Passenger Rail Franchising in Britain: Has It Been a Success?

Abstract

Franchising has been recognized, for many years, as a way to introduce competition to areas of the economy via competitive tendering where direct market competition is either undesirable or impossible. A number of European nations have used franchising as a means to secure all or some subsidized service provision. Great Britain, however, has made franchising a means to secure (virtually) all rail passenger service provision. Drawing conclusions about British passenger rail franchising in recent years is not easy. Several points, however, do stand out. First, competition for British franchises has been invariably high, with a shortlist of four or five bidders out of a wider field. Second, there has been extremely healthy traffic and revenue growth, in spite of the temporary setback that happened after service quality collapsed at Hatfield. Third, train operating company (TOC) costs do not seem to have been driven down by franchising. Fourth, when franchisees have not been able to achieve their projected financial performance, there have been substantial problems in dealing with them. Also, that TOCs with renegotiated contracts saw higher cost growth than those without is suggested by the evidence. Overall, the authors conclude that British passenger rail franchising has failed to achieve its cost-side objectives, but may be regarded as a moderate demand-side