How to reform Britain’s rail system and see customer satisfaction soar

Tim Knox

HIGH fares, overcrowded trains, a franchise process in disarray. Now 20 years after privatisation, the then transport secretary John MacGregor’s ambitions to deliver greater competition, efficiency, and a better service by creating new opportunities for the private sector seem to have been betrayed.

All is far from perfect on our railways. Yet look deeper and much has improved since British Rail was privatised in 1993. The network has witnessed unprecedented growth. Passenger traffic has doubled, and is growing faster than in all other European countries. It is expected to double again by 2030. More people are travelling by train than at any time since 1929, on a network half the size, with the highest levels of safety on record.
But the trouble is that, while the private sector is more involved, much is on a monopoly basis. The Conservatives planned for the emergence of up to 100 rail firms, competing over one private system, but what has emerged is a handful of large companies bidding for franchises to operate rail services over a fixed timescale. The government’s invitation yesterday for bids to run the East Coast rail line is exactly this. The winner will be the company seeking the lowest subsidy or offering the highest premium, with other pledges of service and investment. Importantly, most franchise winners do not face any long distance competition. As in the energy sector and banking, too little competition and the customer suffers.
That is what makes new research by Tony Lodge for the Centre for Policy Studies so compelling. He has studied recent developments on the East Coast Main Line: a small but important breakthrough by private unsubsidised “open access” rail operators like Grand Central and Hull Trains has shown what happens if outsiders can challenge the monopolists. Competition has led to private investment, lower fares, new routes, more innovation, lower overall taxpayer subsidy and happier passengers. Just as when Easyjet and Ryan Air challenged the state monopolies of British Airways and Aer Lingus, the benefits can quickly be felt by passengers.
According to Lodge, stations that enjoy competition, like Doncaster, York, Northallerton and Grantham, have seen passenger journeys increase by 42 per cent, compared with 27 per cent for those without competition, like Leeds. Revenue has also risen at a faster rate (57 per cent compared to 48 per cent) where competition occurs. Crucially, there has been a smaller increase in average fares at stations with competition since 2009. At Edinburgh, where no on-rail competition exists to serve London, fares have soared.
Passengers like the new competitors. The most recent official survey of attitudes to the 31 train operating companies shows that the two open access operators come top in passenger satisfaction ratings, registering 96 per cent and 95 per cent approval respectively.
Competition has also had a beneficial effect in the freight sector. This was privatised at the same time as the passenger sector and has benefitted from strong on-track competition. This has led to investment in new rolling stock, high levels of productivity and reduced costs to satisfy customer demand.
The monopolists don’t like this. They complain that more competition will limit or prevent their ability to pay back their premiums, as smaller competitors “poach” their business. But new official statistics show that, to the contrary, more competition grows the size of the market. More passengers are travelling on the railway and the franchise holder is easily able to pay its premiums, even though it must compete with Grand Central at large stations.
The coalition has an opportunity to deliver a better railway out of the embers of last year’s franchise chaos. Franchise negotiations should open up the tracks to as many new entrants as possible. The transport minister should set up a new Office for Rail Competition and Utilisation, with a remit to identify where capacity exists to allow new entrants to the market. (The present bodies, the Office for Rail Regulation and Network Rail, have failed and are a drag on more rail competition).
While the budget airlines may not win every poll of customer satisfaction, no one would dream of going back to the days when only state airlines flew the skies. Competition has worked wonders. Why, 20 years after privatisation, do we put up with a monopolistic industry when the benefits of competition are now so clear to see?
Tim Knox is director of the Centre for Policy Studies. Rail’s Second Chance – putting competition back on track by Tony Lodge is available at