Think-tank calls for more competition on rail routes

25 Mar 13
Ministers have been urged to introduce more direct competition between operators on railway lines after a report concluded this could lower fares and reduce government subsidies.

By Richard Johnstone | 25 March 2013

Ministers have been urged to introduce more direct competition between operators on railway lines after a report concluded this could lower fares and reduce government subsidies.

The Centre for Policy Studies today said the original plans for railway privatisation had anticipated competition on different routes across the UK.

However, this principle had been ‘betrayed’ as companies are instead awarded rail franchises that give them an effective monopoly on many lines. Transport operators compete to win the franchises rather than to run rival routes, in a process known as ‘off-rail’ competition. 

The Office of Rail Regulation and its predecessors had restricted competition to reduce the chance of a franchise operator losing revenue, the report said.

For example, operators that want to create a new service must be able to prove to the regulator that their income will not mainly come from passengers transferring from the existing route.

This ‘not primarily abstractive’ test is intended to ensure that franchise operators do not have their income cannibalised by competitors, which would then allow them to claim increased financial support from government.

Currently, only the East Coast mainline has ‘on-rail competition’, with two non-subsidised ‘open access’ operators – Grand Central and First Hull Trains – competing with the government-owned franchise holder, East Coast.

However, the CPS analysis found that between 2007 and 2012, average fares increased by only 11% on stations with competition, compared with 17% at stations without.

In addition, revenue increased by 57% where competition occurred compared with 48% for stations without competition. The East Coast mainline franchisee had also been able to increase its premium payments to government year on year.

Rail’s second chance: Putting competition back on track concluded that competition restrictions should be relaxed as ministers introduce reforms to franchises following the botched West Coast mainline award.

Among the alterations, the ‘not primarily abstractive’ test should be abolished to allow more operators into the market. In addition, a new Office of Rail Competition and Utilisation should encourage competition by ensuring that as many routes as possible are freed up to other operators.

Report author Tony Lodge, a member of the Conservative Party’s Transport Group, said the rules were stopping innovation that could benefit passengers.

‘Despite the clear success of some competition on the East Coast mainline there remain draconian Department for Transport blockages in place which restrict and prevent effective on-track competition from being delivered in the interests of the passenger, the railways, the regions and the economy.’

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