The CMA also believes that reducing the level of specification in some franchise agreements would allow franchisees to tailor their services to passenger demand better, and to be more responsive. This would also be important alongside any of the options that the CMA is considering recommending.
Fundamentally, the system of track access charges is due for reform if any of these options is going to work. The ORR’s ongoing work in this area will be crucial to the success of any changes made to the competition framework for the industry.
Similarly, the ORR’s review of Network Rail’s role as system operator will also be important. The introduction of downstream competition has arguably had a positive impact on the efficiency of network infrastructure in other industries, such as aviation and water in Scotland (although some of the evidence behind this is debatable). The ORR’s review will need to consider whether the same benefits may be available in relation to the operation of Network Rail, and if so, how those benefits might be realised.
Finally, smart ticketing has a significant role to play. The ability to gather data about the actual trains that passengers catch would allow revenue to be allocated more precisely between operators than the current estimations made under the ORCATS model. This would sharpen the incentives for competition if every passenger and every seat counted towards total revenue for TOCs and OAOs.
The challenge for the rail industry, government and the regulator is to come up with a system for now, and moving to 2023 and beyond, that includes the right balance between all these different aspects to generate the best outcome for rail customers and the taxpayer generally.
The CMA’s discussion document has highlighted the complexity of the provision of passenger rail services in Great Britain, and the number of different considerations that policy makers need to take into account and balance when designing policies for the sector, particularly in the run-up to the next round of franchising from 2023.
There are clearly a wide number of options. There is also the possibility that there is no ‘one size fits all’ solution - different options might be more appropriate in different parts of the country that have different economic and social conditions.
The challenge is to set a course for the next 20 years and beyond that will allow the nation to get the most from both the massive investment in rail that is currently under way and the ‘renaissance’ of the past 20 years. This will allow governments to continue to invest, and for franchisees and open access operators to be able to plan their businesses with the right degree of certainty.
Only in this way will the economic network benefits be delivered, avoiding the risk of a short-term scramble to offer low-priced competitive services that crowd out the important areas where improvements are really required in the long term, while still allowing for competition to play its undoubtedly useful part in driving progress and preventing monopoly abuses.
The key will be for policy makers to understand the issues in sufficient detail to select the right mix of competition and specification going forward, to balance competition ‘for’ the market and competition ‘in’ the market, and to ensure that there are no unintended practical consequences from making decisions based too heavily on economic theory and not sufficiently grounded in practical reality.
Read the peer reviews for this feature.
Download the graphs for this feature.
