Tony Lodge: Why Britain went off the rails... and how we can get back on again

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“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 quote 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.

During the 1960s and 70s 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 1990s.

Consequently, it is important to contrast the challenges facing 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 nationalised industries.

Today, albeit 20 years late, the ambitions in the Minister’s quote 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.

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 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.

On the East Coast Main Line, private non-subsidised “open access” rail operators such as York based Grand Central and Hull Trains compete with the lines’ 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 East Coast Main Line franchise holder “East Coast”. It is a key development.

New research shows that those stations which enjoy long distance “open access” on-rail competition, such as Doncaster, York, Northallerton and Grantham, have seen (on average) passenger journeys increase by 42 per cent, compared with 27 per cent for those without competition such as Leeds.

Revenue has also increased at a faster rate (57 per cent compared to 48 per cent) 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 have soared between 2007 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 official 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 per cent overall passenger satisfaction respectively. Importantly, they also scored top in value for money.

The business plan of these wholly private non franchised rail companies is in tandem with the ambitions of rail privatisation. It is built on making use of spare capacity on the East Coast Main Line to provide services to communities that have been historically poorly served by rail such as Sunderland and Halifax.

They complement the services provided by East Coast, operating services they have chosen not to and which the Department for Transport has chosen not to fund or specify. 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 will now become staffed. At Eaglescliffe, near Middlesbrough, similar investments are underway.

In recent years a fascinating railway experiment has been taking place at key stations in and around Yorkshire and Northern England. Though still small, real railway competition has been operating and increasingly winning loyal passengers.

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. 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.