Page 4: Regulation
Performance regimes have helped Railtrack to focus upon areas of the network which require most attention to ensure that trains are not delayed. Rapid response teams, leaf jetting, sandite trains and developing business continuity plans for key sites have all helped to improve performance. The overall effect of performance regimes to Railtrack in 1995/6 was a net charge to Railtrack of £5 million. In 1996/7, however, Railtrack's performance regimes contributed a surplus of £26 million. This increase contributed significantly to Railtrack’s revenue and pointed to other potential areas for on-going improvement.
Regulation is a process which creates a framework in which organisations can operate. The privatisation process created a need for consumer safeguards. Therefore, regulators were appointed to monitor competitive practices in these industries and ensure that participants continue to act in the public interest. The Act of Parliament that dealt with the privatisation of British Rail also set up a new office to regulate the privatised railway industry. This is the Office of the Rail Regulator.
Railtrack owns all the track, stations and bridges - i.e. it has a monopoly. This means that train operators have no choice but to use Railtrack if they want to use the tracks to run trains. The Government was therefore concerned that Railtrack would be able to charge high prices or act against the public interest. It was necessary for Railtrack to be regulated like the other privatised utilities - water, gas and electricity.
Regulation for Railtrack
Regulation for Railtrack is carried out through two mechanisms. These are:
- A licence - this imposes restrictions on how Railtrack conducts its business. If Railtrack does not comply with the obligations of its licence, the Rail Regulator can issue an Order (requiring Railtrack to comply) and can impose fines.
- Scrutiny of contracts – contracts with train operators are known as ‘access agreements’. These must be approved by the Rail Regulator who can make changes to charges and other terms. This power has been used to impose a price control on Railtrack. All of Railtrack’s passenger access charges must fall by 2% per year in real terms after allowing for inflation.
The reduction in prices by 2% a year means that Railtrack must find methods of lowering running costs, such as using better methods for repairing and replacing track and by reducing the number of employees. Reducing access charges by more than 2% improves profit capability and provides an extra incentive to improve efficiency. Performance payments through performance regimes have provided Railtrack with a strong incentive to reduce the number of infrastructure failures by improving maintenance and speeding up repairs. This led to a 30% improvement in the first year in the private sector. Regulation through the licence and access agreements has also led Railtrack to consult widely with customers and other interested parties about:
- plans for enhancing the network e.g. developing the West Coast Main Line
- changes to the network e.g. introducing new points or sidings
- improving stations as part of Railtrack’s Station Regeneration Programme.
Overall, regulation has made Railtrack responsive to customer needs and ensured that the public interest is taken into account in the operation and development of Britain’s railways.