Regulation
Click here for an introduction to utility regulation.
The following notes explain why it is extraordinarily difficult to regulate these two sectors.
On the one hand, they both contain near-monopolies. The rail industry contains a number of natural or near natural monopolies, for there can usually be only one set of tracks between stations. The health service is (quite rightly) staffed by restricted-entry professionals, and specialist services need to be provided in a small number of regional centres. And most of us are reluctant and/or unable to change general practitioners (GPs). As a result, both sectors demonstrate lower than optimal productivity, and the quality of their service provision is often the subject of serious criticism. It is also the case that they are both heavily taxpayer funded. Successive governments have therefore been very keen to find ways of introducing competition into the sectors, so as to drive greater efficiency and improved service quality.
However, even putting their monopolistic characteristics on one side, it is clearly impossible to abolish subsidies and introduce unrestricted competition into either sector. This would inevitably price-out poorer members of the community, imposing unacceptable social cost and - in the case of rail system - doing huge economic damage to the economy of Greater London which depends so heavily on the rush hour commuter rail network.
There is also the point that effective regulation in any sector has to ensure that price competition does not leak through into unacceptably reduced service quality and/or a reduced range of services. But this is extremely hard to do in these sectors, for what is 'unacceptable'? In rail, where is the balance to be struck? It is extremely difficult (and probably impossible) to ascertain the extent to which rail passengers would be willing to trade reduced quality and reduced service frequency for lower fares. And then what about the rail safety/cost trade off? In health, it is surely near-impossible to measure 'quality', let alone ascertain what trade-offs would be acceptable.
Before rail privatisation in 1993, all the trade-offs and compromises were resolved within and between state-owned British Rail and the government of the day, without too much reference to passengers. They are now resolved through complex interactions between the Government, a semi-independent Network Rail, the Office of Rail Regulation, the privately owned train operating companies (TOCs) and the (mainly) privately owned train operators. And the policies of the last of these, at least, are strongly informed by what customers want. But no-one suggests that the structure is in any sense ideal.
In contrast to rail, there has always been significant private sector health provision. To begin with, all GPs are self-employed, although their income is to some extent set by the Government, depending on the number of patients they can attract. And then many, if not most, consultants have a significant private practice delivered through their own consulting rooms, private hospitals and private wings within NHS hospitals. More recently, successive governments have encouraged NHS hospitals to become more self governing and competitive, beginning with the creation of Foundation Trusts in 2002, regulated mainly by Monitor with the Cooperation and Competition Panel ensuring fair play on the economic/competition front. The successor Coalition Government has indicated that it intends to extend Foundation status to all hospitals, and abolish Strategic Health Authorities and Primary Care Trusts: the organisations currently charged with coordinating NHS services in their areas. This will leave consortia of GPs in effect buying services direct from hospitals - thus somewhat ironically reducing competition to the extent that individual GPs will in future be bound to send their patients to those hospitals with which their consortia have negotiated favourable contracts, rather than to a particular consultant whom they particularly admired. The precise role of the two regulators is yet to be decided.