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Rail's Second Chance

New evidence proves that competition on the passenger rail network benefits passengers and taxpayers; now is the time to deliver true competition.

The principles of the 1992 rail privatisation White Paper have been betrayed, writes Tony Lodge in Rail’s second chance: putting competition back on track published on Monday 25 March by the Centre for Policy Studies. For the White Paper anticipated “more competition, greater efficiency and a wider choice of services more closely tailored to what customers want.” But today, franchised rail operators have an effective monopoly on the core long-distance routes, restricting vital competition. But Ministers now have a chance to put this right.

New evidence presented in this report shows that in those few areas where rail competition has emerged – primarily on the East Coast Main Line and in rail freight – the benefits are clear: competition has led to new private investment, innovation, new routes, lower taxpayer subsidies, lower transparent fares, more journeys and happier passengers.

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 Comparisons between the passenger network and rail freight network, both privatised at the same time, could not be more different. Strong competition on the freight network has led to significant investment in new rolling stock, high levels of productivity and reduced costs to satisfy customer demand: between 1998/9 and 2008/9, freight operating companies reduced their unit costs by 35%, while the passenger operators increased costs by 10%. 

A small part of the passenger rail network is also open to some competitive pressures. On the East Coast Main Line (ECML), two non-subsidised “open access” operators – Grand Central and First Hull Trains – compete with the franchise holder East Coast.  They have shown that competition leads to more journeys, higher revenues for the train companies, lower fares, more and happier passengers. New data for this report shows that at ECML stations:

  • passenger journeys increased by 42% at those stations which enjoy rail competition, compared with 27% for those without competition;
  • revenue increased by 57% where competition occurs compared to 48% for those stations without competition;
  • average fares increased by only 11% on those stations with competition, compared to 17% at those stations without competition.
  • In the case of the ECML franchise holder – East Coast – has been able to increase its premium payments to Government year on year with no need for subsidy, whilst facing on-track competition.

 In addition, in the official rankings of passenger satisfaction of the 31 main train companies, the companies that came first and second were those which are running “open access” competitive services against the franchise – Grand Central and First Hull Trains.

 Following the West Coast Main Line fiasco, the model for awarding rail franchises is now in disarray. Tony Lodge concludes that Ministers at the DfT should seize the opportunity to restructure new franchises to enable far greater competition to flourish across the UK rail network.

 Tony Lodge comments:

 “There are applications in with the DfT for new open access services to run alongside the franchise on the West Coast Main Line.  But despite the clear success of some competition on the ECML there remain draconian DfT blockages in place which restrict and prevent effective on-track competition from being delivered in the interests of the passenger, the railways, the regions and the economy.  A new Office of Rail Competition and Utilisation (ORCU) is urgently required.”

Tim Knox, Director of the Centre for Policy Studies, comments:

From banking to energy, from outsourcing companies to water, there are too many sectors of the British economy dominated by cartels and quasi-monopolies. Faced with little meaningful competition, they share the same characteristics: a failure to innovate, a failure to challenge their own high cost base, a failure to put their customers’ interests first. The same is true to the passenger rail network. The good news is, by following Tony Lodge’s recommendations, Government can do something to put things right very quickly.”

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