Williams (p)review - part 2
What’s the Italian for “competition is working”?
Yesterday we looked at why the Williams Review is needed.
Today we look at some ideas that should be in it.
I tried yesterday to make the point that fragmentation wasn’t necessarily the root cause; the issue was incentives.
It was important to highlight this as a belief that fragmentation is the key problem rules out a reliance on competition as a (partial) solution, and this would be a shame.
Competition works
My career journey in transport is relatively unusual and gives me a unique perspective on this.
I worked for National Express during the period Megabus launched, then Chiltern Railways when we upgraded the Birmingham line and built a new route to Oxford and, most recently, Snap, where we’ve competed with the established coach networks.
In every single case, competition has resulted in lower prices and better quality.
My report from the front line is that competition is real and it can work.
Where will competition work?
Competition needs markets where consumers have a genuine choice between realistic options. It would not make sense to privatise the tube, as there is no viable alternative. Nor the commuter routes into major cities. Nor rural routes that require subsidy.
But the longer distance intercity corridors already have many of the characteristics of competition. If you wish to travel between Bristol and London, you can already choose between your own car, Snap, National Express, Megabus, Flixbus, GWR and South Western Railway. All of the coach options are commercial but the rail competition is largely fluke; driven by the fact that, unusually, two different routes to London survived the Beeching era.
The experience of other countries with competitive intercity rail markets is that it results in lower fares. Italy has seen a 41% reduction in fares on routes with competition from Italo, an open access operator. This experience has been repeated in other markets with competition:
Italy, however, looks more like the East Coast Mainline than it does the fashion industry. Most trains are run by the state-sanctioned operator with chippy competitors nibbling their heels. But what if the model was the aviation industry, in which there is no state-sanctioned operator and, instead, the whole intercity market was operated by private companies vying to delight customers?
On the intercity railways, a railways agency could simply auction paths to the highest bidder. Unlike franchises (which are tightly prescribed), these paths would not come with specific obligations, as the objective is for bidders to come up with their own ideas to delight customers. However, the agency could also ‘buy’ stops at intermediate stations. So if you want to bid a high price for a non-stop train from Manchester to London, you can. But, equally, you can stop at Nuneaton for a fee.
If you end up with some paths going to the Ryanair of rail and others going to a premium provider, that is fine. After all, the vast majority of passengers book advance tickets anyway, so it is irrelevant that the previous train or next train might run by a different provider, as you’re already committed to one train anyway. Multi-operator tickets would continue to be available at a premium.
If the agency has any paths left at the end, they can either pay to have them run: or not bother. Being honest, we probably don’t need a train between Manchester and London every twenty minutes every day, so if the feedback from the auction is that middle-of-the-day trains on a Tuesday don’t need to run, then don’t bother running them.
The other thing this could do is enable intercity operators to also bid for paths on branch lines. Many branch lines have lost their original purpose. They were ‘branches’ - designed to feed passengers (and goods) into the trunk. But branch lines have become disconnected from the trunk, to the extend that you will now frequently see branch line trains despatched shortly before the mainline train arrives, with passengers abandoned to sit in the cold. If the operators of the mainline railways were also to operate branch lines, there would be an incentive to reconnect.
Now, I can already hear many of my former colleagues pointing out that multiple operators on the same track will create inefficiency in the timetable. And they are spot-on. After all, a single type of rolling stock and a timetable planner focused on the task can create a timetable that maximises headway while minimising journey times. These are prizes worth having. But are these compelling enough to set against the benefits for the consumer from competition?
When I was at Chiltern Railways, a passenger from Birmingham to London could choose any one of eight trains per hour with a price starting at £20 return. From Leicester, a similar length journey, passengers had two trains per hour and fares starting at £50 return. I suspect if you asked consumers whether they’d rather have slightly shorter journey times, slightly more frequent trains or fares half the cost - they’d choose the latter every time.
We competed vigorously with Virgin, and the consumer was the winner. The poster on the back of this billboard was taken by Virgin!
It’s sacrilegious in the railway but perhaps we should accept that competition does work, and that if it is a bit less efficient but it’s a price worth paying.
Now, I know that there are people reading this now who are thinking “yeah, well, sounds great, but competition won’t make these companies actually care about delighting customers”. All I can say is that I’ve worked in one of them, and we really did.
Not one-size-fits-all
One thing that worries me about the Williams review is that it talks a lot about ‘the railway’. But the railway is simply a technology for delivering transport into multiple markets.
Some of these markets suit competition and some do not.
Competition needs sufficient spare capacity that consumers can make a choice, multiple realistic options, reasonable transparency of information and the ability for new entrants to join or leave the market.
If it works, it means customers get what they want, without needing a Government department to mediate for them. Decisions about food, furniture and fashion are all made by the customers without any need for a Department of Fashion to try to interpret what users might want.
Intercity rail (potentially including some branch lines as part of it) feels like it can fulfil all of these characteristics; local rail does not.
Britain is very unusual in having decisions about local and regional lines taken by civil servants in Whitehall. These should be run by (or for) the local regions. In some areas, there is a natural regional authority. Branch lines in the South West tend to serve Cornwall, Devon or Somerset explicitly. In other areas, a regional approach will need to be taken with local authorities working together.
The key thing, though, is that the budget is devolved to the regions. They can then choose to invest more or less in local rail services. (sometimes that will mean less; but, equally, sometimes more. This is appropriate - local decisions should be mean by local representatives)
Lelant Saltings: the Park & Ride station for St Ives. Does it really make sense for this contract to be run from London?
Permanent rail companies - an idea
One interesting idea which I’d like your thoughts on is whether there can be permanently established rail companies? In Switzerland (sorry!), the local regional operators are permanent private companies. They operate under contracts from the local canton but they know that they will be operating the next contract too. This removes the incentive to sweat this contract and forget the future.
Now this rather goes against my normal principle of avoiding monopolies, but it does seem to work there. Could it work here?
The benefits of multiple smaller operators around the country would be manifold. It would provide a route in for smaller suppliers which have the potential to reduce costs if given a chance to grow and it would enable the operator and local authority to form a closer relationship.
It would also chip away at the divide that exists at the moment between heritage railways (fully commercial, heavily experiential, expensive) and branch lines (heavily subsidised, utilitarian, cheap). In Switzerland, ‘normal’ train companies provide many of the ‘leisure’ services that heritage railways provide in the UK - and consequently benefit from the price premium.
A Swiss heritage dining car running as part of a normal Swiss passenger train (photo by Kecko)
£26m is currently being spent turning the Isle of Wight line into a modern railway. This on a line for which £4 of subsidy is received for every £1 from the passenger. Maybe if instead of trying to turn it into a normal railway, they were trying to turn it into part of the visitor economy alongside the steam railway, it might be more economic. It shouldn’t make sense, should it, that the railway on the Isle of Wight that doesn’t go anywhere is more profitable than the one which does? In an economy in which consumers increasingly pay for experience, there are branch lines that are halfway there (in terms of scenery and location) but let down by the actual customer experience on offer. They are held back by being treated as part of a national network; local micro-management might be exactly what they need.
Let’s imagine, for example, a private company is established to operate the South West branch lines not operated by an intercity operator. Based on the Swiss model, that company would operate under contract to Devon and Cornwall councils. It would operate those services in perpetuity. It would have to increase ridership and reduce costs to make its contract work. It would be separate from the national network, so could recalibrate its cost base accordingly. And with local management and focus, it could integrate itself with the local visitor economy.
A world in which branch lines are either integrated as intercity feeders or seen as integral parts of their local economy seems to me a better world than the current one, in which they’re specified in central franchise agreements and then forgotten.
Anyway, I can also see disadvantages to this idea, so would be interested to hear what you think.
My test for Williams - don’t make it Better
All round the country, councils are giving their leisure centre management contracts to the ironically named “Better” (the brand name for Greenwich Leisure Limited; owned by Greenwich Council and now employing 17,000 people nationwide).
Yet there is almost no publicly available metric by which Better is better. Their app is rated 1.8 on the app store and, as someone who’s local authority has outsourced to Better, I can report that this is extremely generous.
Yet councils all think they’re making things better for users by employing Better. Here’s the press release from Hillingdon last year when they announced just how much Better things would be. I bet they got Worse.
Better is an example of what happens when public bodies that are incompetent buyers end up procuring a monopoly service from an monopoly supplier. Clearly there is insufficient incentive for multiple players to enter that market, which means the contracts are not working. GLL earns its income from subsidy (as their CEO puts it, bluntly, “A swim costs £10 to put on, but nobody pays any more than £5 for it. So whichever way you stack it up someone has to pay for that other fiver.”) and is not motivated to grow the customer base; or to deliver beyond performance targets. Now, I’ve never seen the performance targets. But, as a user, I can confirm that they’re not working…
If the result of Williams is the Government thinking it knows what the customers want, specifying it centrally and getting it delivered with the wrong incentives then the railway will be… Better.
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