THE REFORMS OF BRITAINS RAILWAYS: TEN YEARS ON

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THE REFORMS OF BRITAINS RAILWAYSTEN YEARS ON

• John Preston
• Chair in Rail Transport and Director of
  Development of Rail Research. Inaugural Lecture.
• 16 October 2006.

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THE REFORMS OF BRITAINS RAILWAYS TEN YEARS ON

• Why Britain?
• Why reforms?
• Why 10 years?

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THE REFORMS OF BRITAINS RAILWAYS TEN YEARS
ONOutline

• Introduction
• Trends
• Issues
• 1. Fares 2. Off-track Competition 3.
  On-track
• Competition 4. Vertical Separation 5.
  Horizontal
• Separation 6. New Stations 7. RD/Innovation
• Conclusions

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SOME KEY DATES (I)

• 1992 New Opportunities White Paper
• 1993 Railways Act
• 1996 (February) First Franchises (SWT, GW)
• 1996 (May) Flotation of Railtrack
• 1997 (March) Completion of First Round of
  Franchises
• 2000 Transport Act. The Ten Year Plan for
  Transport. The creation of the Strategic Rail
  Authority (SRA).

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1993 Railways Act

• Horizontal Separation and Off track Competition
• 25 geographically based passenger TOCs
  administered by the
• Office of Passenger Rail Franchising (OPRAF). 7
  freight TOCs
• 6 acquired by EWS.
• Open Access Competition
• Competition moderated by the Office of the Rail
  Regulator
• (ORR) in three phases (to 1999, 1999 2002,
  2002-).
• 3. Vertical Separation
• Railtrack sold for 2.5b. ROSCOS sold for 1.8b.
• Some 80 ancillary business sold for 1.1b.

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SOME KEY DATES (II)

• 2000 (October) Hatfield
• 2001 (October) Railtrack into receivership
• 2002 Creation of Network Rail
• 2004 Future of Rail White Paper
• 2005 Railways Act
• 1992-96 Preparation
• 1996-00 Phase I
• 2000-05 Phase II
• 2005- Phase III

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Hatfield 17 October 2000
Photograph supplied by Professor Rod Smith
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The Privatised Structure 1996- 2005
Note Strategic Rail Authority replaces OPRAF
(2000) Network Rail replaces Railtrack (2002)
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National Railways 2005 -
Note DfT replaces SRA
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Trends Passenger Kms
1991/2 95/6 -7 1995/6 00/1 27 2000/1
05/6 13 Post 1995/6 44
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Counterfactual Passenger Growth
change F A F-A 1991/2 95/6
12 -7 19 1995/6 00/1 20 27
-7 2000/1 05/6 14 13 1 Post 1995/6
37 44 -7 FForecast AActual
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Trends Goods Moved
1991/2 95/6 -13 1995/6 00/1 37 2000/1
05/6 22 Post 1995/6 67
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Counterfactual Freight Growth
change F A F-A 1991/2 95/6
11 -13 24 1995/6 00/1 17 37
-20 2000/1 05/6 12 22 -10 Post 1995/6
31 67 -36 FForecast AActual
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Trends Fares
1991/2 95/6 9 1995/6 00/1 0 2000/1
05/6 2 Post 1995/6 2
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Freight Rates
Source Drew, 2006
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Trends Train Kms
1991/2 95/6 0 1995/6 00/1
21 2000/1 05/6 8 Post 1995/6
31
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Trends Punctuality
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Trends Government Support
1991/2 95/6 84 1995/6 00/1
-52 2000/1 05/6 256 Post 1995/6
70
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Trends Investment
1991/2 95/6 N/A 1995/6 00/1 138 2000/1
05/6 10 Post 1995/6 163
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Issue (1) Fares

• Subject of a recent Transport Select Committee
  (TSC) Inquiry
• Only 45 satisfied with rails VfM (compared with
  80 overall satisfaction) (Source NPS)
• Around half fares regulated but Saver under
  threat

The TSC doesnt think that rail fares are fair.
The DfT (and ATOC) disagree.
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Issue (1) Fares

• Absolute Figures Standard Open London
  Manchester 202 (First Class 311).
• Time-series comparisons London Manchester fare
  up over 80 in real terms 1995-2005.
• Intermodal comparisons since 1975 cost of
  operating a car down 11, rail fares up 70
• International comparisons RMT claim comparable
  fare in Europe half those in UK
• Complexity National Fares Manual 70 fare types,
  760 validity conditions.
• Anomalies Penzance Bham 97.80 (VT),
  Penzance-Chham-Bham (FGW/ATW) 74.90!
• Analysis of elasticities are elasticities of
  around 1 suggestive of profit maximising
  monopolists?

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Fares - Some Modelling Results
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Issue (2) Franchising

• Subject of a current TSC Inquiry
• High rate of failure in 1st round (13 out of 25)
• TOC cost increases of 48 1999/00- 2003/4
  coincides with renegotiation
• Introduction of cap and collar regime
• Overzealous bids in the current round

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Issue (3) On Track Competition

• Modelling suggest this will be limited where
  track access costs high
• Where such competition occurs it will tend to
  result in too many trains at too high fares
• But there may be benefits from competition of
  product diversity and cost pressures
• Grand Central will provide an interesting test
  case.

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Issue (4) Vertical Separation

• Practical and theoretical reasons for vertical
  integration
• Balance of econometric evidence favours vertical
  integration
• But open access difficult without vertical
  separation
• Vertical separation can work in public ownership
  and/or with virtual integration
• Scope for controlled experiments?

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Issue (5) Horizontal Integration

• Econometric work suggest BR was too big but
  should be split into 4/5 companies rather than
  30.
• Practical benefits of separation of passenger and
  freight operation.
• Passenger market 4 groupings control 81 of the
  market.
• Freight market 1 company controls 69, 2
  companies control 95 of market.
• Franchise remapping from 25 to 19 franchises

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Issue (6) New Stations
EPSRC Studentship Forecasting the Use of New
Stations and Services using GIS
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Issue (7) Innovation/RD

• DfT estimates rail research spending 0.8 of rail
  revenues (54 m).
• EU estimates rail RD 2 of turnover (automotive
  4, aerospace 11).
• Rail Research UK 7m between 2003-2010.
• TRG involved in 3 out of the first 12 projects
  (SR2 involved in 6 out of 12)

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Project B1 Decision Support System for Dynamic
Re-Scheduling of Trains Under Disturbance
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Project C2 Delivery of User Needs
Virgin Fast Ticket Machines GNER WiFi Services
Both Channel Migration Manual Distribution 15
of revenue, Automatic distribution 5. Hence
interest in Smart Cards, E-tickets, M-tickets.
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Project C3 Future role of rail in integrated
transport strategies
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Towards an Assessment

• 1. Harris and Godward (1997) calculated a net
  disbenefit of
• 9,812 m due to high transitional costs and loss
  of network
• benefits. Reflects the preparation stage?
• 2. Pollitt and Smith (2001) found a net benefit
  of 1,100 m
• But this analysis was undertaken before Hatfield.
  Reflects
• Phase 1?
• 3. ESRC CASE Studentship (with Oxera) Evaluating
  the Long
• Term Impacts of Transport Policy The Case of
  Rail
• Privatisation. To assess all phases?

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Some Conclusions

• Rail reforms have had mixed results.
• But individuals as important as structures.
• Various commentators argue for re-nationalisation,
  more competition and more regulation.
• Key issues cost reductions, capacity
  enhancements and further tweaks to the
  franchising system
• Evolution not revolution.

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