Tony Lodge: Competition the key on Britain’s great rail arteries

This long-awaited decision, though heralded by the Department for Transport (DfT), raises deeper concerns about competition policy, passenger benefits and wider rail policy as it means Virgin and Stagecoach will soon control all of the inter-city lines connecting Yorkshire with London.

Stagecoach already runs the Midland Main Line, which connects Leeds and Sheffield with London St Pancras, while trains on the UK’s biggest rail network, the West Coast Main Line between Euston and Glasgow, are run by a 51/49 per cent joint venture between Virgin and Stagecoach.

The new East Coast ‘Virgin’ franchise will start in March when the consortium’s grip on long distance high speed rail travel north of London will be complete.

As well as serving London, these lucrative routes serve a vast patchwork of rural Britain, the big provincial cities, market and county towns as well as key London commuter towns like Peterborough, Milton Keynes, Watford and Stevenage.

They serve the Government’s much touted ‘Northern Powerhouse’ with the key rail hubs of Manchester, Leeds, York and Newcastle.

New Hitachi built rolling stock will soon serve the East Coast route – which is warmly welcomed – but of more importance is the need for this new ‘railopoly’ to face more on-track competition in the interests of passengers.

Virgin Trains has already enjoyed a virtual monopoly on the long distance, high speed rail services between London Euston, the North West and Scotland for over 20 years.

The company has made healthy profits and enjoyed massive public investment in the railway to deliver more and faster services.

But this franchised service has never faced any long-distance high speed railway competition and, perhaps unsurprisingly, Virgin is arguing against any, judging by its recent letters to the Office for Rail Regulation.

Importantly on the East Coast, the line Virgin will soon be running, there is already some private non-franchised rail competition in place and their new franchise will face strong competitive forces. These services are popular with passengers who see lower fares and more routes served as a direct result of this competition.

Since 2007, Yorkshire and the North East has enjoyed such ‘open access’ long distance high-speed rail services in competition with the franchise out of London King’s Cross.

Passengers heading south tonight from York or Doncaster can reach London using either the franchised service, East Coast (Virgin from next March), or the open access trains run by Grand Central or Hull Trains; they all compete for passengers.

But why has such a competitive model never been encouraged or allowed on the West Coast Main Line? Open access services have delivered lower fares, more routes, happier passengers and better trains and pose no threat to the viability of the railway. On the East Coast Main Line, research shows that where the franchise competes directly with the rival, then fares are lower, stations are busier and overall revenue higher.

A fundamental problem with rail franchising is the franchise model which seems to be trying to do two things it is not ideally structured for; recover maximum premium to Whitehall through the periodic “renting out” of these ‘railopolies’.

But monopolies seldom maximise the potential of a market because there is no incentive to do so; they lack innovation or ambition.

Equally, the “renting out process” has not served us well, resulting in cyclical swings from operator super profits to catastrophic operator failure; a situation achieved at huge cost to both Government and operators.

Labour’s plans to recreate a division in the DfT where civil servants again bid to win the right to run rail services would be hugely expensive and arguably illegal. How can it work: a Government-owned rail company bidding for a government rail contract – with rail access approved by a government-appointed regulator and operating on infrastructure whose management is via the government? Would this survive a competition inquiry?

The re-emergence of monopoly control on Britain’s most important high speed rail routes is most undesirable. If more competition is not encouraged and delivered, then the ambitions behind railway privatisation, more than 20 years ago, will have been ignored.

Effective rail competition is possible in many dimensions in the provision of railway services, but it is pointless for governments to introduce it unless they can deliver on the commitment to allow it to function effectively.

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 CPS.