Tony Lodge is a Research Fellow at the Centre for Policy Studies and author of Rail’s Second Chance – putting competition back on track, published by the Centre for Policy Studies.
Last month, Britain went train-mad. The return of the iconic 1923-built Flying Scotsman after a £4 million restoration reignited Britain’s fascination and sometimes obsessive interest in trains and the railways. There are good reasons for this. The railways were invented here; the best and most advanced locomotives were designed and built here (go and see some of them in York’s spectacular National Railway Museum) and they have occupied a huge social, cultural and economic role in Britain’s evolution over the last 150 years.
This week saw another, if not so prominent, development which should give the railways an improved role in growing Britain’s economy. On Tuesday the Competition and Markets Authority (CMA) published a long awaited report into the potential for delivering more on-track railway competition. The Centre for Policy Studies has been campaigning for this since 2013, when Rail’s Second Chance published evidence-based research which showed that more competition has delivered lower fares, more and happier passengers, more routes, busier trains and more sector innovation.
We focused on the East Coast Main Line (ECML), which connects London King’s Cross with the North East and where some genuine though still limited competition has been permitted; known as ‘open access’.
Since 2013 we have continued to campaign, often through Conservative Home, to make the case for more open access train operators to be allowed to compete with the franchised rail operators, and to develop new and previously poorly served rail locations. Open access leaders Grand Central and Hull Trains have returned long distance high speed trains to towns and cities across the North which lost their old British Rail services years ago. Large new rail markets have consequently been established as well as delivering direct competition with the franchise holder.
But why is more rail competition really important? Apart from our ideological belief in competition to drive innovation and better customer service, Britain also needs a fast-growing rail network; it has experienced the highest growth in the EU.
The statistics are striking. The number of train journeys made each year has more than doubled since the late 1990s. 1.65 billion passenger rail journeys were made in the last 12 months, compared with 801 million in 1997. This means that rail travel in Britain is now hitting the same figures seen in the 1920s, when the Flying Scotsman was introduced. But this is happening on a network now half the size.
People make an average of 24.7 train journeys each a year, a 60 per cent increase from the mid-1990s, when private operators took over running UK train services from British Rail. The growth in journeys is thus faster than it is in France at 25 per cent, Germany at 23 per cent and the Netherlands at 10 per cent over the same period. This raises huge challenges – such as squeezing more and better trains on the network to cope with demand and also addressing the passenger’s nightmare of overcrowding.
No less importantly, the taxpayer is footing less of the bill for maintaining and running the railways. Fares income covers the £9.5 billion annual cost of train services, with government support being used to fund infrastructure. The average price paid per passenger mile has increased by 6.7 per cent, adjusted for inflation since the mid-1990s, and the profit made by operators has fallen from 3.6 per cent of revenue in 1997 to 2.3 per cent last year.
Consequently, the demand for better services has been growing, with rail passengers consistently complaining about annual price rises and overcrowding. When John Major privatised the railway, he promised three things; competition, innovation and investment. He said competition would drive innovation and investment, but as we have bemoaned there has been too little competition. Let us hope that Ministers will now support the CMA’s findings and act.
The old arguments put forward by those opposed to more rail competition no longer wash. A favourite was that more open access competition alongside the franchise undermines its ability to pay a premium to Government and safeguard its business – the so-called ‘cherry pick’ claim. But this simply isn’t supported by the facts. Office of Rail and Road statistics show that the franchise premium on the ECML grew by a significant 600 per cent between 2009-10 and 2014-15. During 2014-14, the ECML franchise premium had grown to £266.7 million from just £46 million in 2009-10. This growth occurred (alongside a deep economic slump) as open access services on the ECML grew from 18 trains a day in 2009 to 32 a day in 2015. Competition grew the railway.
The Office of Rail and Road has the chance to approve more open access and decisions are looming. In tandem, Ministers should now support the CMA report and deliver on those initial Conservative rail ambitions – a quarter of a century after they were first set out.