‘Our objective is to improve the quality of railway services by creating many new opportunities for private sector involvement. This will mean more competition, greater efficiency and a wider choice of services more closely tailored to what customers want.’
Twenty years ago the above statement from the then Transport Secretary, John MacGregor, formed the backbone of Tory ideology for one of the most controversial and politically difficult of all the privatisations of the Thatcher and Major period. The decision to privatise British Rail was not taken lightly. A small Tory majority, opposition from the powerful rail unions, the John Smith led Labour Party and various so called ‘passenger groups’ threatened to undermine one of the most radical of all Tory sell-offs.
But a radical solution was needed to break a draconian consensus. During the 1960’s and 70’s both political parties decided that rail demand was doomed to decline and moved to close a third of the railway network in the now famous ‘Beeching’ review. Demand for rail travel declined steadily from 1955 to 1982 and was again falling in the early 1990’s.
Consequently, it is important to contrast the challenges facing the railways in the early 1990’s, compared with today. Faced with a gradual but supposed terminal passenger decline, the government wanted to deliver private investment, lower subsidies, more passenger choice and more competition. In parallel it wanted to detach the politics of rail from Whitehall, as it had with other nationalised industries such as telecommunications.
Today, albeit twenty years late, the ambitions in the Minister’s quote are upheld in new research and statistics; rail competition is finally delivering for passengers and the government, but on too small a scale. The policy was and remains right, but it must now be more widely applied.
While the Conservatives hoped and planned for the emergence of up to 100 rail companies, which would compete for business over one private infrastructure system, the reality has emerged where fewer companies bid for franchises to operate rail services over a fixed long timescale. The winner is the company seeking the lowest subsidy or offering the highest premium with other pledges of service and investment. Importantly, most franchise winners will not face any longdistance non-franchised competition.
Critics complain, with some justification, that privatisation has allowed modern-day long distance passenger monopolies – or railopolies – to emerge where franchises face no effective competition. In comparison, competition has been hugely successful for rail freight which was privatised alongside the passenger sector. It has benefited from strong on-rail competition which has led to investment in new rolling stock, high levels of productivity and reduced costs to satisfy market demand. (see Table 1) So what about the passenger sector?
Since 1993 the rail network has witnessed unprecedented growth. Passenger traffic has doubled with UK rail passenger numbers growing faster than all other European countries. It is expected to double again by 2030. The explosion in demand for rail travel since privatisation has reversed all previous predictions. More people are travelling by train than at any time since 1929 on a rail network almost half the size and enjoying the highest levels of safety on record.
On the East Coast Main Line (ECML), private non-subsidised and nonfranchised ‘open access’ rail operators such as Grand Central and First Hull Trains compete with the line’s franchise holder and this competition has provided some revealing new statistics. They show how long-distance rail competition delivers lower fares, higher revenues and greater rail use without threatening the viability of the ECML franchise holder.
New research shows that those stations which enjoy long-distance ‘open access’ on-rail competition with the franchise holder, such as Doncaster, York, Northallerton and Wakefield, have seen (on average) passenger journeys increase by 42 per cent, compared with 27 per cent for those without competition, such as Leeds. (See Table 2).
Revenue has also increased at a faster rate (57 per cent compared to 48 per cent) where competition occurs.
Importantly, at Edinburgh where no direct on-rail competition exists on the ECML to serve London, fares have soared. (See Table 3).
Crucially for passengers, at stations where open access services compete with the franchise holder average fares increased by only 11 per cent compared with 17 per cent at those stations without.
In the past, franchised rail operators have complained to ministers that more competition will limit or prevent their ability to pay the government the franchise premium as smaller competitors would ‘poach’ or abstract their business.
However, new statistics show that increased competition brings more passengers to the railway, and therefore the franchise holder. Take ‘East Coast’; it is easily able to pay its premiums (which have increased year on year and are the largest of any of the longdistance franchises), even though it faces competition with Grand Central and First Hull Trains at stations like Northallerton, York, Doncaster and Wakefield. At Wakefield, East Coast uses Westgate station and Grand Central services call at the city’s Kirkgate station.
The most recent official passenger satisfaction survey shows open access operators Grand Central and Hull Trains registering 96 per cent and 94 per cent overall passenger satisfaction respectively. Importantly, they also scored top in value for money.
These operators have also taken the decision to directly serve new locations, such as Sunderland and Halifax off the ECML, at their own risk and initiative, which the franchise avoids. This has led to private sector investment in disused and near derelict stations such as the locally infamous Wakefield Kirkgate which is enjoying millions of pounds of new investment and, importantly, will now become manned. At Eaglescliffe, near Middlesbrough, similar investments are underway.
A new Office for Rail Competition and Utilisation (ORCU) should be set up to deliver more rail competition and identify where capacity exists on the network. The present bodies tasked with doing this, the Office for Rail Regulation and Network Rail, have failed and are a drag on delivering a better policy.
ORCU should be mandated to:
- encourage as much competition as possible between train companies and to free up as many routes as possible. E.g. Network Rail must also be better incentivised to maximise the capacity available on all routes through its role in the timetabling process
- take over certain Office of Rail Regulation duties to work and make sure that the rail network is used most effectively with a view to better rail competition, where capacity exists
- identify and explain to ministers and Parliament the benefits of more rail competition (alongside franchises) and how it can reduce industry costs and boost passenger satisfaction, in line with initial Conservative rail privatisation ambitions
- act as an official link between open access operators and the DfT in order to maintain and boost their role on the network
- detail, in light of the rail franchising collapse of 2012, how open access should play a bigger part alongside soon to be re-let franchises.
On the back of last year’s rail franchising debacle the government should seize the opportunity with a clear policy to encourage and allow more open access competition, alongside franchises.
Only by embracing more on-rail competition, alongside franchises, can government deliver better and lower cost railways, with lower fares, more routes and more choice for passengers.
Open access applications are being considered by the government on the West Coast Main Line. This is an important test; which way will the DfT jump?