Rail Privatisation - Economics Help

Rail Privatisation in UK

This privatization was left to the last for a number of reasons

1. Loss making nature of British Rail

2. Heavy dependence on external subsidies for rural and provincial services

3. The need to see safety as an overriding priority

4. Positive externalities of railways, - taking traffic off congested roads

5. BR was an integrated national network with a complex systen of fares and railcards.

6. Railways had an extensive national infrastructure

Privatised Rail Structure

1. Railtrack, privatized in 1996. Railtrack is responsible for maintenance and investing in the infrastructure. It sets charges for the TOCs and organizing the national timetable

2. Train operating Companies TOCs. These are the 25 companies who have been awarded franchises for passenger services. Most receive external subsidy

3. Freight business

4. Rolling Stock companies (ROSCOS) Three companies own all of the passenger locomotives and rolling stock this is leased to the TOCs

5. Regulatory bodies

Office of Passenger Rail Franchising OPRAF- oversaw sale of franchises. Has drawn up min. service standards
Office of Rail Regulator (ORR)- principal function is to safeguard interests of passengers, while ensuring rules of competition between TOCs are fairly operated

Arguments for Rail Privatization

1. Increased efficiency through reducing costs and cutting waste
2. Increased concern for consumer needs
3. less subsidy from gov’t
4. MBOs giving a market led service

Arguments Against Rail Privatization

1. Rail is a natural Monopoly, therefore there is little scope for competition because duplication would lead to lower average costs
2. Franchising has only little scope for competition because a contract is for 7 years. Therefore need for regulation
3. Lack of organization of the national network. E.G complications over tickets which use more than one TOC
4. It is not clear where responsibility for safety lies in a fragmented network. E.G chairman of railtrack stated that it is impossible to lower prices, increase investment for improved safety and meet targets for improved punctuality
5. It has not been easy to cut subsidies, many argue the gov;t needs to spend more subsidies to improve safety
6. Less profitable services are always under threat.
7. Many fares have risen

Success of Rail Privatization

1. Rail Freight has grown and private companies have made investment in new rail terminals. This growth has turned around many years of decline.
2. some improvement in quality of service from private companies

Key Words

Franchising: This involves companies making bids for the right to run a train service. E.g Virgin won the right to run cross country and West Coast Intercity services
The company then has the right to run the service for a period of 7 yrs. But is still subject to privatization

Revision Notes and Essays on Privatisation

Fast Delivery By Email!