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1423class15 - 14.23 Government Regulation of Industry Class...

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14.23 Government Regulation of ± Industry± Class 15: Problems of De-regulation – The Case of UK Railways 1
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Outline • History of UK Railways • Privatisation and Restructuring • Regulation • Performance since Privatisation • Recent Failures • Lessons 2
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Historical background • 1820s onwards railway network privately financed. 1948 industry nationalised then privatised between 1995 and 1997. 1948-95 secular decline in rail (passenger and freight) due to road competition. • 1960s mileage reduced by a third (Beeching cull). 1968-1985 rising subsidies £1.6bn in 1985/86, up from £600m (in constant prices) in 1968 – Low productivity growth and sharp wage increases in 1970s. – Government keen to avoid further line closures. 1980s significant privatisation of non-core businesses e.g.hotels, sea transport. • 1994-97 privatisation of all of industry. • 1995- trend decline reversed since privatisation. 3
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Privatisation 1979-97 Conservative policy: easy privatisations first, then more difficult. 1992 White Paper and Conservative aim to make rail privatisation irreversible. Structure adopted chosen to maximise competition (electricity model). • Main change was separation of track ownership from train operation. • Two regulatory bodies created (OPRAF (now SRA) and ORR). • In all 100 companies created out of BR. 4
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Financing and Regulation of Industry • Regulation: OPRAF and ORR (Office of the Rail Regulator). OPRAF administers subsidies to Train Operating Companies (TOCs). TOCs purchase track and station access from Railtrack (the monopoly track infrastructure provider) at regulated tariffs. • Rolling stock leasing companies (ROSCOs) lease trains to TOCs • Passenger Fares regulated • Competition envisaged on existing routes. SRA (Strategic Rail Authority) has since taken over role of OPRAF. • Some direct grant to Railtrack now being given 5
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Britain’s Railways: Sources and Uses of Funds (1997/98) Passenger fare revenue Freight user Revenue Other income** Government Subsidy £3,100m £600m £100m £2,400m Sources: £6,200m* Rolling stock lease payments (ROSCOs) Train operating costs (TOCs and freight operators) £2,400m £600m £2,600m Uses: £6,200m* Infrastructure costs (Railtrack) Industry profit £600m * 01 prices ** Railtrack property income 20 Source: Smith (2003) 6
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Regulation of TOCs TOCs have licences and a stream of subsidies and price controls. TOCs are under threat of franchise loss (e.g.Connex South Central). The initial price control period ran to 2003 (end of franchises). Regulation of many fares plus quality of service through performance
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This note was uploaded on 11/18/2011 for the course ECON 14.23 taught by Professor Daronacemoglu during the Fall '09 term at MIT.

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1423class15 - 14.23 Government Regulation of Industry Class...

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