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 against the historical precedents set by British Rail and the early experience of the newly privatised industry. The results show that industry cash costs rose by 47 per cent between 1999/2000, the last financial year before Hatfield, and 2001/2002 - but, surprisingly, with train operating costs accounting for 42 per cent of this growth. The results also show that the post-Hatfield cost spike is unprecedented when compared against historical benchmarks. 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 cost growth. © 2006 LSE and the University of Bath