Evaluating the long term impacts of transport policy: the case of passenger rail privatisation in Great Britain

Abstract

Britain’s national rail system was ‘privatised’ as a result of the 1993 Railways Act, with most of the organisational and ownership changes implemented by 1997. This thesis examines the long term impacts of the privatisation initiative on the passenger rail service. A key issue when examining long term changes is that of the counterfactual – what would have happened if the changes had not occurred? A simple econometric model of the demand for passenger rail services was developed and used in conjunction with extrapolative methods for key variables such as fares, train kms and GDP to determine demand-side counterfactuals. Extrapolative methods were also used to determine counterfactual infrastructure and train operation costs. Although since privatisation rail demand has grown strongly, the analysis indicates that transitional disruptions suppressed demand by around 4% over a prolonged period (1994/95 to 2005/6), whilst the Hatfield accident reduced demand by about 5%, albeit over a short period (2000/1 to 2005/6). A welfare analysis indicates that although consumers gained as a result of privatisation, for most years this has been offset by increases in costs. An exception is provided by the two years immediately before the Hatfield accident. Overall the loss in welfare since the reforms were introduced far exceeds the net receipts from the sale of rail businesses. It is found that although the reforms have had advantages in terms of lower fares and better service levels than otherwise would have been the case, this has been offset by adverse transitional effects and high costs, which in turn may be linked with higher transaction costs.

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