Down The Wrong Track On Rail

19 Jul 2004

A version of this article by Tom Miers appeared in The Scotsman on 19th July

In any market, regulation is a poor substitute for competition. Competition raises standards by forcing suppliers to respond to consumer preference. It encourages innovation, reduces costs and improves quality. Regulation attempts to mimic these processes by government fiat and can never be as effective. It is inflexible and discourages innovation. Providers strive to operate within the rules instead of responding to customers.

These are principles which the Labour government are learning well and applying in areas such as health and education (in England at least). But when it comes to trains, the government continues to roll in exactly the opposite direction. Alistair Darling’s latest plan for the railways was announced on Thursday. It takes more power for the government and Scottish Executive by giving it responsibility for ‘setting strategy’. It allows less scope for innovation and flexibility, by controlling Network Rail more closely. And it removes the prospect of competition even further, by limiting the number of train operators.

So what should he have done? Policy on any market should always try to minimise regulation and maximise competition. How can these principles best be applied to the railway industry?

The current structure of the rail market excludes competition in too many areas. Rightly, the track operator was split from the Train Operating Companies (TOCs), so that the likes of Virgin and GNER can compete for the franchise to run trains on a particular route. But once they win the franchise, they still run a monopoly on it. There is some competition between different routes, and also between different modes of travel. So you can choose to travel from Glasgow to London by GNER on the east coast, by Virgin on the west, or by driving or flying. But the benefits of competition only really kick in when you have different providers offering the same basic product.

So why not allow the track operator to offer slots to a variety of TOCs on the same route? There could be four or five TOCs running trains on the same line between Edinburgh and Glasgow, for example. They would have to compete fiercely with each other on price, comfort, speed and punctuality. We could chose our favoured operator according to our own priorities. Businessmen might travel pricey ClassyRail on the hour, which offered free drinks and seat-back computers. Students would go EasyRail, cheap and cheerful, at quarter past.

After all, this is how the air travel market works. One company runs the airport. It offers slots to a variety of competing plane operators. They develop mechanisms with each other and the airport to deal with matters such as delays, compensation, terminal access and time-tabling. As a result, air travel has never been better value and more popular. Different providers offer different packages which suit the many different types of traveller. The UK rail industry has far too many rules preventing this kind of market development. The regulations on franchising between TOCs and the track operator are far too proscriptive.

Like utilities such as electricity or gas, rail does have a problem in that it is hard to provide competition to the track operator itself. Short of building duplicate or triplicate tracks all over the country, the lines themselves must remain monopolies. It may be that some regulatory price controls remain necessary here. But the government should still strive to maximise competition where possible. So where there are two or more routes, such as between Edinburgh and Glasgow, different track operators must own them. Even where only a single line exists, a multiplicity of track operators would at least offer competition by example. And here is where franchising might have a valid role. The government currently effectively offers a franchise to operate the whole UK track – which it removed from Railtrack a few years ago. It could apply this principle to single tracks where direct competition is impossible. Finally, market entry should be made easier by reforming planning laws and allowing new railway builders to capture some of the value they create for surrounding land owners.

Commentators often blame the railways’ problems on the fragmented nature of the industry. But air and other sectors demonstrate that the technical complications of working with a multiplicity of operators can easily be overcome. If we allow private companies to develop contracts which penalise failure and reward safety and efficiency, they will find ways of doing so.

Indeed, most indicators show that, even under the current flawed structure, the industry has not performed badly compared to its nationalised predecessor.
The urge is strong to renationalise, simplify, command and control. But in doing so, the Transport Secretary risks making matters even worse. The Scottish Executive now has more power over the network here. They should use it to reverse that trend.