Look east: there is a way to cheaper rail fares (The Times)

Competition has been rare in recent decades. But where it happens, it’s good for passengers writes Tony Lodge CPS research fellow. (Monday 25 March 2013).

To view the article, visit The Times website (£). 

Can you imagine a rail policy that delivers lower fares, more choice, more routes and happier passengers? John Major’s 1992 rail privatisation White Paper certainly aspired to this by pledging “more competition, greater efficiency and a wider choice of services more closely tailored to what customers want”.

But, on the 20th anniversary of the legislation that was supposed to release the railways from government control, these ambitions have been largely ignored. Policy has instead delivered large and highly prescribed rail franchises that face little or no on-track competition.

There have been some successes in the past two decades. The railways have never been safer, have not carried as many passengers since 1929 on a network half the size and are delivering newer trains and faster services. However, fares remain high and the rail subsidy, though decreasing, is still too big.

And the elephant in room remains: there is no significant competition in the passenger market and large “railopoly” franchises have been allowed to emerge. Yet new research shows that in the interests of passengers, the rail industry, the regions and the taxpayer, Whitehall should now encourage and deliver more rail competition and drop its traditional opposition.

More competition between rail franchises and non-subsidised rail companies, known as “open access”, delivers lower fares, more and happier passengers, more routes and more revenue for railway companies, thus reducing taxpayer subsidies, this research shows. It also indicates that franchises have nothing to fear; by facing competition and better meeting the customer’s needs, they can win more passengers and revenue.

Two popular open-access railway companies run between King’s Cross, in London, and Yorkshire and the North East. They represent a small share of the rail market but provide vital competition for the franchise holder East Coast, delivering lower fares and more choice, and are much valued by their growing numbers of passengers. Both companies, Grand Central and First Hull Trains, topped the most recent Passenger Focus rail satisfaction survey with 96 per cent and 95 per cent approval respectively.

While some observers argue that rail passenger franchises have become akin to government-backed monopolies, open-access operators are commercial companies, receiving no subsidies and competing against the franchise over large sections of the main line. They have also successfully developed new routes at their own initiative and risk.

Importantly, at stations where there is now competition between the franchise holder and open access there has been a 42 per cent increase in passengers between 2007 and 2012 compared with 27 per cent for those without competition. Average fares increased by only 11 per cent at those stations with competition, compared with 17 per cent at those stations without. Revenues have also increased at a faster rate, 57 per cent as against 48 per cent where competition occurs.

A good example is the difference in fares now being offered by these rival operators between York and London. Unsurprisingly the franchise operator, East Coast, offers its cheapest fares clustered around the time when it has to face competition with the open-access service, Grand Central. But an early morning “walk on” fare on East Coast would cost £124.50; a similar ride on Grand Central will cost you just £77.20. The non-franchised service also allows passengers the flexibility to buy tickets on board.

The rail freight sector has also shown the benefits of competition. There has been a 50 per cent growth in freight traffic since privatisation, while the number of locomotives and wagons required has fallen. Meanwhile, freight staff productivity has risen by 10 per cent since the end of BR control, compared with a 35 per cent fall in the monopolistic passenger sector.

Last year’s collapse of the inadequate rail franchising system presents the Government with a huge opportunity to allow more competition on the passenger network, where at present draconian and outdated rules stop it getting off the ground. The West Coast Main Line between London Euston and Scotland has space for new competitive services and these are in fact being considered.

It is time to ignore the opposition that has resisted innovations in rail policy for far too long. Let’s hope ministers give Britain’s beleaguered rail travellers more choice, more routes and lower fares.

Tony Lodge is a research fellow at the Centre for Policy Studies and author of Rail’s Second Chance — Putting Competition Back on Track (CPS)

To view the article, visit The Times website (£). 

Watch our short animation of the benefits of on-rail open access competition:

Date Added: Monday 25th March 2013