This week’s announcement from Network Rail that it would be devolving its core business units has important implications for the future of UK railways. Crucially, two of its regionally to-be-devolved units – Scotland and Wessex – have been established to overlap with the franchise areas for FirstGroup’s ScotRail and Stagecoach’s South West Trains; this is no co-incidence.
Currently, only the pint-sized Isle of Wight railway is vertically integrated although moves are afoot to extend the process to the self-contained Merseyside network. Whilst the separation of track and train has had its supporters, notably the Treasury at privatisation in the 1990s, a series of fatal railway accidents and the financial collapse – necessary or otherwise - of Railtrack brought about a radical shift in priorities. Understandably, safety rapidly moved up the agenda so that Railtrack’s successor, Network Rail, was given a wide-ranging mandate to repair, to improve and to invest.
Network Rail’s net debt now exceeds £23 billion – and is still going northwards. Moreover, its operating cost base has soared and its bureaucracy has become more entrenched. Indeed, the Office of Rail Regulation concluded that, in 2008, Network Rail was between 34-40% less cost efficient than its top European infrastructure counterparts. Hence, new thinking should be welcomed. The long-term aim should be to part- integrate the railways – probably on piecemeal basis – but retaining a handful of companies – say between four and ten - for comparative purposes.
In doing so, competition should be established through the comparative cost mechanism – a process that has taken place in the water sector for years. Comparative competition also drove down costs sharply in the 12 Regional Electricity Companies that were privatised in the 1990 as they sought to outperform one another. It would be ironic, would it not, if the eventual UK railway network eventually resembled the pre-war set-up when four integrated companies ruled the roost?