Thursday , November 14 2019
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Off the rails – why incentives matter

Summary:
Transport Secretary, Grant Shapps, was asked on Sky News whether giving franchises incentives to be punctual meant that they could lose their contracts for poor performance, or if bonuses were a possibility for on-time working.He answered: ‘If you don’t run trains on time, don’t pay them. If you do, then do pay them. So it’s a pretty straightforward thing. What’s happening at the moment ... is they’re paid even when they don’t run trains on time and that is one of the reasons why we’ve ended up with a very dysfunctional system. It’s too fragmented.’Sounds pretty straightforward - but there’s been some level of backlash. Last week, I debated the comments in City A.M, with my opponent (Richard Hyde of the Social Market Foundation) calling the proposal to give firms who run on time bonuses

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Transport Secretary, Grant Shapps, was asked on Sky News whether giving franchises incentives to be punctual meant that they could lose their contracts for poor performance, or if bonuses were a possibility for on-time working.

He answered: ‘If you don’t run trains on time, don’t pay them. If you do, then do pay them. So it’s a pretty straightforward thing. What’s happening at the moment ... is they’re paid even when they don’t run trains on time and that is one of the reasons why we’ve ended up with a very dysfunctional system. It’s too fragmented.’

Sounds pretty straightforward - but there’s been some level of backlash. Last week, I debated the comments in City A.M, with my opponent (Richard Hyde of the Social Market Foundation) calling the proposal to give firms who run on time bonuses ‘Python-esque in its absurdity.’ 

There’s an important distinction to make here: that Shapps isn’t just offering incentives for operators to deliver an agreed service, but repercussions if they fail. If big rail monopolies commit to a service, fail to deliver it, passengers will think it’s right to expect ramifications except in the most extreme circumstances. 

Although privatisation has more than doubled the number of rail journeys and massively increased capacity — consumers still feel the system isn’t quite working for them. The issue is a lack of competition. Just as air routes have competition on them, so should our railways. Where this already happens prices are lower, and passengers are happier with the service. 

The Adam Smith Institute has called previously for Open Access on our railways - allowing different operators to compete on the same routes for passengers. According to our research, fares on Open Access lines are up to 55% cheaper than monopolised routes - and Open Access operators have the highest level of passenger satisfaction. Open Access operator Grand Central has had the largest increase of passengers of any train company, up 12% over 2017-18, discluding Transport for London services.

As annoyance with our rail services grows amongst commuters, we hope Shapps and the Department for Transport legislate to encourage more competition in our railways. In the meantime, though, introducing incentives to operators to improve their service rather than allowing monopolies to ride roughshod over consumers with no fear for their bottom line is a good step forward. 


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