Office of Rail and Road. Ask what GBR's performance targets will be, and how they will be enforced. Demand accountability. Demand better standards. Demand a better GBR.

 

I hope our article was useful and informative! Why not take this short-quiz to see how well you understood it?

References

Department for Transport and DfT Operator Limited (2026) Great British Railways and the public ownership programme. Available at: https://www.gov.uk/guidance/great-british-railways (Accessed: 18 March 2026).

Desmaris, C. (2014) 'The reform of passenger rail in Switzerland: More performance without competition', Research in Transportation Economics, 48, pp. 290–297.

Getty Images (n.d.) Train departure board showing cancelled services in UK station. Available at: https://www.gettyimages.com (Accessed: 20 April 2026).

GOV.UK (2014) New East Coast mainline franchise confirmed. Available at: https://www.gov.uk/government/news/new-east-coast-mainline-franchise-confirmed (Accessed: 18 March 2026).

Grossman, S.J. and Hart, O.D. (1983). An Analysis of the Principal-Agent Problem. Econometrica, 51(1), p.7. doi:https://doi.org/10.2307/1912246.

Harding, R. (2019) 'Rail privatisation: the UK looks for secrets of Japan's success', Financial Times. Available at: https://www.ft.com/content/9f7f044e-1f16-11e9-b2f7-97e4dbd3580d (Accessed: 18 March 2026).

Office of Rail and Road (2026) Passenger rail performance. Available at: https://dataportal.orr.gov.uk/statistics/performance/passenger-rail-performance/ (Accessed: 18 March 2026).

OpenAI. (2026). ChatGPT Images 2.0 [AI image generator]. Available at: https://openai.com/index/introducing-chatgpt-images-2-0/ (Accessed: 23 April 2026).

Parliament.UK (2018) Rail franchising, House of Commons Committee of Public Accounts, Seventeenth Report of Session 2017–19. Available at: https://publications.parliament.uk/pa/cm201719/cmselect/cmpubacc/689/68907.htm (Accessed: 18 March 2026).

Preston, J. and Bickel, C. (2020) 'And the beat goes on. The continued trials and tribulations of passenger rail franchising in Great Britain', Research in Transportation Economics, 83, p.100846.