Are Britain’s railways costing too much? Perspectives based on TFP comparisons with British Rail: 1963-2002.

Following the Hatfield accident in October 2000, the cost of running Britain’s railways has increased very sharply, leading to considerable debate about whether current cost levels are reasonable. This paper seeks to inform this debate by assessing post-Hatfield cost and TFP levels (2000/01 to 2001/02) against the historical precedents set by British Rail and the early experience of the newly-privatised industry (1963 to 1999/00). The results show that industry cash costs rose by 47% between 1999/00, the last financial year before Hatfield, and 2001/02 - but, surprisingly, with train operating costs (TOCs and freight operators) accounting for 42% of this growth. The results also show that the post-Hatfield cost spike is unprecedented when compared against historical benchmarks, indicating that recent cost rises cannot simply be explained by the investment cycle or so-called “bow-wave” effects. Furthermore, according to the preferred models, post-Hatfield productivity levels are lower than at any time over the last four decades. Analysis of long-term data on quality and safety measures indicates that an excessive focus on rail safety may offer part of the explanation for the recent cost growth, with the emphasis on safety also resulting in less attention to punctuality and reliability.