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 within the market as some franchisees compete against each other on routes where franchises overlap, and also where a franchisee faces competition from services provided by a non-franchised passenger train operator which has been approved by the industry regulator the Office of Rail Regulation (ORR); so-called ‘open access operators’. There is some evidence that such competition within the market has yielded benefits for passengers and for the industry, but in the current industry framework the scale of in-market competition is relatively limited.
This policy project will examine whether the current industry framework can be adapted for the future. It will not be a commentary on how the current framework is applied at present, and has no bearing on, for example, the government’s current programme of franchise awards or the ORR’s assessments, within the current framework, of open access applications that are made to it.
In this policy project, the Competition and Markets Authority (CMA) will examine the desirability, and the feasibility, of expanding opportunities for in-market competition, with a view to securing greater value for money for passengers (and taxpayers) and to improving the passenger experience. This is in line with the CMA’s statutory duty to promote competition for the benefit of consumers. We will have regard to the desirability of maintaining a wide network of passenger rail services and routes which are important to the communities they serve, and receive significant public subsidy for them to be commercially viable. We will also take into account the need to maintain and attract investment in the industry, and the requirements to fund the rail network. The project will look at experience of competition ‘within’ the market in rail services in other countries, and in the rail freight sector in Great Britain.
Although there is no formal legal procedure for the project, the CMA would expect to engage with interested parties, including providers and potential providers of passenger rail services (whether as franchisees or as open access operators), passenger groups, industry experts, and government both at UK level and in the devolved nations affected. Engagement is likely to involve some ‘round table’ meetings. We would expect to produce a report setting out our interim findings in the summer of 2015, which will then be the subject of a public consultation.
The ORR welcomes this policy project, and recognises the potential benefits that competition can bring to passengers and the funders of rail services. The CMA, in undertaking this project, expects to work with the ORR, drawing on its sector expertise, in line with the pro-competition mission of the UK Competition Network, of which the CMA and ORR (alongside other sector regulators) are members. Round table meetings in the context of this policy project will be held jointly by the CMA and the ORR.