Tony Lodge: Getting trains back on track

“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 this quote from the then transport secretary, John MacGregor, formed the backbone of Conservative 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 MacGregor’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, especially for Scottish rail passengers.

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 benefited 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 past 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 English stretches of the East Coast Main Line (ECML), private non-subsidised “open access” rail operators such as Grand Central and Hull Trains compete with the line’s franchise holder, East Coast, 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. 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 routes to Edinburgh. 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.

So what about Scottish rail travellers? New research shows that Edinburgh, where no on-rail competition exists to serve London, saw fares soar between 2007 and 2011. While many claim that the real competition to reach London from Scotland is between rail and air, what about more rail competition between Edinburgh Waverley and London King’s Cross (and vice versa) to provide more passenger choice and help keep fares competitive?

East Coast has the “railopoly” to provide all 22 southbound “fast” Waverley to London services on the ECML and has drawn more people to the railway in recent years, from air, as rail services have become faster due to timetable changes. But there remains no competitive pressure on London-bound rail services out of Edinburgh Waverley (or vice versa) to help keep fares down and provide customer choice. This should be a priority as the government moves to re-let the franchise for this railway in 2015, as announced yesterday at Westminster.

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 statistics show that increased competition brings more passengers to the railway and, therefore, 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 in northern England like Northallerton, York, Wakefield and Doncaster for London bound passengers.

The most recent official passenger satisfaction survey shows open access operators Grand Central and Hull Trains registering 96 per cent 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. They complement the services provided by East Coast, operating services it has chosen not to and which the Department for Transport has chosen not to fund or specify.

These operators have also taken the decision to serve new locations, such as Sunderland and Halifax, at their own risk and initiative, which the franchised operators have refused to do. This has led to private sector investment at previously unmanned and derelict stations, such as at Eaglescliffe in Co Durham and Wakefield Kirkgate; these had effectively been abandoned for years and had become grim and lonely places for passengers to wait for trains.

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.

The coalition has an opportunity to deliver a better railway out of the embers of last year’s franchise chaos. It can now put right what was first intended 20 years ago and deliver more rail competition, lower fares and choice for Scottish passengers.

• Tony Lodge is a Research Fellow at the Centre for Policy Studies and author of Rail’s Second Chance – putting competition back on track, published by the CPS