Train operator income under threat in competition proposals from CMA

UK train operators could face lower incomes and be forced to allow competing services against their existing route franchises, if new proposals from the competition watchdog are enforced.

The Competition and Markets Authority (CMA) sent a report on Tuesday to the Secretary of State for Transport that examined the possibilities for introducing greater competition between passenger train operators.

It said there would be significant benefits from allowing 'on-rail competition' competition, or allowing other operators to run competing services against the existing franchise operators.

Train companies should also be made to pay a larger contribution than they currently do in track access charges, the report said, with operators also required to help fund important but unprofitable services, such as those in rural areas, through a Public Service Obligation (PSO) levy.

Although its proposals will not affect current franchises and the awarding of upcoming franchises, the CMA said "action is needed now" due to the level of changes needed to implement such reforms.

An increase in 'on-rail competition' with different operators competing along the same rail networks could result in benefits for passengers and taxpayers, such as lower fares and higher passenger numbers due to the greater incentives for operators to improve service quality and innovate, together with greater efficiency by train operators and a more effective use of network capacity.

CMA chief executive Alex Chisholm said: "There are legitimate concerns about the impact that greater competition might have on the income received by government from franchise operators but so far that concern has been tackled in a way that hinders new entrants."

"We think a better way would be to have a level playing field – where competing operators are able to make more of a contribution to network costs and to funding unprofitable services. In return they would get more freedom to compete for business against the franchise operator."

The CMA said the potential for the most 'on rail' competition on the three main intercity routes of the east coast main line and west coast main line and the Great Western route.

Chisolm added: "We’ve found that there is strong evidence, both here and abroad, of the benefits that the introduction of competition on mainline intercity routes can bring. Where competing operators have been given the opportunity, the need to attract passengers who have a choice can mean lower fares, new routes and destinations, more innovations and flexible ticketing."

He said a more competitive environment would see companies forced to find more efficiencies and make better use of existing capacity, providing benefits for both the network and the taxpayers that help subsidise the railways.