Neil O'Brien of Policy Exchange: How to fix Britain’s railways

Neil O'Brien is Director of Policy Exchange

Why on earth are the railways so expensive?  The cost of tickets is shooting up. And the taxpayer subsidy is huge too – Network rail alone gets a grant of nearly 4 billion from the government.

These huge costs are one reason why lots of people say that railway privatisation was a failure.  Actually privatisation would be an interesting idea - if we actually tried it.

Think about it.  The track is run by a huge government-created monopoly.  The train companies are notionally private, but the Department for Transport (DfT) tells them in mind-boggling detail what timetable to run, what trains to use, and roughly half the time, what fares to charge too.   Even the smallest details are controlled by the state.  For example, the Government required South West Trains  to relocate a vending machine at Wimbledon station.  The old British rail logo may have been painted over. But in practice, the state is still firmly in charge of our railways.

Sir Roy McNulty’s review of UK rail, set to be published this week, is expected to say that costs need to be cut by 35 per cent to match European counterparts.

But if we are really going to get the costs of the railways down, we need to tackle the underlying reasons why the railways are so expensive.

In practice, micro-management by the DfT means wasteful subsidies for rail travel on routes that nobody travels on.  For example, the author of a recent Policy Exchange report on rail recalls catching the train from Worcester to Oxford shortly before midnight on New Year’s Eve. The  train’s guard was surprised to see an actual passenger, because this particular train was usually empty all  the way.

Unfortunately, there are many such loss-making trains running around the country, all pushing up the price of your train ticket.  To get some idea of the scale of the problem, 50% of Britain’s stations handle just 3% of all passengers.  We don’t necessarily have to shut down whole lines – but there is no point running hopelessly empty trains at weird times.

Our report – “What to do about trains in Britain” – suggests two main ways to make the railways cheaper.

• Firstly, we should move away from the rigid franchise system, under which the department over-specifies how the train companies should run.  Under a more flexible “open access” system, companies would have greater freedom to respond to changes in demand – like normal businesses do.
• Secondly, break up the Network Rail monopoly into eight smaller companies based on geography and technology. This would allow regulators to make proper comparisons between different operators, rewarding the efficient and penalising the inefficient – just as happens for almost all other regulated utility companies.  More locally accountable companies could improve the integration between trains and track too and thus ensuring the whole system is working together in a more cost effective manner.

At present the government is (quite rightly) shifting the cost of the railways away from public subsidy, and on to train tickets.  That’s the right thing to do, but it will make the high costs of the railways much more visible, and will cause lots of gnashing of teeth among commuters.

The coalition has led to us having an unusually sharp, and high-powered Transport Minister in Philip Hammond.  But he has inherited a mess which has been going on for decades.  Instead of tinkering around the edges, he should grasp the nettle.  The present system is, literally, no way to run a railway.