Rail fares for British passengers could be slashed if the franchise system was dropped in favour of head-to-head competition, a leading thinktank has argued.

The free market thinktank the Adam Smith Institute (ASI) said an “open access” system, which would allow different train companies to compete on the same route, would drive down fares and operating costs, while also boosted innovation.

In its new paper, called ‘How to fix Britain's railways: The case for long-distance rail competition’, the ASI claims the open access model is commonplace in Europe, but not in the UK, where only one per cent of routes conformed to the model. It said on the routes where open for access was in operation, fares were 55 per cent cheaper than on those where there was a single monopoly franchise.

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Adrian Quine, lead author of the paper and rail consultant, said: “In nearly every other industry where ‘like for like’ competition exists, consumers have benefited. In some countries in the EU where there are multiple long distance operators competing on the same routes, passengers have enjoyed lower ticket prices, greater choice, vastly improved customer service and innovation for years.

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"For too long the UK rail industry has failed to innovate or focus on its passengers. Elsewhere from aviation and hospitality to retail and utilities consumers benefit from choice and can vote with their feet if companies don’t come up to the mark.”

Shadow transport secretary Andy McDonald, who has called for the railways to be nationalised, said: “Adam Smith taught logic and he would have found the rail franchising system profoundly illogical. Rail operations have a vitally important economic and social role. Continuing to leave them to the whims of the free market would be grossly irresponsible. Passengers don’t need further deregulation and the illusion of competition. Only Labour’s plans to unite track and trains in public ownership can restore faith and trust in rail.”