Market prices are the key to railway reform


The McNulty Report on the railways is to be broadly welcomed. In particular, a greater emphasis on ticket prices that are market-related is crucial: this should be the starting point for any reform. Hence, the proposal for far more shoulder-type fares – those applicable between peak and off-peak periods – is eminently sensible. The aim should be to manage demand, via the pricing mechanism, so that trains operate at high capacity throughout the day. Both Ryanair and EasyJet have load factors of around 85% compared with the 50% figure applicable on the London-Birmingham railway line.

And why cannot more long-distance trains operate during the night, like airlines, offering ultra cheap fares which would free up more capacity at the most popular travelling times? Surely, many students would travel during the night time if the fares were extremely low. Compared to many overseas railways, which are heavily subsidised, UK railway tickets are undoubtedly expensive. In part, this is due to the excessive costs incurred by Network Rail – a company in desperate need of restructuring – that are passed onto rail franchise holders.

Every effort, therefore, should be made to tackle Network Rail’s bloated cost base and its soaring capital expenditure. Importantly, the adoption of these market-orientated policies would further weaken the poor financial case for HS2, which was highly unconvincing even before the DfT’s recent sharp (8%+) cutback to its previous aggressive revenue growth assumptions.

Indeed, the DfT’s economic case for HS2 seems now to rest heavily on the nebulous "non-monetised benefits, which underpin the strategic case for high-speed rail". Overall, in reforming the railways, the priority should be to let the market set rail ticket prices, with some back-up regulatory protection to prevent price-gouging. Getting that right - and also addressing Network Rail’s excessive costs - would give the UK railway a sensible financial base on which to grow.