27 February 2013

ERA_BlogImage_LouiseEllmanThe UK Transport Select Committee is asking how effective EU policy on separating rail operators and infrastructure providers has been and whether promotion of competition has come at the expense of social benefits.

The debate about the future of the railway has been dominated recently by Sir Roy McNulty’s study of the value for money in the industry. He concluded that there was a 40% efficiency gap between the UK railway and four European comparators – France, the Netherlands, Sweden and Switzerland. He identified scope for both Network Rail and train operating companies to make savings, suggesting that a 30% reduction in cost per passenger kilometre could be achieved by 2018/19.

Ministers accepted this recommendation, describing the railway as “unacceptably inefficient”. For Network Rail, the additional savings will supplement an efficiency programme which was already in place, supervised by the Office for Rail Regulation. In addition, train operating and rolling stock companies must find over £1bn in efficiencies.

The Transport Committee’s recent Rail 2020 enquiry heard ATOC and commentators such as Rail editor Nigel Harris question whether it would be possible to reduce costs by 30% in such a short timescale.  Christian Wolmar asked whether it was sensible to make comparisons with other European countries, describing McNulty’s research as “a bit trite”.  The committee found the target “very challenging”. While supporting McNulty’s general approach, we warned about the dangers of lowering safety standards and the importance of “alliances” working in the public’s interest.

In looking at the scope to achieve efficiencies, the committee decided to visit Germany, the Netherlands and Switzerland. We met infrastructure providers, train operators, franchising authorities and others with an interest in rail. We saw different models for organising railways which did not necessarily accord with the McNulty prescription.

The differences make comparisons with the UK difficult to sustain.  Rail [in Europe] is organised with a clear sense of social and economic purpose as part of integrated public transport, with strong public sector involvement and devolution to elected regional authorities to complement the national network.  For example, in the Netherlands there is a strong focus on journeys from “the living room to work”, with schemes to encourage bicycle hire from stations. In Germany, rail is at the heart of an integrated transport policy to reverse population decline in Berlin and to achieve modal shift towards more sustainable journeys in Munich. Links between operators and infrastructure providers are often closer, particularly in Switzerland where the infrastructure provider is also the main operator of trains.

The situation is not, however, problem-free.  In the Netherlands there are tensions between the main operator, state-owned NS, and Prorail, the equivalent body to Network Rail.  In Germany, there is concern about the lack of competition for regional franchises and in Switzerland there is disquiet about the rising level of public subsidy.

One of the issues we intend to pursue is whether EU policy to separate infrastructure firms and operators, in the interests of promoting competition, is sensible and effective. In Germany and France, which we visited in 2011, a minimal approach has been taken to complying with EU legislation. Separating the infrastructure and operating firms in the Netherlands is now widely seen as having been a mistake.


Louise Ellman MP is Chair of UK House of Commons Transport Select Committee and MP for the UK Labour Party.