Currently, the benefits of competition in passenger rail services are secured primarily by the competitive award of franchises. This franchising system – in essence, competition ‘for’ the market – was recently reformed and the process of competitive bidding for these franchises appears to be working well. There is, in addition, a degree of competition ‘in’ the market – so called ‘on-rail’ competition – where franchises overlap or face competition from approved ‘open access operators’.
Since announcing its work on this in January 2015, the Competition and Markets Authority (CMA) has engaged in discussion with a wide range of stakeholders. It has liaised closely with the rail regulator, the Office of Rail and Road (ORR), and, jointly with the ORR, hosted a round table meeting with franchisees and a separate round table meeting with open access operators and applicants.
It has also individually met representatives of open access operators, franchisees, Network Rail, the rail freight industry, Which?, Transport Focus as well as academics and other experts specialising in the sector. It has also engaged extensively with the Department for Transport, Transport Scotland, the Department for Business, Innovation & Skills, HM Treasury and with international rail regulators.
It has also considered evidence from existing on-rail competition in the Great Britain passenger rail industry, the experience of European countries where there is competition between passenger rail operators, and other transport markets such as the Great Britain rail freight sector, air transport and airports.
Overall, the evidence suggests that a material increase in on-rail competition would result in benefits for passengers and taxpayers, including:
- downward pressure on fares
- greater incentives to enhance service quality and to innovate
- operational efficiencies at the train operator level
- more effective use of network capacity
- cost savings in network operation
The CMA is also conscious of the need to protect funding for investment in the railways, including in current and future network infrastructure investment, and support for socially valuable services that are not commercially profitable. Some of this funding is derived from premiums paid by franchisees. The CMA’s proposals envisage that the shortfall in these revenues as a result of increased on-rail competition should be addressed (fully – or at least to a significant degree) by new entrants making a greater contribution to the costs of the network, such as through:
- payment of fixed track access charges (currently open access operators do not pay these charges)
- contributions to socially valuable services that are not commercially profitable
The CMA invites responses on 4 options for possible reform:
- Option 1 – retaining the existing market structure, but with significantly increased open access operations
- Option 2 – two franchisees for each franchise
- Option 3 – more overlapping franchises
- Option 4 – licensing multiple operators, subject to conditions (including public service obligations)
The CMA considers that these options are most likely to deliver benefits on the 3 main intercity routes in Great Britain – namely the East and West Coast main lines and the Great Western route linking London with South West England and South Wales.
This is a project for the long term. The CMA would not envisage these proposals being implemented until 2023 at the earliest, so as to protect the rights of current franchisees and current and imminent franchise tender processes. By that time, there is also a prospect of more capacity becoming available as a result of various factors, including new signalling technology. That time frame would allow policymakers, if they are minded to explore any of these options, sufficient scope to plan implementation.
The CMA invites interested parties to respond to the consultation in writing to email@example.com by no later than Friday 16 October 2015. The CMA will undertake further work in light of responses to the consultation before deciding which option to recommend in its final report.
Notes for editors
- The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law.
- The CMA’s statutory duty is to promote competition for the benefit of consumers. In addition, when the CMA was established, the government announced, in a ‘strategic steer’ to the CMA, that it saw the CMA ‘playing a key role in challenging government where government is creating barriers to competition’.
- See the project page for more information. Details of how to respond to the consultation are on the consultation page.
- Enquiries should be directed to Rory Taylor (firstname.lastname@example.org,020 3738 6798).
- For information on the CMA see our homepage, or follow us on Twitter @CMAgovuk, Flickr and LinkedIn. Sign up to our email alerts to receive updates on CMA’s markets work.