More Government meddling in the railways

Last week was a mixed week for competition in the railway industry. On Thursday 12 May the government’s Office of Rail and Road (ORR) made its decision on applications from three different operators for new services on the East Coast Main Line (ECML). Shortly after that, the Competition and Markets Authority warned new Northern rail franchise operator Arriva that they were investigating 44 cases where the franchise duplicates the company’s existing bus routes. The two stories combine to paint an interesting picture of struggling competition in one of Britain’s most heavily over-regulated industries.

Britain’s franchised rail system is often referred to as being privatised, but little could be further from the truth. Most services are set out in government franchise specifications, with operators winning contracts with obligations to provide services over a network of routes at given frequencies. The infrastructure they run on is owned by the virtually public Network Rail, whose permission is required in order for operators to launch any new services beyond those set out in the original specification. 

However there is another class of operator alongside the specified franchises. Open access operators, as they are known, propose completely new services outside the franchised system. Although countless proposals have been made, only two such operators currently run long-distance services on the British rail network: First Hull Trains and Grand Central. 

Both of these provide services from London along the ECML to new destinations away from those served by the East Coast franchise. Stops on the main line are limited to a few major interchange points, due to the fact that open access applications are judged in part by how much revenue they abstract from the franchised operators. On a network privatised to introduce the benefits of competition, applications have been repeatedly refused precisely because they would cause competition.

Latterly the ECML has been subject to a number of new applications. First Group and Grand Central owners Alliance Rail both wanted to introduce new London-Edinburgh services in competition with incumbent franchisee Virgin Trains, with Alliance also applying for new routes to Cleethorpes and West Yorkshire. Virgin had a host of new services they sought to add to those required by the franchise, including extra Edinburgh trains and new routes to Harrogate and Lincoln. 

The ORR elected to approve all of the proposals made by Virgin, while dismissing Alliance Rail’s extensive plans on the grounds of value for money and revenue abstraction. First Group’s limited proposal of five trains a day from London to Edinburgh was approved, but not without concern over its effect on the Virgin franchise. 

The decisions made here seem curious and inconsistent. While Virgin’s new services to Lincoln and Harrogate connect those cities to London and the south, Alliance’s similar services to West Yorkshire and Cleethorpes are rejected for revenue abstraction and the cost of providing new infrastructure for tilting trains, despite the clear benefits brought to these communities. 

Meanwhile Virgin’s extra Edinburgh services seem to deliver little in comparison to Alliance’s proposal, which would have cut the journey time between the two capitals. First’s approved proposal creates a kind of budget train, a single-class low-fare alternative more likely to attract passengers from coaches and airlines than from the competing rail service.

Competition between different modes of transport is always going to exist in any system, and the unrelated decision by the Competition and Markets Authority on the same day to investigate monopolisation of routes between Arriva buses and the new Arriva Rail Northern franchise is even more irregular. 

Rail franchises and buses have been run by the same operator on the same corridors in countless cases before, such as the entire section of the Midland Main Line from Luton to Leicester, without drawing any attention from the CMA. Furthermore, these concerns should have been brought up during the awarding of the franchise, not after its commencement.

Both of these announcements highlight how the rail franchising system is a disjointed mess of conflicting regulation, and the benefits envisioned in the 1992 privatisation plan have been all but lost under overpowering government control and intervention. 

With a return to nationalisation clearly offering no real prospect of change in what is already a heavily regulated industry, it seems the better option would be to move towards a deregulated approach, with open access services coming first. Operators could compete on the busy corridors and respond to passenger demand, leaving government, or preferably local authorities, to contract only those essential services left unprovided. Only then would true competition be possible. Only then would the needs of the passenger come before the needs of the state.