21.06.16
How could Brexit affect the rail sector?
Sean Thomas, senior consultant at economics consultancy Oxera, looks at the impact Brexit could have on the rail sector.
Brexit raises significant implications for the GB rail network and its operators. Here I consider two potential effects; the removal of EU legislation causing the separation of network ownership and questions over Scottish Independence which could arise following a Brexit vote.
Legislation
The removal of legislation from the EU could create possibilities for future policy changes. One area in which the EU has implemented legislation is ‘unbundling’; the separation of network ownership and operation from the use of the rail network.
Until the mid-1990s, operations and management of tracks, trains and rolling stock were integrated under British Rail. Under current EU rules, this type of structure would not be possible. In particular, it would be necessary to retain functional and financial separation between tracks and trains. Brexit however would offer the option for more varied models for the British rail industry.
A reversion to the integrated British Rail model would require a concerted political effort too. Moreover, the evidence suggests that the changes to the industry model have resulted in benefits. However, this is not the only option for integrated rail models in GB.
Following the expiry of the current rail franchise agreement, the Welsh Government is set to take control of the Wales and the Borders franchise, and Welsh Assembly Members have explored options for the future of the franchise, including public sector delivery of services. This would become easier under Brexit, if it were deemed preferable, while any reintegration of infrastructure and operations would also be permissible with changes in UK legislation.
Scottish Independence?
Further to this, Scottish ministers have raised the prospect of a second Independence vote following Brexit. Clearly this cannot be taken as read, but such a scenario would cause significant implications for operation, regulation and management of the rail network and train operators, particularly for the 8 million cross-border journeys between England and Scotland each year.
The main issue that may arise with Scottish Independence relates to cross-border train operations. Scotland’s main internal rail franchise, the ScotRail franchise, is let and managed by Transport Scotland, however the network itself, which is one of eight strategic routes, is managed by Network Rail. It is unclear how Network Rail would operate under Scottish Independence. However, there is a possibility of central functions needing to be relocated to a Scottish subsidiary, leading to increased cost.
In addition to this complication, cross-border franchises would in effect be running international services, which could require border controls. Any restrictions in cross-border trade will affect freight traffic and hence revenues for freight operators.
An uncertain future
One thing is certain, a ‘leave’ vote will have wide-ranging implications for many parts of the transport sector, and in particular a number of issues are expected to come to light for the GB rail sector.
With the ramifications of Brexit still to unfold, coupled with the potential for Scottish independence, there is great uncertainty sweeping the sector, and the scale of the impact isn’t expected to become clear until after 23 June.