EU balance of competences review:
transport
Department for Transport
The attached document was prepared with the contributions of Fellows of the Royal
Academy of Engineering, and other experts. The focus is largely on rail transport,
with some comments on road. This reflects the expertise of those Fellows who
responded, although it is acknowledged that rail forms a relatively small proportion of
passenger and freight journeys across the UK and EU.
The overall response was that there have been many developments at the EU level
that have greatly improved passenger transport and freight movement. It was also
felt that a supra-national body was needed to ensure interoperability and shared
standards in transport systems across the EU. This EU-wide oversight could bring
several economic benefits to the UK.
1. What are the advantages and disadvantages to the UK of EU action in the
field of transport? You may wish to focus on a particular mode.
Interoperability and shared standards
It is clearly beneficial that rail networks should be interoperable. This is not only so
that trains can run across national borders, but because there are also considerable
economies of scale arising from common specifications for sub-systems and
components. However, rail is often a matter of national pride and entrenched
practices so a supra-national body, with the power of legal compulsion, is needed to
ensure international interoperability.
In terms of road haulage, crossing national borders was very difficult for road hauliers
until the Schengen agreements were established. Road freight was frequently held at
border crossings because documents were not in order. Today only a single, four part
document is required for normal goods and this has created significant savings in
time, inventories and fuel. The move to this common approach to documentation was
a sensible and pragmatic development in enabling the free movement of goods by
road.
It is also hugely beneficial that the EU sets standards for road vehicles. EU approval
processes make it possible for a car manufacturer to obtain approval against a set of
standards, knowing that the car is then free to travel or be sold across the EU without
further inspections. The same is seen in the European New Car Assessment
Programme which carries out the crash testing of vehicles (saving manufacturers the
cost of complying with different national standards) and the EU standardised fuel
efficiency measures which allow easy comparisons of fuel consumption (though it is
essential that these are utilised accurately to report actual mileage by manufacturers).
In terms of electric vehicles, the EU is a major player in deploying standardised
charging sockets across the continent and is working on standardised card systems to
allow international smart-card charging. As with all standards, there is joint working
between the EU bodies, the IEC (International Electrotechnical Commission) and
various American bodies; however a single EU voice is essential.
Infrastructure and operations
The EU requires separation of the control of rail infrastructure from train operations.
This enables new, innovative and efficient operators to run trains, challenging existing
and potential monopolies to the benefit of rail customers (passenger and freight). This
EU requirement has been implemented in the UK, with significant success in freight
and some success in passenger operations. If such improved services result in a shift
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of mode to rail there would be significant sustainability benefits. However, some EU
countries have been slower to separate infrastructure from operations. It is important
for UK operators and customers that the separation is achieved to promote
competition.
Investment and research
The EU has paid attention to the need for appropriate investment in transport
infrastructure, particularly for transport crossing boundaries between member states,
both by playing a coordinating role and by direct provision of resources (although on a
very limited scale except in countries or regions receiving regional or cohesion funds).
While it may be doubted whether the EU has always paid enough attention to ensuring
that resources are efficiently spent, this is in principle an important issue for the UK.
Given its location on the periphery of Europe, land transport from the UK to large
European markets and sources of supply beyond France necessarily have to pass
through neighbouring countries.
A further area in which EU action in the transport field has benefited the UK is that of
research. The EU has provided substantial funding for transport research and UK
universities and other organisations have been major beneficiaries. By encouraging
the formation of consortia from all over Europe, EU research funding has enabled UK
researchers to interact with the best researchers all over Europe and to gain from the
much wider experience available across Europe as a whole.
2. To what extent has the EU succeeded in creating an internal transport
market: how far has this contributed to economic growth in the UK? What
have been the costs and benefits?
A main aim of EU policy is completion of the internal market; achieving a position
whereby operators in any EU country can compete for traffic in any other one. Given
that Britain had a competitive transport market in most modes before other EU
countries, we already have a number of companies able to take advantage of this to
compete elsewhere.
In seeking to achieve completion of the market, the EU pays important attention to
equalising the terms of competition by ensuring comparable social conditions and
environmental standards, and by basing charges for the use of infrastructure on
marginal social costs (including environmental costs for some modes). Such a policy is
economically efficient and should prevent countries with lower standards or
inappropriately low tax regimes from unfairly undercutting British operators.
However, despite great efforts, the EU has not yet achieved a single internal market in
rail or other forms of public transport. In rail, the biggest failure is the lack of
compulsory competitive tendering for public service contracts; though it is proposed
to introduce this as part of the Fourth Railway Package. In urban public transport, it is
still permitted to grant a monopoly to an in-house operator.
Nor has the EU succeeded in fully achieving its aim of fair terms of competition. In
road transport, marginal cost pricing for the use of transport infrastructure remains
essentially voluntary. In rail, charges for environmental costs are not permitted unless
they also apply to road, while mark-ups on marginal social cost are permitted. The
result is that transport pricing remains inefficient and distorted.
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Implementation of EU policy has been incomplete, because of the difficulty of securing
agreement between the member states and of achieving implementation even when
agreement is reached.
Nevertheless, there have been some benefits in terms of more efficient road and rail
transport, improved terms of competition and the ability for British operators to
compete elsewhere in Europe. The EU framework involving separation of
infrastructure and operations particularly has led to a resurgence of rail freight and
growth for this sector in Britain. Operators have sought business and reduced costs in
ways that the monolithic nationalised rail freight industry did not. The same is true in
the passenger market, with innovative fare structures enabling cheap off-peak travel
and improvements in service frequency, speed and customer service leading to
greatly increased use of rail at all times.
Further growth in the passenger market could be achieved if all major conurbations
were able to benefit from competition between train operators. The multiple rail
routes between the West Midlands and London mean that this has been achieved even
though two of the three routes are franchised monopolies. Further growth could result
from increased competition by allowing more open-access operations, by franchising
more than one operator per route and by encouraging direct long-distance services to
the many sizeable towns and cities that currently rely on branch line trains for access
to main lines. Such growth would make franchises more valuable to DfT, although it is
important that franchises are sufficiently long term to enable investment in upgraded
rolling stock.
It must be recognised, however, that separation of infrastructure and operations will
lead to more interfaces than in a monolithic national railway. Each interface results in
costs for the contractual arrangements and their monitoring. For these costs to be
justified, it is all the more important that competition be allowed, in order to grow the
market.
3. To what extent is the EU internal transport market necessary for the
effective functioning of the EU internal market as a whole?
Freight and business traffic play an important part in the internal market as a whole,
and distortions in those transport markets will impact on the efficient working of the
whole internal market. In other parts of the transport market, completion of the
internal market is more a part of ensuring that the transport market operates
efficiently than contributing to the efficient working of the internal market as a whole.
Effective transport is essential for economies to flourish across the EU – inefficient and
expensive transport infrastructure is likely hold economies back.
4. To what extent is EU action to harmonise social and environmental
standards (e.g. to ensure safety and security or to limit vehicle emissions)
necessary for the proper functioning of the internal transport market as
opposed to desirable in its own right?
Harmonisation is necessary in order to ensure that firms and countries cannot gain
market share by neglecting social and environmental responsibilities and undercutting
those who do. Without harmonisation, fair competition is inhibited or even prevented.
Harmonisation is also an opportunity to identify necessary best practice, and to
identify cases where countries incur costs by going beyond shared standards. For
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example, the fencing of railways in the UK and reluctance to permit track renewals
adjacent to operational tracks create extra costs which other countries without such
standards will not face.
It is essential that standards are imposed by a supra-national body, to ensure that
individual nations do not lag behind in meeting standards, or use the differing
standards between countries as a means to pursue protectionist practices.
5. What impact has EU action had on different stakeholders; for example, has
it provided the right balance between consumers and transport operators?
EU action in transport has sought to achieve an efficient transport market by
extending competition, while protecting those in the industry from unreasonable
pressures on working conditions and including measures to protect consumers. The
EU's activities have shifted the balance to consumers greatly, and there are
arguments that it has sometimes gone too far in seeking to introduce specific
consumer rights, when these should be adequately protected by a competitive
market. However, the overall balance is right, and the core EU action requiring
separation of infrastructure and operations has been good for both consumers and
operators.
6. The EU's competence in the field of transport has primarily been exercised
through legislation and clarified through case law. To what extent has the EU
approach been proportionate: what alternative approaches would benefit the
UK?
In some cases the EU has sought to legislate in too much detail; in others, legislation
is too loose.
An example of the former is in the rail sector. There is evidence that, while the basic
principles of open access and marginal social cost pricing should apply everywhere,
the structure of the rail industry should be allowed to vary with circumstances. These
circumstances may include the proportion of passenger network subject to
competitive tendering; balance of freight and passenger traffic; amount of
international as opposed to national traffic; and traffic density. Therefore legislation
should establish only the basic principles and set the requirement that there is an
independent regulator to ensure they are carried through. However, because of
doubts as to whether such regulators do in fact have sufficient independence and
powers to implement the policy, the EU seeks to legislate in detail on the structure of
the industry. One effect may be that unless amended the Fourth Railway Package will
make deep alliances between train operators and the infrastructure manager illegal.
While it is important that the two remain separate (for reasons noted above), the
McNulty report found strong evidence that alliances between them could be very
beneficial in the British context. 1
In terms of legislation being too loose, it is noted above that there is no requirement
to implement marginal social cost pricing in road transport. In rail however,
infrastructure charges are not allowed to fall below ‘direct cost’, although
environmental externalities do not have to be charged for unless they are charged for
on road, and mark ups are permitted. The result is that transport prices remain
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distorted. There is good evidence that all member states would benefit from more
thorough application of marginal social cost pricing for transport infrastructure.
Furthermore, the EU has not been strong enough in ensuring rapid implementation of
its policies.
7. To what extent could the UK national interest be better served by action
taken at a national or wider international level, rather than by the EU, and
vice versa?
Action at national level is inadequate and probably economically infeasible. The UK rail
system is linked to other European countries, but for rail, reasons of geography mean
that the wider international level is much less relevant. Therefore, within land
transport, there are likely to be great benefits from having a common policy
throughout Europe.
8. What advantages or disadvantages are there for the UK in the EU having a
greater or lesser say in negotiating agreements internationally (e.g. ICAO or
IMO) or with third countries (e.g. EU-US, EU-China)?
For sea and air, where much traffic is intercontinental, worldwide agreement would be
the ideal, it is likely that Europe working as a bloc can achieve more in negotiation
with other large players such as the US than can individual countries. A similar issue
arises with regard to the global problems of greenhouse gas emissions; ideally a
world-wide solution is required, but action at a European level would enable UK policy
to be more effective than if it acted in isolation.
9. What challenges or opportunities are there for the UK in further EU action
on transport?
As noted above, further action to establish the internal transport market is likely to
open up new opportunities for British firms in the rail and public transport fields.
Further action on transport pricing too is likely to improve the efficiency of the British
and Europe-wide transport markets. Also as noted above, by identifying best
practice, further EU action could challenge unnecessary costs within current UK
operations exceed expected standards.
A key area for road transport which the EU plays a role is enforcement. While freeflow charging or tolling schemes are likely be part of the way forward, they are not
evasion free. Although non-domestic or foreign vehicles are relatively small in
percentage terms when compared to domestic users of such schemes, persistent
evaders present a repeated issue that needs to be managed to reduce financial loss
and to maintain the integrity of any scheme.
The ability to identify the registered keeper details is the main determinant needed to
pursue non-compliant evaders. There is limited or no access to foreign-registered
keeper details which makes identification a real challenge. Cross-border European
agreements that recognise the validity of registered debt following non-payment of a
road user charge or toll, that could then be pursued in the respective country (either
by the Country itself or third party), would greatly enhance compliance and reduce
financial loss.
Dr Natasha McCarthy, Head of Policy: [email protected]
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