Review of the Societal Rate
31 July 2003
By Stuart Holder et al.
The "societal rate" is a top up to the revenue-based penalties used in rail industry performance regimes. It provides train operating companies (TOCs) and Network Rail with additional incentives to improve performance. NERA reviews the current societal rate in this report prepared for the UK Strategic Rail Authority (SRA). The report reviews the aims and effectiveness of the current policy, considers whether the current policy is economically sound and whether there are possible alternative approaches, and examines the implications for SRA's objectives and its budget.
The authors conclude that, while there might be a strong theoretical justification for some form of societal rate (though perhaps without the current differentials between service groups), there are a number of reasons why the impact of these additional incentives in practice might be rather limited. These include the range of other pressures that are placed on TOC and Network Rail managers to improve performance and the important practical, financial, and operational constraints that might prevent them responding even to very strong financial incentives. The current societal rate also exposes SRA and Network Rail to significant long term risk.
