Rail growth through competition: the success of the UK model

This speech was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Discusses the benefits of competition in the rail industry plus future plans for development and enhancement.

Thanks for that introduction.

It’s a pleasure to join you today (12 November 2013).

This is an industry with an increasingly international – indeed global – outlook.

So it’s great to welcome delegates and speakers from across Europe to London for this inaugural European Rail Congress.

It is fitting that the subject of my speech this afternoon is “rail growth through competition.”

Because the UK railway was privatised almost exactly 20 years ago.

In fact the Railways Act came into effect on November 5 1993, breaking up the state-run British Rail, and transforming the face of our railway for ever.

Nobody back then could have predicted the extraordinary changes that have taken place over the subsequent 2 decades.

So today I want to reflect on the UK’s experience of privatisation.

On the many benefits that it’s brought to us as a country.

But I also want to talk about the challenges we’ve faced.

And the lessons we’ve learnt along the way.

Let me start by taking you back to the late 1980s.

I was a junior transport minister in Margaret Thatcher’s last government.

And I remember what our railway was like under a single, publicly-owned operator.

Rail was an industry in decline.

In fact it had been declining since the motorways were built in the 1950s and ‘60s.

The infrastructure was in need of urgent attention.

Reliability was poor.

And like other monolithic state institutions, British Rail had a culture that hampered rather than encouraged innovation.

It’s true that public subsidy under British Rail was comparatively low, but that reflected underinvestment in tracks and trains, rather than an efficient and sustainable business model.

We knew things could be better.

Because we’d already successfully sold off other utilities, like British Aerospace, British Gas, and Rolls-Royce.

Introducing competition.

Improving performance.

Widening share-holding.

And reducing the burden on the taxpayer.

It was against this background that we privatised the railway.

But expectations weren’t high.

Rail travel had dwindled to such an extent that most people thought the private train operators would manage a decline in both passenger and freight traffic.

How wrong they were.

Privatisation sparked a railway renaissance.

Since 1993, passenger journeys have doubled in the UK to a level not seen since the 1920s.

On a network roughly the same size as 15 years ago, today our railway is running 4,000 more services a day.

And rail freight has grown by 60%.

Revenue is up more than £3 billion since privatisation, almost all of it due to higher passenger numbers rather than fare rises

Safety levels are at an all time high.

Punctuality is at near record levels.

And passenger satisfaction is up by 10% over the past decade.

None of this would have happened without privatisation.

Without competition.

Without franchises investing in better services.

Without an industry structure promoting accountability and incentivising growth.

Yet the job is far from over.

We still face some considerable challenges - challenges that must be met if we’re to build on the achievements of the past 20 years.

The first is: how to meet rising demand.

Because we didn’t just inherit a record public deficit in 2010 - we also inherited an infrastructure deficit.

Our main intercity network was built to serve a Victorian economy, not a 21st century one.

Historic underinvestment left the railway ill-prepared to meet soaring demand - which was triggered not just by privatisation, but also by 15 years of subsequent economic growth.

By 2010, the railway was in need of urgent investment, both in the short term, and in the longer term, to achieve a step change in capacity.

We therefore embarked on an unprecedented rail modernisation programme.

Between 2014 and 2019, infrastructure operator Network Rail will spend over £38 billion running and expanding our railway.

Improvements include an extra 140,000 seats on peak services by the end of the decade.

A major electrification programme.

A multi-billion pound deal to replace intercity rolling stock.

And a new high capacity railway for London and the south east called Crossrail.

But even this ambitious package of improvements will not provide us with the space we need to grow.

Major routes like the West Coast line will be overwhelmed by 2025 if we fail to act.

So we are currently taking a Bill through Parliament to deliver HS2 - a new high speed rail network for the UK.

With construction due to start in 2017, HS2 will connect London with Birmingham, Manchester and Leeds.

It will boost capacity by almost 20,000 seats an hour.

And it will slash journey times between 8 of our 10 biggest cities.

HS2 will free up space on the existing network for more commuter services and freight.

It will give customers more choice about how to travel.

And it will make our railway more competitive.

And that brings me onto the second major challenge.

Getting down costs.

By 2010, our railway was the most expensive in Europe.

At a time when we faced the largest public deficit in UK history, and when we made a commitment to tackle waste and profligacy across government, reducing the cost of the railway became an urgent priority.

We’ve made good progress.

The rail subsidy for England and Wales fell from £4 billion in 2009 to10 to £3.2 billion in 2011 to 12.

We’ve tasked the industry to make savings of £3.5 billion a year.

And we’ve put a lid on expensive fare rises.

This is just the start.

There is still a long way to go before we hit our cost saving targets, and before we can achieve our goal of ending above-inflation fare increases.

Turning round the performance of such a huge industry is a big job.

But it’s one we are determined to finish.

The final big challenge is modernising the railway for the customer.

Fares and ticketing, for example, is still complex and impenetrable.

So we’ve recently completed a major review of the fares and ticketing system.

By making it simpler and more user-friendly, more people will travel by rail, and they’ll also have a much better experience.

So we’re trialling a flexible ticketing system which will meet the needs of individual travellers.

Ultimately, we would like to see passengers use smartcards for use across the network, and on different types of transport.

Operators are investing in better stations, better trains and better facilities.

But to improve the railway for passengers, we’re also encouraging them to collaborate more closely with Network Rail.

One operator, South West Trains, has joined with Network Rail to create a single management team responsible for both trains and track.

This kind of joined-up working isn’t bad for competition.

Neither is it an end to the market.

It’s an example of how to make things work.

And how to respond to the needs of passengers.

There are enormous gains to be made from aligning objectives, so that different parts of the industry do what they do best for the benefit of passengers - whether it’s selling tickets, running signals or fixing track.

So 20 years on, what have we learnt from privatisation?

Well, we’ve learnt that it can transform the fortunes of the railway.

Turning decline into growth.

Boosting revenue, and passenger satisfaction.

But we’ve also learnt that growth must be managed in a sustainable and responsible way.

We failed as a country to plan for growth.

To look beyond our immediate needs and build for the future.

And to keep a close control of costs.

Now we’re sorting out these problems, our railway is in a better position than it has been for decades.

Franchising might still be criticised by those who want to turn backwards.

Who haven’t learnt any lessons from the past.

But now we’ve got a structure that’s working.

Encouraging innovation through competition.

Allowing the private sector to do what it does best.

But also collaborating for the benefit of the customer.

And building the capacity we need to grow.

Rail privatisation has made Britain a better country.

But if we heed the lessons I’ve talked about today, then we can look forward to an even brighter future.

Thank you.