Exploring the effects of passenger rail franchising in Britain: Evidence from the first two rounds of franchising (1997-2008)

This paper provides an up-to-date review of the previous literature concerning the impact of passenger rail franchising on productivity and costs in Britain, and also presents important new evidence. In particular, the extension in time of previously-used datasets offers the first opportunity to study the impacts of re-franchising. The previous literature emphasised the failure of franchising to produce sustained productivity gains, with a sharp deterioration in productivity after 2000. The new evidence presented offers a somewhat more positive view of the British experience. It suggests that part of what was previously considered to be falling productivity may in fact be due to exogenous changes in diesel prices. Further, new data suggests that the recent increases in costs have resulted in higher quality of service. Finally, competitive re-franchising, and the associated unwinding of short-term management and re-negotiated contracts, seems to have led to improvements in productivity between 2006 and 2008. Nevertheless, it remains the case that passenger rail franchising in Britain has failed to reduce costs in the way experienced in many other industries and in rail in other European countries. The evidence is that somewhat larger franchises, avoiding overlapping and optimising train density and length, should reduce costs. We also speculate that the major increase in wages and conditions of staff might be moderated by longer franchises, although that remains to be proved. This re-appraisal of the British case is important in the context of the wider international interest in the use of franchising in passenger rail, and its relevance to the current review of ways of introducing competition into the domestic rail passenger market in Europe.