Tony Lodge is a Research Fellow at the Centre for Policy Studies and a Committee Member of the Conservative Transport Group.  His pamphlet, Rail's second chance – putting competition back on track is published by the CPS.  A short animation accompanying the pamphlet can be seen above.

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The announcement of new rail franchising competitions this week is
welcome.  But whilst providing a
competitive bid process for the award of new franchises, it will be vitally
important that the Government moves to guarantee that these franchises should
face more on-rail competition to help keep fares down, boost passenger choice,
boost passenger satisfaction and deliver more routes.

Twenty years after the Conservatives privatized the failing
British Rail, there is now an opportunity to deliver a falling railway subsidy,
cheaper railway fares and better services to more locations. But this will only
become a reality if a level of on-rail service competition between franchises
and what is known as ‘open access’ is delivered.

A key example is the present East Coast Main Line franchise holder
'East Coast' which competes with ‘open access’ rail companies Grand Central and
First Hull Trains to Yorkshire and the North East.  However, there is no open
access competition with Virgin which runs the West Coast Main Line franchise. New
evidence shows that where on-rail competition exists, fares are lower, there is
more revenue, more and happier passengers and higher premiums for the Government.

Preparing for privatization in 1992, the then Transport Secretary, John MacGregor wrote, “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”. 
An understanding of the need for a radical re-think for the railways can
be explained by the post-war decline in rail use.

During the 1960s and 70s both political
parties decided, based on clear evidence, that rail demand was doomed to
decline, and moved to close a third of the railway network in the now famous
‘Beeching’ review.  This was nearly
followed up with the Serpell Review in 1982 as demand for rail travel declined
steadily from 1955 to 1982, and was again falling by the early 1990s.  

Consequently, it is important to
contrast the challenges confronting the railways in the early 1990s, compared with
today.  Faced with a gradual but clear passenger
decline, the Government wanted to deliver private investment, more passenger
choice and more competition. In parallel, it wanted to detach the politics of
rail from Whitehall, as it had with other nationalized industries. Today, albeit twenty years late,
the ambitions in John MacGregor’s words above are upheld in new research and official
statistics; rail competition is finally delivering for passengers but on too
small a scale.  The policy was and
remains right, but it must now be more widely applied.

Whilst the Conservatives hoped
and planned for the emergence of up to 100 rail companies, which would compete
for business over one private infrastructure system, a situation has emerged in which 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 long distance non-franchised competition.  Critics complain, with some justification,
that privatisation has allowed modern day passenger monopolies – or railopolies
– to emerge.

In comparison, competition has
been hugely successful for rail freight which was privatised alongside the
passenger sector. It has benefitted from strong on-rail competition which has
led to investment in new rolling stock, high levels of productivity and reduced
costs to satisfy customer demand. 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 in the last
two decades has reversed all previous predictions.  More people are travelling by train than at
any time since 1929 on a rail network half the size and enjoying the highest
levels of safety on record.

Perhaps unsurprisingly to most
ConservativeHome readers, new
evidence now shows how long distance rail competition delivers lower fares,
higher revenues and greater rail use without threatening the viability of the
franchise holder; in this case on the East Coast Main Line.   It is a key development. New CPS research shows that
those stations which enjoy long distance ‘open access’ on-rail competition with
the franchise holder, such as Doncaster, York, Northallerton and Grantham, have
seen (on average) passenger journeys increase by 42%, compared with 27% for
those without competition, such as at Leeds.

Revenue has also increased at
a faster rate (57% compared to 48%) where competition occurs but, crucially, there
has been a much smaller increase in average fares at stations with competition,
since 2009.  Importantly, at Edinburgh,
where no on-rail competition exists to serve London, fares soared between 2009
and 2011. 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’ their business. 
However, new statistics show that increased competition brings more
passengers to the railway and the franchise holder. Take East Coast: it is
easily able to pay its premiums, even though it must compete with Grand Central
and Hull Trains at stations like Northallerton, York, Doncaster and Wakefield
for London bound passengers.

The most recent official
passenger satisfaction survey shows open access operators Grand Central and Hull
Trains registering 96% and 95% overall passenger satisfaction respectively.  Importantly, they also scored top in value
for money. A new Office for Rail
Competition and Utilisation should be set up to deliver more rail competition
and identify where capacity exists on the network for more open access to
compete alongside franchises.  The
present bodies tasked with doing this, the Office for Rail Regulation and
Network Rail, have failed, and are a drag on more rail competition.

The Coalition has an opportunity
to deliver a better railway out of the embers of last year’s franchise
chaos.  It can now put right what was
first intended twenty years ago.