Margareta Pagano: We need a railway to make the Stephensons proud

It's nearly 200 years since George Stephenson tested his new steam engine – Blucher – on the Cillingwood Railway carrying coal from the mines outside Newcastle.

Stephenson, with his son Robert, then went on to design the Rocket steam locomotive and build the first railways, the Stockton to Darlington, and Liverpool to Manchester lines. Their ingenuity and enterprise led to the growth of one of Britain's greatest engineering industries, laying the foundations of the industrial revolution as well as bringing us one of the most pleasurable and efficient means of travel yet discovered. How they must be squirming.

For the nation that led the world is now its laughing stock as its franchise for a train-set on the West Coast has left the rails. Everybody should be ashamed; the civil servants and the politicians in all their houses that have been party to this nonsensical system of franchising brought about by privatisation.

What's all the more shameful is the mud-slinging and excuses now going on – from Lord O'Donnell blaming "low pay" in the civil service or to the more furtive accusations of there being a departmental bias against Virgin's Sir Richard Branson.

The cost to the taxpayer is already somewhere between £40m and £100m but could run to higher sums if First Group – which saw £200m wiped off its value – decides to sue the Government over the fiasco. You can't blame it. Yet the best ministers can come up with is to announce a couple of reviews.

Until then, the entire rail industry has been put into a state of paralysis. The Government has yet to decide whether to extend Virgin Rail's contract – that expires on December 9 – or transfer the franchise to the state-owned Directly Operated Railways, an Orwellianism if there ever were one. And bids for the Great Western, Essex Thameside and Thameslink franchises have been suspended. You wouldn't run a whelk stall like this.

No doubt these inquiries will in time dig out what went wrong with how Department for Transport officials analysed the risk assessments presented in the competing bids, but the reviews will be a fudge. They always are. Maybe a few more civil servants will fall on their swords but that's all we can expect.

What Patrick McLoughlin, and his Cabinet colleagues, should be doing is to look again at the franchising process itself, and the way the railways are governed.

It's been clear for years that the franchising system is unsustainable: this latest shambles merely confirms what everyone knows. For the harsh facts are that the taxpayer paid £4bn last year to subsidise the railways, double the cost when it was run by British Rail before the disastrous privatisation and no one can explain why.

Logically, with increased passenger usage, it should be down. This leads to the inevitable question about whether the UK's rail network wouldn't be better off back in the hands of one single operator. Christian Wolmar, the rail expert, always asks the question: "What is franchising for?" It's the right question: does the system lead to a more efficient or cheaper business? It's clear the answer is no; most of the best railways in the world are nationally run, usually with small subsidies, but they don't end up with the sort of mess which we do.

Yet, rail travel has never been more popular; despite the downturn there was a 7 per cent increase in journeys last year and a 12.5 per cent rise in freight. Passengers take 1.3 billion journeys a year, trains travel 500 million kilometres a year and a 100 million tons of freight travels across the country: turnover this year will be £18bn.

There's a reason why Virgin Rail, half-owned by Stagecoach, and First were so desperate to get this franchise: there's big money to be made. Branson may have emerged the good guy but both he, and Tim O'Toole at First, have only kicked up such a fuss because the West Coast is so profitable. And who can blame them.

It's difficult to get a proper handle on the economics of rail because of its complexity. But here is a quick snap-shot. In 2010-2011 the total income from the rail industry was £11.6bn – this was made up of £6.6bn from fares, £4bn from the state subsidy and £1bn of other income.

Total costs to the industry – the 28 train operators and Network Rail – was £11bn, made up of £5.8bn costs spent by Network Rail running the track and its staff, and then £5.2bn spent by the train operators on overheads such as worker costs. In other words, the industry sort of wipes its face.

So you could argue, if the Government is still subsidising it, what's the benefit of having it run by a chaotic system of tendering? Reforming the process would also save a huge amount of money as the cost of preparing bids must be more than buying several new engines a year.

But the real problem with competitive franchises is that no one company takes ultimate long-term responsibility for the network. Compare this with Germany's Deutsche Bahn, which although private is still publicy owned, and France's SNCF, both of which can plan and take a long-term view of their investments.

It's always been said that Britons are bad at big infrastructure projects, that we don't have the French vision for grands projets. This is patently not true – when we do the big stuff – like building the Channel Tunnel, the High Speed 1 line out of St Pancras or the Olympics – we do it brilliantly.

We should be doing the same with the national network: McLoughlin should ask a hot-shot industrialist or financier – the Olympic's boss Paul Deighton would be a good choice – to go back to the drawing board. There's nothing wrong with admitting that privatisating British Rail was a step too far; quite the opposite.

Without being cheesy, this is a great chance for David Cameron to get back at Ed Milliband's attempt to steal his One Nation clothes and do something bold and imaginative. Let the current franchises run their course – to prevent any legal action – and then take control of each one and put them back into one national company. It could be run outside the state, more like the NHS, the Olympics or indeed, the Bank of England, accountable to parliament yet independent under its own charter. Both the Welsh and Scottish parliaments are already talking about regaining control.

Just think what a new BR livery would look like; smart navy and red engines instead of the horrible pink and maroon ones. They could even be named after our Olympic medalists. Now that would be a legacy.