On 8 March 2016, the Competition and Markets Authority (“CMA”) published a policy document recommending that the government overhaul the currently franchised rail system. (Click here to access the full policy document.)
99% of Britain’s trains presently run under franchise agreements, which companies bid for and obtain from the government. The main criticism of the system is that rail operators face little to no competition; effectively being granted a monopoly when they are awarded franchise contracts.
After over a year of drawing up recommendations, the CMA has now opined that increased competition in the rail sector has the potential to lower fares and growth in passenger numbers, create greater incentives for operators to improve service quality and innovate, encourage greater efficiency by train operators, and boost more effective use of network capacity. Alex Chisholm, CMA chief executive, has stated that “there is strong evidence, both here and abroad, of the benefits that the introduction of competition on mainline intercity routes can bring.” Accordingly, the CMA recommends that the government increase the number of open access services and/or split up franchises, with a view to eventually replacing the entire franchise system with a licensing system under which multiple competing licensed operators would offer services on the same main intercity routes. A similar licensing system was considered back when Britain’s railways were first privatised in 1994, but it was scrapped due to operational concerns.
Which? executive director, Richard Lloyd, supports the CMA’s project and notes that “millions of passengers are not satisfied with the service they are receiving on Britain’s railways…but on open access lines, where there is more competition between train companies, satisfaction is significantly higher”.
However, not all reviews of the proposals have been positive. Notably, there are legitimate concerns about the impact that greater competition might have on the income received by government from franchise operators. There are also concerns that the project may not be workable in practice – Mick Whelan, general secretary of Aslef (the UK union for train drivers and operators), stated that “competition in the rail industry is a myth…there is only one set of tracks.”
Regardless of the logic of imposing a more competitive environment for train companies, other economists and experts are more sceptical of the appetite for true free market reform of the rail system. Perhaps the largest obstacle to any true market reform, and the possible lifting of standards, is the political status quo reached between both politicians and the general public that the train system is a non-negotiable public service, not one of several and optional transport options for the country. Therefore any market reform which saw full privatisation and unprofitable lines and infrastructure being turned into toll roads, express bus routes or even the land being sold to property developers, would be greatly opposed.
Likewise any reforms that saw fares being freed from regulation (and being made more expensive) would be equally as unpopular with the public.
All genuine market reforms would require a rethink of the public’s relationship with the rail system, and for the foreseeable future, the semi-privatised model we have with its benefits and drawbacks looks like the status quo for many years to come.
The policy document is currently under consideration by the Secretary of State for Transport.