The biggest mistake made was by Labour with their nationalization. Once you lose market force solutions, you either legally steal money off people to subsidize something and in Labour's case give in to their paymaster unions, which is why train drivers earn much more than drivers in private bus companies.
Once a company is in public ownership then there is no rational efficient allocation of capital. Is is all done for political reasons. BT was another classic example of this, where you had to wait years for a phone line, once they were privatized and had competition, then they had to raise money to invest, compete and survive.
What they should have done, if the branch lines were so viable, is privatise them and let imaginative entrepreneurs, cut costs and market them effectively, which is what the tourist / preservation societies have done.
Personally, I don't think the railways should be a subsidised form of transport. Make it work or turn them into motorways seems a sensible way forward to me.