Rail franchising Contents

2Is franchising delivering for the passenger?

10.Passenger rail in the UK has gone through a “renaissance” over the last two decades, as passenger numbers have doubled since 1997–98.11 This has seen rail increase its modal share of all travel by 3.3% over that period.12 Franchising has certainly played a key role facilitating this growth.13 However, competition from franchising was expected to deliver improved services for passengers, lower fares and increased efficiency. In this section of the paper we briefly assess the progress of franchising against these objectives.

11.Britain’s rail performance and punctuality measure (PPM), while much improved on results from the early 2000s, was at 89% for the first quarter of 2016–17 (see figure). This is below the highs realised in 2011–12 and performance has been flat for the past four years; though recent underperformance can be directly linked to areas of the network undergoing significant infrastructure change. While the national PPM appears relatively high, one of the key findings of our Rail Passenger Experience report is that this measure does not reflect the real passenger experience.14

Figure 1: Public performance measure (PPM) moving annual average (MMA) by sector

Source: ORR

12.Passenger satisfaction has been in steady decline since the National Rail Passenger Satisfaction Survey began in Spring 2011. Nationally, the percentage of passengers satisfied with their journey was 81% in autumn 2016; but has fallen in recent years, down from a high of 85% in autumn 2012.15 Satisfaction is also falling on a number of core aspects of service, particularly punctuality/reliability and value for money.16

13.The cost of peak and anytime rail tickets in Britain are some of the highest in Europe; though they have been increasing at a slower rate than other high-income EU member states. It is also the case that when comparing similar long-distance journeys in the UK with those on the continent, advance purchase and off-peak tickets in the UK are often at an equivalent or lower rate than in other countries.17 Between 1995 and 2016, fares increased in real terms by 23.5% and by a staggering 40.9% on long-distance routes.18 The Government’s policy is that regulated rail fares would not increase in real terms in this Parliament. The ORR has noted that last year’s increase was less than inflation. Rail fares are set to rise by 2.3% in 2017.19 This has seen cumulative premiums paid to Government by operators increase substantially in recent years (see Chapter 4); a result which has shifted the burden of paying for the railways from taxpayers to passengers.20 Passenger share of total rail industry income has increased from 57% in 2010–11 to 71% in 2014–15.21 The Government and industry both assert the importance of these fare rises in funding investment in the railways.22 Irrespective of the ownership model of the railways, a balance has to be struck over the proportion of operating and capital investment costs that are met through the fare box and the proportion paid by the public purse.

14.Perhaps most importantly, the efficiency of UK rail lags considerably behind comparators in continental Europe. Past estimates from the McNulty report put the efficiency gap between the UK and continental comparators as high as 40%.23 Much of the shortfall in industry efficiency is related to the rise in rail costs in the UK. As pointed out by Dr Andrew Smith of the Institute for Transport Studies, the cost increase since privatisation is “now more like 25% if we update it to today.”24

15.It is clear that franchising coincided with significant growth in passenger rail but has not yielded all the benefits for passengers envisaged when the Government made the case for privatisation in 1992. Many metrics of performance are plateauing against the backdrop of substantial growth in premiums paid to Government. Ultimately, it is the passenger who pays: rail fares have grown significantly in recent years. This is the result of a deliberate decision by successive governments to shift the burden of paying for the railways from taxpayers to passengers. We hope that the recommendations set out in this report will deliver better value for money for passengers.


11 Rail Delivery Group (RFG0019)

12 Rail Delivery Group, Rail’s transformation in numbers, November 2016

13 Oxera Consulting quantified the impact of the change in the industry model as having increased the impact of the rail sector by 10–32% in 2014.

14 Transport Select Committee, The future of rail: Improving the rail passenger experience, Sixth Report of Session 2016–17, October 2016

16 Social Market Foundation (RFG0008)

18 Office of Rail and Road, Rail Fares Index (January 2016), 14 April 2016

19 National Rail, About your rail fare, accessed 5th December 2016

20 For more information, see: Transport Select Committee, Rail 2020, Seventh Report of Session 2012–13, December 2012

21 Rail Delivery Group, Rail’s transformation in numbers, November 2016

22 Rail Delivery Group, 2017 rail fares published, 2 December 2016; Railways: West Midlands: Written question – 59335

23 The McNulty review, completed in May 2011, examined the costs across the rail-industry and made a series of recommendations to improve efficiency and value for money in the industry.

24 Q2




2 February 2017