In January 2015 The Competition and Markets Authority (CMA) launched a policy project to “consider the role of competition in passenger rail services, and the extent to which the broad success of passenger rail services since the mid-1990s might be enhanced – to the benefit of passengers, the industry and the country as a whole – by introducing a greater degree of competition”.
This project was concluded with the publication on 8 March 2016 of a policy document setting out the conclusions of its review of competition in passenger rail services in Great Britain. The policy document recommends an overhaul of the existing franchise system and suggests that the most immediate benefits would be gained by increasing the number of ‘open access’ services or through the splitting up of franchises. The policy document also considers the more radical long-term option of replacing the existing franchise system with an arrangement of multiple licensed operators on main intercity routes.
What does the policy document say?
The policy document references the success of the ‘open-access’ arrangements on the East Coast main line, competition in certain European rail markets and also in other transport markets such as the UK rail freight, air transport and airport sectors to support its findings. It notes, however, that out of a total of 19 applications which were made for open access operation to the Office of Rail and Road between 2000 and 2014 only four were actually approved, and concludes therefore that reform is necessary.
The CMA’s evidence suggests that an increase in on-rail competition could result in a number of benefits for passengers and for UK Treasury such as lower fares; a growth in passenger numbers; greater incentives for operators to improve service quality; greater incentives to introduce and roll out innovation; greater operating efficiency by train operators; and the more effective use of network capacity.
The CMA states that the potential for competition exists on the three main intercity routes: the East and West Coast Main Lines and the Great Western route.
The policy document recognises that increased competition could result in a fall in premiums paid to Government under the provisions of franchise agreements but proposes that competing open access operators would be able to cover this shortfall by making more of a contribution than at present in the form of track access charges and through a Public Service Obligation levy. The CMA say this could also be used to support vital but unprofitable services, such as those in rural areas.
The CMA conclude that the greatest level of “on-rail competition” would come from a move to a licensing system that would allow several companies to offer competing passenger services on the same lines.
The policy document suggests that due to the current timetable of franchise awards the Inter-City East Coast franchise, which is scheduled to start in 2023, would be the best place to start to initially implement the proposals set out in the policy document.
What is the effect of the policy document?
The policy document states that it is “intended as a contribution to public policy debate by an independent competition authority that is not a participant in the rail industry.” It has been sent to the Secretary of State for Transport who has overall responsibility for the policies of the Department for Transport including in relation to the delivery of relevant rail passenger services. Any change of policy will be decided by him.